The First UK Deferred Prosecution Agreement: What and Why?

Evan Wright

So that’s a Deferred Prosecution Agreement?

Funny how a real world example focuses the mind. Not that long ago, the UK Bribery Act was seen as an impulse purchase; One of those garden tools at the back of the shed. It came with lots of instructions and good intentions but was never really going to have an impact. It has taken a little while but the Deferred Prosecution Agreement (DPA) between ICBC Standard Bank and the Serious Fraud Office is set to advertise the existence of the SFO’s newest enforcement option in the UK. Applied through section 7 of the Bribery Act 2010 – failing to prevent bribery, the agreement acknowledges wrongdoing on the part of the bank’s subsidiary, ensures that it cleans up its act and obliges the bank to sign some very large cheques in favour of a number of very grateful authorities. In return, the bank itself will not be prosecuted if it ‘behaves’ over the deferred period of three years. The DPA is significant because it is the first one of its kind in the UK and it is the first time a corporation has been sanctioned for failing to prevent bribery under section 7 of the UK Bribery Act.

The scores on the doors

The agreement was a cost effective exercise for the SFO. The court awarded costs in favour of the SFO in the sum of £330,000.00 and this compares well with the much higher prosecution costs of a trial, which might not be recovered. As a result of the ICBC Standard Bank agreement, the ‘consolidated fund’ (i.e. the

Treasury) will receive $16.8 million by way of a fine and the Tanzanian government will receive $7 million compensation for their trouble. The bank must also extract or ‘disgorge’ the profits made from the wrong doing. This has been calculated as $8.4 million and will also be paid to the consolidated fund.

Price Waterhouse Cooper has been engaged to ensure implementation of the appropriate anti-bribery and corruption measures. They will agree the scope of their work with the SFO, although it will follow the lines of a S166 ‘skilled persons’ report. They have not been appointed to formally monitor compliance with the DPA - an onerous and expensive undertaking for all involved. The SFO will ultimately take a view on the level of compliance over the three year deferred period by referring to the outcome of the PWC report(s).

What did the bank do wrong?

Interestingly, the agreement is based upon a failure to prevent bribery in an arrangement whereby government officials were paid $6 million to prefer the bank when raising finance for the Tanzanian government. The statement of facts describes how the money was paid by a subsidiary named Standic Bank Tanzania Ltd to a consultancy firm EGMA Ltd which, as it turn out, served no legitimate purpose. The money was subsequently withdrawn in cash and disappeared into the night, present whereabouts unknown. It was not alleged that ICBC Standard Bank itself was involved in the unlawful activity and the activity occurred before ICBC bought a 60% share in the business. Nevertheless, the availability of a DPA in this case demonstrates that one does not have to hold the smoking gun to be guilty of an offence and if you are thinking about buying a stake in a business engaged in an area of significant risk, make sure your due diligence is thorough.

Corporations will also notice that the statement of facts in this case runs to 55 pages, including extracts from interview transcripts. Indeed, some paragraphs could have been lifted from a prosecution case opening to a jury. This contrasts with much shorter statements in many US DPAs and although the ICBC Standard Bank was not obliged to make ‘admissions’ as one would in a guilty plea to a conventional indictment, it was obliged to agree the statement of facts. This will be of interest to many third parties, including shareholders or individuals who might become the subject of associated criminal litigation.

The Background

David Green, head of the SFO has been teeing up the DPA for some time. In various speeches, he and his colleagues have been warning of the need for corporates to contemplate their relationships with wayward agents, know your client, make bribery and corruption a focal point in acquisition due diligence etc. Over time, gentle nudges have been turning into pokes in the back. The SFO want businesses to self-report wrong doing if they are to maximise their chances of avoiding a prosecution. Note that the SFO don’t necessarily want a polished internal fraud report from corporate lawyers who spend months undertaking their own investigations (although that’s largely what they got in this case). Neither do they want to receive reports about things they already know. They want genuine and timely engagement and it is no accident that the

ICBC Standard Bank agreement was ‘chosen’ as the first DPA. The SFO had a number of candidates, but the first was always going to be a template and it had to be capable of withstanding public scrutiny. The SFO’s announcement will have been carefully drafted.

Much was made of the level of co-operation between the bank and the SFO. The relevant activity was reported to the Serious and Organised Crime Agency (now the National Crime Agency) very soon after it was discovered and the bank disclosed material in circumstances where the SFO would have found it difficult to obtain that material if the bank had put up a fight. Not all companies will be able to disclose certain material held by third parties and many will not want to. The subtle distinction between ‘can’t’ and ‘won’t’ will certainly be an issue in other DPA negotiations.

