Top Menu

Friday Roundup


Assistant Attorney General Leslie Caldwell on the DOJ’s FCPA Pilot Program, scrutiny alerts and updates, quotable and for the reading stack. It’s all here in the Friday roundup.

Caldwell on the FCPA Pilot Program

This article contains a recent Q&A with Assistant Attorney General Leslie Caldwell about the DOJ’s FCPA Pilot Program.

After reading the below excerpts, you might also want to read the article “Grading the DOJ’s FCPA Pilot Program.”

Continue Reading

Friday Roundup


Scrutiny alert, on cue, across the pond, survey says, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alert

According to various Nigerian media reports (here and here):

“A group which goes by the name: Concerned Itsekiri Coastal Dwellers Association, CICDA, has petitioned the United States, US Department of Justice, Criminal Division over alleged fraudulent and corrupt practices by some Delta state government officials with Chevron Nigeria Limited, CNL.”

In 2007 ,Chevron agreed to pay $30 million to resolve an FCPA enforcement action in connection with the Iraq Oil for Food program (see here).

On Cue

This prior post analyzed the recent U.K. deferred prosecution agreement against Standard Bank (SB)  – specifically “what” the DPA resolved – and stated:
“Given the allegations and findings, it is curious why SB even voluntarily disclosed the conduct at issue to the SFO, particularly in light of Sec. 7′s adequate procedures defense.
But then again, counsel to SB (like counsel in other FCPA or related internal investigations) no doubt secured substantially more in legal fees by making the disclosure (compared to the other reasonable alternative of not disclosing and remedying any internal control deficiencies) plus the deferred prosecution agreement comes with post-enforcement action compliance obligation. Moreover, counsel achieved name recognition by being the first law firm to represent a Sec. 7 corporate defendant and secure a DPA on behalf of its client. (One can only imagine the speaking opportunities in the future for “how they did it”).”

As if on cue, the law firm that represented SB is currently marketing a seminar about the enforcement action.  The teaser e-mail states:

“Join the legal team who acted on the UK’s first ever Deferred Prosecution Agreement for a breakfast seminar about the process. […] We hope you will join us to hear how this ground-breaking and highly anticipated agreement was arrived at, the pivotal legal points which were discussed, and the key lessons for senior in-house counsel from the process.”

Across the Pond

The U.K. Serious Fraud office recently announced:

“UK printing company Smith and Ouzman Ltd, [previously] convicted of making corrupt payments, was … ordered to pay a total of £2.2 million in a sentencing hearing at Southwark Crown Court. The conviction and sentence follows a four-year investigation by the Serious Fraud Office.

The … company, which specialises in security documents such as ballot papers and exam certificates, was convicted in December 2014 under the Prevention of Corruption Act 1906. The corrupt payments totalling £395,074 were made to public officials for business contracts in Kenya and Mauritania.

The sum broken down included a fine of £1,316,799 as well as £881,158 to satisfy a confiscation order applied for by the SFO and £25,000 in costs. The fine is payable in instalments every six months until the full amount is paid, while the confiscation order must be satisfied within 28 days and the costs paid within six months.

In passing sentence, Recorder Andrew Mitchell QC said:

“Corruption of foreign officials is damaging to the country in which the corruption occurs, is damaging to the reputation of UK business and of course, in the market in which a business operates, it is anti-competitive.”

Director of the SFO, David Green CB QC commented:

“The bribery of foreign officials by UK companies damages this country’s reputation, commercially, politically and ethically. The SFO will pursue such criminal behaviour at both the corporate and individual level.”

Survey Says

According to this recent survey of South Africans conducted by the Ethics Institute of South Africa and sponsored by Massmart, only 22% of respondents believe that it is possible to successfully navigate daily life in the country without paying a bribe.

For the Reading Stack

In a recent article “Four Ways to Improve SEC Enforcement,” Professor Andrew Vollmer (a former Deputy General Counsel of the SEC and former partner in the securities enforcement practice of Wilmer Cutler) touches on some basic rule of law principles that sometimes bear repeating

“The first way to improve SEC enforcement is for the Commission to assert violations of law based only on well established and widely accepted legal principles and not to base claims on new, untested, and extreme legal theories.


Regulating and enforcing by unelaborated and expanding legal rules raise serious issues for both the private party and the system as a whole. Once the government charges a private party, the person is labeled publicly as a law breaker, even if a small group of knowledgeable practitioners appreciates that the legal theory is new and untested, and faces severe and frequently career or business ending sanctions. The private party must incur the costs, distress, and adverse publicity associated with a defense or succumb and settle, and the pressure to settle is over-powering even when the SEC case lacks merit.

The threats to the overall system are equally grave, and here they come in two forms. First, a federal agency breaks fundamental bonds of trust and accountability in our system of democratic governance when it exceeds its governing law. An Executive Branch agency must take care to stay well within the legal boundaries set by Congress or it acts as lawlessly as those who really violated the securities laws.

