First Judgment reveals factors that a court may use in DPA approval – AND –comments on adequate procedures
The long awaited first DPA has come with a hefty price tag after ICMB Standard Bank agreed to pay $33 million US$ for failing to prevent corruption.
This was also the first conviction under section 7 of the Bribery Act (see Chapters 7 and 8 of Bribery: A Compliance Handbook) whereby there is a failure of a commercial organisation to prevent bribery.
In this case, it had been alleged that Standard Bank’s subsidiary in Tanzania paid $6 million in March 2013 to a local partner. This was to be used to influence the Tanzanian Government to award a US $600 million contract to the affiliate.
The DPA required ICBM Standard Bank to cooperate with the SFO and have an independent review of existing compliance program regarding the Bribery Act and other anti-corruption laws. The bank has to make changes as recommended by the independent reviewer.
In his judgment, Lord Justice Leveson, specifically referred to the issue of adequate procedures and said ‘….although the potential for corrupt practices to affect this type of business were well known, Standard Bank did not have adequate measures in place to guard against such risks, and relied on the subsidiary to conduct due diligence in relation to the local partner; Standard Bank made no enquiry about the local partners or its role’.
The judgment goes on to refer to the fact that there was no evidence that the local partner actually provided any services (yet withdrew its US $6million in cash shortly after its deposit in an account).
As indicated above, the offence was put under section 7 of the Bribery Act. The court confirmed that the material disclosed by the Bank was insufficient to enable them to rely on an ‘adequate procedures’ defence. In particular, the court noted that the applicable policy was unclear, was not re-inforced effectively to the Standard Bank team through communication, nor did training provide sufficient guidance.
Those remarks in relation to section 7 offences should ring alarm bells for companies and executives. As warned in Bribery: A Compliance Handbook, tick boxes and off the shelf policies are not enough to avoid section 7 prosecutions – Proper risk management, evaluation and action would have been required to avoid the mess that Standard Bank found themselves in.
To approve of the DPA itself, the court had to find that ‘it was in the interests of justice’ and the terms of the DPA are ‘fair, reasonable and proportionate’.
The court extensively analysed the interests of justice test. It indicated that although the conduct was serious, the criminality arose out of the bank not having adequate procedures (which the court has clearly marked as being less culpable than being involved in active bribery). The court drew attention to the factors that may feature in future DPAs – in particular the promptness of the self report, the fully disclosed internal investigation, the cooperation of the bank, the independent review of anti-corruption policies and the fact that Standard Bank has, in effect, different owners. Taking those factors as a whole, the court decided that it was in the interests of justice for there to be a DPA.
It then had to be determined whether the terms of the DPA were fair, reasonable and proportionate. Unsurprisingly, the court was clear that the most difficult assessment was about the appropriate financial penalty. Such a penalty must be ‘broadly comparable to the fine that a court would have imposed’ following a guilty plea. The court stressed that this required a detailed consideration of the Definitive Guideline for corporate offenders before arriving at the figure that they did.
The judgment is a red letter day for the SFO – providing the first section 7 prosecution and the first DPA. The court provides clear guidance on both issues that need to be considered carefully from risk management in adequate procedures to the factors that would influence a court in approving a DPA. Corporates should take note!