Mr Green has been careful to avoid outright promises but, let’s face it, the SFO cannot afford to prosecute everyone and even though they might have access to Treasury ‘blockbuster funding’ from time to time, a long string of prosecutions is not going to attract big investment to the UK. Neither would judges thank the SFO for snarling up Southwark Crown Court with endless consecutive mega-trials, some of which would probably collapse. This DPA also highlights the consequences of conviction after trial when considering the potential impact upon employees, shareholders and other innocent third parties. Until now, the prosecution toolkit has lacked a few spanners and although alternatives to prosecution have been in the box for some time (such as civil asset recovery under Part 5 Proceeds of Crime Act 2002) they just don’t have the sex appeal of a DPA.

Legal Culture v Mathematics

David Green will be quick to point out that a DPA is not the default option and he might actually mean what he says. Our American cousins have been cooking up DPA’s with less judicial intervention for years and much of the criticism in the US revolves around some obvious themes – Corporations are buying their way out of prosecution. Shareholders and customers are paying for executive criminality. The SFO simply cannot afford to start the UK DPA journey with the notion that corporations need only self-report and form an orderly queue for their agreement. This approach would be incompatible with the greater level of judicial scrutiny in the UK and would not suit the enforcement culture, even though that ‘culture’ is not easily defined.

It is no surprise that the first UK DPA arose out of Section 7 UK Bribery Act. On the face of it, the wrongdoing was very serious – bribery of government officials to the tune of $6,000,000.00 where the money has not been recovered. However, section 7 permitted the court to focus on the limited role of ICBC Standard Bank and the level of co-operation meant that the wrong doing suited a DPA very well. A greater challenge will arise when the SFO have to deal with more direct unlawful behaviour. To what degree will they (and the court) fit a square peg into a round hole?

To be fair, the higher level of judicial scrutiny will make it more difficult to squeeze a UK DPA into an inappropriate case. Although the preliminary hearings are in private, the ratification of a DPA prompts the publication of the earlier private hearings. Publication in this case did not reveal anything particularly controversial (the SFO would not have chosen a controversial example as their template case) but it will be interesting to see how the judiciary work through problems in court as use of the DPA develops.

However, the suitability of a DPA in this case was not without difficulties. The bank was the subject of regulatory intervention in 2014 for failing to conduct enhanced due diligence in relationships potentially involving politically exposed persons. The Financial Conduct Authority imposed a fine on Standard London (as it was then), but it seems that this episode did not preclude the suitability of a DPA in 2015. One wonders whether a corporation with a significant regulatory history might be less inclined to self-report a problem if they think that they will not be eligible for a DPA. The SFO will certainly not want to dis-courage self-reports for this reason because automatic DPA disqualification might drive wrong-doing underground and high level co-operation with the investigation is the key to a good DPA.

A second difficulty may arise when meeting the burden of proof in cases where a DPA is considered. Any decision to prosecute requires consideration of the Code for Crown Prosecutors and this involves establishing a ‘reasonable prospect of conviction’. However, even though the SFO were prepared to name individuals responsible for offences of bribery in the present case, it did not assert a reasonable prospect of conviction. The SFO submitted that, through a consideration of some admissible evidence, it had – (i) established a reasonable suspicion that the company had committed an offence and (ii) it had reasonable grounds to believe that further investigation would produce more admissible evidence favouring a conviction. This is the lower threshold found in the DPA Code of Practice. The distinction was not important for this DPA but it could be critical in other DPA negotiations, especially if the SFO want to secure convictions against individuals by using the evidence referred to in the statement of facts.

The benefit to the Treasury cannot be ignored and time will tell whether mathematics or culture prevails. In reality, politics will ensure that DPA money flows into the Crown’s account whilst words like – independence, codes of practice, fairness and proportionality are pushed to the front of the enforcement shop window. We are told not to expect a high number of DPAs. However, the UK is practiced at learning from the US and then creeping into the same mistakes.

Let’s not forget the USA

The US got in on the act as well. The Securities and Exchange Commission (SEC) charged ICBC Standard Bank with failing to disclose the relevant payments intended to influence a government decision. The action was settled with an internal administrative order, rather than a prosecution. The SEC directed ICBC Standard Bank to pay a $4.2 million civil penalty. It also ordered the disgorgement of $8.4 million profits, although this was satisfied by the disgorgement agreed in the UK DPA. No UK tax reduction in relation to the financial implications of the agreement can be applied by the company. The episode underlines the need to anticipate the potential involvement of other jurisdictions in deciding whether to self-report.

When might a DPA be relevant to me?

Like most complex things in the impenetrable world of legal stuff, the DPA concept is actually fairly simple.

Let’s say you are a notable PLC –

Look at your business. With whom do you deal? How do you deal with them and what is the result? What do you promise and how do you deliver? Stand back and look at the arrangement as if you are giving evidence? Do you feel OK?

To put it another way, think about a scenario in which someone wants to buy your business. Complex anti-bribery and corruption software is becoming awfully fashionable, able to spot red flags at increasing distances. Are you comfortable with the relationship between your South African affiliate sales team and the respective government department offering a lucrative public contract? Are you able to demonstrate compliance to your prospective purchaser.