Second, enforcement agencies must exercise their power within established rules and precedent so regulated persons know what is required of them and may act accordingly and “so that those enforcing the law do not act in an arbitrary or discriminatory way.” “A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required.” A charge based on a new agency legal interpretation is essentially a claim against an innocent person. “It is one thing to expect regulated parties to conform their conduct to an agency’s interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency’s interpretations in advance or else be held liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference.” An SEC enforcement case based on an interpretation that has not been properly communicated to the public is not valid.

Thus, when the Chair said SEC enforcement should be “aggressive and creative,” she sent the wrong message to her staff. Expansive, untested theories of law to impose liability weaken the SEC’s enforcement efforts, short-change investigations of core misconduct, mistreat the private parties who must respond, and breach a trust between the agency and the country. One way to improve the SEC enforcement process therefore is to reward the staff for recommending cases based on established and accepted legal doctrines and to eschew over-reaching legal positions.


Another area worth attention is the time SEC investigations take. Potential wrongdoing must be investigated promptly and charges, when justified, must be brought promptly to serve a range of important interests. Avoiding delay during investigations helps deter, uses SEC resources efficiently, reduces uncertainty and costs for private parties, keeps evidence fresh, and promotes finality.

Unfortunately, investigations lasting for many years are the norm.


Extended investigations disserve the enforcement process and the persons being investigated. The delays increase the costs of defense and the burdens on private parties. Lengthy investigations create uncertainty for both companies and individuals, and uncertainty about the SEC’s plans can harm reputations, stall careers, and postpone financings and investments, research, and product development.

The delays also seriously harm the quality of justice and the SEC’s cases.”


A good weekend to all.

Friday Roundup


Standard Bank roundup, recent FCPA sentences, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Standard Bank Roundup

A roundup within the Friday roundup.

The development of the month so far was the U.K. (and related) enforcement action against Standard Bank – a first in two regards.

(i) the first use of Section 7 of the Bribery Act (the so-called failure to prevent bribery offense) in a foreign bribery action; and

(ii) the first use of a deferred prosecution agreement in the U.K..

  • This post highlighted “what” was resolved – an alleged violation of Sec. 7 of the Bribery Act for failure to prevent bribery.
  • This post highlighted “how” the enforcement action was resolved – the U.K.’s first deferred prosecution agreement.
  • This post highlighted the creativity of the SEC in also bringing an enforcement action against Standard Bank.
  • This post highlighted the thoughts of others about the enforcement action.

Recent FCPA Sentences

In 2013 and 2014 the DOJ brought FCPA and related charges against various individuals associated with broker dealer Direct Access Partners in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

Recently, Tomas Clarke and Ernesto Lujan were sentenced after pleading guilty to FCPA and related offenses.

Lujan was sentenced to two years in prison, followed by three years of supervised release, and consented to a $18.5 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Clarke was also sentenced to two years in prison, followed by three years of supervised release, and consented to a $5.8 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Previously, Benito Chinea and Joseph DeMeneses were sentenced to four years in prison and consented to $3.6 million and $2.7 million forfeiture.

Scrutiny Alert


The company which has been under FCPA scrutiny since 2011 recently disclosed:

“As initially disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2011, we identified certain transactions involving our Danish subsidiary BK Medical ApS, or BK Medical, and certain of its foreign distributors, with respect to which we have raised questions concerning compliance with law, including Danish law and the U.S. Foreign Corrupt Practices Act, and our business policies. These have included transactions in which the distributors paid BK Medical amounts in excess of amounts owed and BK Medical transferred the excess amounts, at the direction of the distributors, to third parties identified by the distributors. We have terminated the employment of certain BK Medical employees and also terminated our relationships with the BK Medical distributors that were involved in the transactions. We have concluded that the transactions identified to date have been properly accounted for in our reported financial statements in all material respects. However, we have been unable to ascertain with certainty the ultimate beneficiaries or the purpose of these transfers. We have voluntarily disclosed this matter to the Danish Government, the U.S. Department of Justice, or DOJ, and the SEC, and are cooperating with inquiries by the Danish Government, the DOJ and the SEC. We believe that the SEC, DOJ, and Danish Government have substantially completed their investigation into the transactions at issue. We are continuing our discussions with the SEC and have commenced discussions with the DOJ and Danish Government concerning a possible resolution of these matters. During the three months ended July 31, 2015, we accrued a $1.6 million charge in connection with a settlement proposal that we made to the SEC, which proposal was rejected by the SEC. In the first quarter of fiscal 2016, the SEC and DOJ made separate settlement proposals that would include payments in the aggregate amount of approximately $15 million. We are uncertain whether the Danish Government will seek to impose sanctions or penalties against us. We further believe that, under Danish law, amounts paid to the SEC and/or the DOJ would be taken into account in determining penalties that may be sought by the Danish Government. There can be no assurance that we will enter into any settlement with the SEC, the DOJ or the Danish Government, and the cost of any settlements or other resolutions of these matters could materially exceed our accruals. During the three months ended October 31, 2015 and 2014, we incurred inquiry-related costs of approximately $0.03 million and $0.8 million, respectively, in connection with this matter.”

