criminal law,

The Standard Bank Plc Deferred Prosecution Agreement


By Jonathan Fisher QC Mar 06, 2016
Dear Editor,

The UK’s first deferred prosecution agreement (DPA) was made at the end of last year. After extensive negotiations in an African bribery case, the Serious Fraud Office (SFO) agreed terms with Standard Bank Plc for the payment of a significant financial penalty and Lord Justice Leveson, sitting as a Judge of the Crown Court at Southwark, gave judgement confirming that the settlement served the public interest in the particular circumstances of the case.1

Under a DPA, criminal proceedings are instituted against a company but then they are immediately suspended under the condition that the company pays a significant financial penalty and implements a corporate compliance programme. When these conditions have been satisfied, the criminal proceedings are discontinued and the company avoids a criminal conviction against its name. DPAs have been popular tools for resolving cases involving corporate criminal activity in the US, and after much consideration section 45 and schedule 17 of the Crime and Courts Act 2013 were enacted to enable this type of agreement to be made in the UK.

However, opinions are sharply divided regarding the place of DPAs in the criminal justice system. For some, DPAs represent ‘a corrupt law enforcement regime which threatens a loss of respect for the rule of law’.2 But for others DPAs offer an elegant solution by which the criminal justice system can respond to corporate misconduct within a positive framework that encourages improvements according to the standards of corporate governance. As an editorial in The Times recently pointed out,3 DPAs can help the SFO’s enforcement policy become more “muscular” by sparing the expense of a full criminal investigation and the possibility of a humiliating acquittal if prosecution is pursued through the criminal courts.

It is easy for critics to call for more pro-active corporate prosecutions in the UK through the criminal courts, but obtaining criminal convictions for substantive offences, particularly in cases involving allegations of bribery and corruption, is not easy as a result of the continuing adherence to the corporate identification or corporate attribution rule. This rule provides that a company cannot be guilty of a criminal offence unless it can be shown beyond reasonable doubt that a director or senior officer who represented ‘the directing mind and will of the corporation, the very ego and centre of the personality of the corporation’ was involved in the offending conduct (Lennard’s Carrying Co v Asiatic Petroleum Co Ltd).4 In the modern age of monolithic companies with cross-border operations, it is often difficult if not impossible for the SFO to obtain probative evidence to this effect.

The facts in R v Standard Bank Plc reflect a case in point. In September 2012, Standard Bank (a UK regulated bank) together with its subsidiary bank Stanbic Bank Tanzania Ltd (a Tanzanian company based in Dar es Salaam) agreed with the Tanzanian Government to raise funds for its five-year development plan. The agreement provided that one per cent of the fee payable to Standard Bank amounting to $6 million would be remitted to a local partner in Tanzania called Enterprise Growth Market Advisors Limited (EGMA). EGMA’s directors and shareholders were senior figures in the Tanzanian Government, and there was a clear inference that the purpose of the payment was to encourage these figures to use their influence to persuade the Tanzanian Government into making the agreement with Standard Bank and its subsidiary company. Two senior members of Stanbic Bank based in Tanzania, who must have appreciated that EGMA had no role to play in the financing agreement, negotiated the agreement. However, before proceeding to make the agreement Standard Bank omitted to conduct any due diligence enquiries on the local partner company, believing it was not necessary in the circumstances. Plainly, on any view, this was a massive error of judgment by Standard Bank. In any event, after Stanbic Bank paid $6 million to EGMA, employees at Stanbic Bank raised concerns about the propriety of the payment. These concerns were relayed to Standard Bank and following an initial investigation Standard Bank self-reported its preliminary findings to the SFO.

As the DPA recognised, the evidence pointed towards a breach of section 7(1) of the Bribery Act 2010, with an indictment alleging that Standard Bank had failed to prevent persons associated with the bank, namely Stanbic Bank and the negotiators, from committing bribery. The evidence also suggested that Standard Bank would experience difficulty in any attempt to establish the statutory defence in section 7(2) of the Bribery Act 2010, which would require Standard Bank to have adequate procedures designed to prevent persons associated with the Bank from committing bribery. The upshot was that Standard Bank agreed to pay compensation to the Tanzanian Government of $6 million plus interest, disgorge its profit on the agreement of $8.4 million and pay a financial penalty of $16 million.

As well as avoiding prosecution and possible criminal conviction by making the DPA, Standard Bank was able to avoid acceptance of any liability for committing a substantive bribery offence. A criminal conviction establishing that a Standard Bank employee had assisted in the commission of a bribery offence would have been very damaging in reputational terms, and the Bank’s future profitability would have been adversely affected. Instead, as Lord Justice Leveson’s judgment makes clear, there was no allegation against Standard Bank of knowing participation in an offence of bribery, and the offence was limited to an allegation of inadequate systems to prevent associated persons from committing an offence of bribery. 5

In truth, the SFO was hamstrung. As Lord Justice Leveson explained: ‘The SFO has reached the conclusion that there is insufficient evidence to suggest that any of Standard Bank’s employees committed an offence: whilst a payment of $6 million was made available to EGMNA, the evidence does not demonstrate with the appropriate cogency that anyone within Standard Bank knew that two senior executives of Stanbic intended the payment to constitute a bribe, or so intended it themselves’.6

At this point, it is interesting to bear in mind the response of the Tanzanian authorities to the corruption investigation. Apparently, according to the information contained in Lord Justice Leveson’s judgment, the authorities in Tanzania had been informed of the DPA and did not make any objection to it. In fact, the Judge observed, the Tanzanian authorities were supportive of the settlement and have done nothing to undermine it. This is faint praise indeed. But it is less than helpful from the SFO’s perspective since if an effective case of bribery were to be mounted against Standard Bank, the negotiators in Stanbic Bank or the EGMA directors, key evidence from Tanzania would be required. It is possible to show transfers of money between accounts on the face of banking documents, but this is often an arid exercise, especially where it is not entirely clear why a particular transfer has been made. As the lawyer Billy Flynn explains to the Judge in the musical Chicago when Velma Kelly takes the stand, if a criminal case is going to be successful a jury needs to be told a story – some of the ‘old razzle dazzle’. And it is difficult to tell a story without any of the key witnesses attending trial to give evidence.

Against this background, whilst the DPA made between the SFO and Standard Bank may not represent a perfect resolution, unquestionably the outcome is better than nothing. Apart from anything else, it enables the SFO to send out a message that Africa’s largest bank is not immune from criminal process in the UK, and if it wants to keep out of trouble in the future it needs to raise its standards of corporate governance. Whatever the critics may say, this is definitely a step towards the right direction.

Yours,
Jonathan Fisher QC,

Visiting Professor in Practice

LSE



[1] The two judgments given by Lord Justice Leveson in R v Standard Bank Plc case are reported at [2016] Lloyds Law Reports: Financial Crime 216.

[2] L.E. Mitchell, ‘Deferred Corporate Prosecution as Corrupt Regime: The Case for Prison’, (Case Legal Studies Research Paper No. 2015-06).

[3] ‘Seriously Flawed Office’, The Times (London, 29th January 2016).

[4] [1915] AC 705, 715 (Viscount Haldane).

[5] (n 1).

[6] SFO v Standard Bank Plc (2015) (Case No: U20150854) para 26, per LJ Leveson (emphasis added).

Article by Jonathan Fisher QC
Visiting Professor in Practice at the London School of Economics and Political Science