Let’s imagine that you can’t. Problems have been developing over the last couple of years. You can put it right – at some commercial cost – but that won’t deal with what has gone on before and you will almost certainly lose your buyer because they will fear a prosecution and possible share holder action. What do you do? Cover it up and let the government contract run its course? Who’s going to know?

The DPA now offers an alternative. It is not without pain, but can be the lessor of two commercial evils. Your buyer is very keen to proceed but wants some assurances before they agree to invest. A self-report is considered and you want to know whether your company (or perhaps individuals within the company) will be prosecuted in the event of disclosure. What can you learn from the ICBC Standard Bank agreement?

  1. A DPA is not something you can ask for and expect. It is offered by the SFO if criteria are met.
  2. So far as possible, you need to identify exactly what has gone on and who was involved?
  3. In doing so, don’t destroy evidence and don’t make the situation worse.
  4. Avoid further offences such as - tipping off.
  5. Does the activity actually amount to a criminal offence? 
  6. Might a whistle blower emerge? 
  7. The timing of engagement with the SFO could be critical.
  8. Get advice on whether this really is a matter for the SFO and a potential DPA.
  9. Notionally calculate the profit from the unlawful activity. 
  10. Calculate the likely financial penalty and direct cost. 
  11. Discuss the relative reputational impact of prosecution and a DPA.
  12. Think about the cost of monitoring during the potential deferment period.
  13. What will it cost to implement changes to the AML and anti-bribery policies?
  14. Where relevant, prepare to engage with more than one jurisdiction. 
  15. Be mindful of the potential for satellite litigation from shareholders etc.
  16. Is your Directors and Officers / management liability insurance policy up to date and sufficient?
  17. If you don’t self-report, will the SFO (or another prosecuting agency) come after the company anyway?
  18. To what degree will you have to co-operate with the SFO in any parallel criminal proceedings and will this cause conflict within the organisation?
  19. A conviction or a DPA could prevent the business from pitching for government contracts or from effectively entering certain markets. Negotiation could mitigate that cost.

The list could go on, but these themes will be common to all board level discussions in light of the ICBC Standard Bank DPA and it really comes down to this – now that we have a real example of a DPA to work with, what have you got to lose in the event of a self-report or a decision not to self-report and what are the chances of prosecution? The full judgement of RT. Hon. Sir Brian Leveson provides many pointers including comments on the public interest, the concept of fairness in the proceedings and the responsibilities owed to shareholders, as well as the reputation of the banking community at large.

Preventing the Problem

Where a corporation does not have a problem warranting a serious DPA discussion, but is interested in improving its anti-money laundering and bribery procedures, this DPA holds a few lessons. At the sharp end of the wrong-doing, it demonstrates that high risk can be diluted by ‘layering’ problems which – in isolation - only appear to require standard due diligence. When the unlawful activity is unravelled, it only then becomes clear that enhanced due diligence was essential. At the other end of the DPA, the judge’s comments, the statement of facts and the outcome itself now make it easier for lawyers and accountants etc. to bring some real world advice to the boardroom table.

Engagement with the SFO

If a decision is made to self-report and the SFO express an interest, the journey has just started. Negotiations are exactly that and the agreement will have been the subject of some complex discussions. Either side could have withdrawn at various points in the knowledge that prosecution was an alternative and the judge could have refused to accept the proposal.

One also needs to remember that the subject of a DPA will be required to undertake certain tasks during the deferment period and a failure to comply can be the subject of expensive breach proceedings. This does not necessarily result in the termination of the DPA itself but the risk of resuming the prosecution is always in the background. Let’s not forget that entering into a DPA involves charging the company with the criminal offence in the first instance and then deferring the prosecution. The indictment is withdrawn at the end of the deferment period when it is accepted that the subject has complied with the DPA terms. Even then, the subject cannot regard itself as absolutely free from scrutiny. The matter can be revisited in the event that the SFO subsequently detects bad faith or other wrong doing in the negotiations leading to the original agreement. For that reason, the cleansing process needs to be thorough.

Entering into a DPA also obliges the corporation to assist the SFO with investigations relating to individuals suspected of criminality. In this case, the SFO specifically named two individuals and alleged that they committed Bribery Act offences. This has the obvious potential for conflict within the organisation. The ICBC Standard Bank was able to distance itself from the unlawful activity, especially since the two individuals are no longer employees of the subsidiary. However, there will be cases in which a company wants to self-report in circumstances where an employee denies the relevant allegation and conflict arises.


It is no coincidence that the DPA has been added to the toolkit at a point where greater compliance responsibility is being place upon companies. For example, financial penalties levied by the FCA have been revised, new criminal offences have been added to the Financial Services Act 2000 and the SFO recently revised their Guidance on Corporate Prosecutions. Sentencing guidelines on fraud, bribery money laundering offences have been around since the middle of 2014 and although these revisions are beyond the scope of this piece, they necessarily form part of anticipating the advantages and disadvantages of pursuing a DPA. They provide a structure in which a corporation (and its advisors) can better judge what might result from a decision to engage with the SFO.


Read more about deferred prosecution agreements here.

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