Reading Stack

This Law360 article by Gerry Zack (Managing Director in BDO’s global forensics practice) titled “Implicit Bias – the Hidden Investigation Killer” caught my eye.

“Everyone carries a variety of biases around with them on a daily basis. Yet, many people are confident they can set their biases aside when it comes time to perform a workplace investigation, even referring to the final product as an “unbiased investigation.” But science has repeatedly proven that we aren’t nearly as good at setting our biases aside as we’d like to think  …”

The article touches upon affinity bias, confirmation bias, and priming.

Having conducted numerous internal investigations around the world (in the FCPA context and otherwise), I think there is merit to the issues discussed in the article – issues that contribute to the divide between the DOJ and SEC “processing” corporate FCPA internal investigations and the general struggles of the enforcement agencies proving FCPA offenses in the context of an adversarial proceeding.


From outgoing SEC Commissioner Luis Aguilar – “Commissioner Aguilar’s (Hopefully) Helpful Tips for New SEC Commissioners.”


A good weekend to all.

What Others Are Saying About The Standard Bank Enforcement Action


Several posts this week have gone in-depth regarding various aspects of the U.K.’s recent enforcement action against Standard Bank. This post highlights what others are saying about the enforcement action.


In this speech, Ben Morgan (Joint Head of Bribery and Corruption and the U.K. SFO) stated:

“The implications of [the SB enforcement action] are significant for all sorts of different stakeholders, not least honest businesses wanting to trade legally, and I know that the documents associated with the DPA will be studied closely and become the subject of much analysis and comment. I am going to use this opportunity to share three early thoughts from our perspective at the SFO: The case itself / what we’ve learned about using DPAs / and the significance of the first section 7 charge under the Bribery Act.

First, the case itself. I don’t really want to say much about this at all in terms of the specific facts or parties involved. The conduct in question has been dealt with appropriately, and I have no wish to advertise it any further than that. It is done, and we are busy looking at other comparable cases. But there are a couple of points of general applicability that do bear consideration for a moment. First, the decision of the bank in question to participate in DPA negotiations at all. It is maybe strange for a prosecutor to say – but credit to the parties involved for the way they have dealt with a corruption incident once it has surfaced. The bank, certain of its employees and its advisers (Jones Day and Herbert Smith Freehills) have had the courage to innovate where others will now follow. They have participated in a criminal justice process that arguably has resulted in a better outcome for all involved, including the bank itself but also the people of Tanzania who will have over $7m of their money returned to them, and UK taxpayers. For my part, that process has been an example of what I had hoped would become commonplace: In the right circumstances, it is possible for the SFO to work constructively with responsible companies and advisers who engage genuinely with us. That was certainly the case in this matter.

Lord Justice Leveson has commented in detail on this first use of the DPA legislation. His judgments will be of enormous assistance to the business and legal communities for some time and I will refer to it several times today. But on this point he is very clear:

“I add only this. It is obviously in the interests of justice that the SFO has been able to investigate the circumstances in which a UK registered bank acquiesced in an arrangement (however unwittingly) which had many hallmarks of bribery on a large scale and which both could and should have been prevented. Neither should it be thought that, in the hope of getting away with it, [the bank] would have been better served by taking a course which did not involve self-report, investigation and provisional agreement to a DPA with the substantial compliance requirements and financial implications that follow. For my part, I have no doubt that [the bank] has far better served its shareholders, its customers and its employees (as well as all those with whom it deals) by demonstrating its recognition of its serious failings and its determination in the future to adhere to the highest standards of banking. Such an approach can itself go a long way to repairing and, ultimately, enhancing its reputation and, in consequence, its business.”


The second general point is just to explain the nature of the suspended indictment, to set the scene. As I have said, the charge is a section 7 Bribery Act offence – the first charged, as it happens – in which the bank has taken responsibility for failing to prevent alleged bribery by persons associated with it in another jurisdiction. Those persons made payments to a local third party, and as Lord Justice Leveson notes in his judgment, the “only inference” is that in doing so they intended the payment to induce government officials to show favour to the commercial proposal the group had, which was to take a mandate to raise funds on behalf of the government. Each case will be specific of course, but we now know that this kind of arrangement is at least conceptually one that the court will consider capable of being dealt with by a DPA. There are lots of other features that were relevant to this particular case, as I will come on to, but I think it is helpful that we have this example. The model of a company appointing local agents is a common one and while there can be good honest reasons for doing so I am certain we will see many more examples where the model has, at the very least, raised a strong inference of corruption. That is capable of creating potential liability for corporates connected to this jurisdiction, and that potential liability is at least capable of being resolved by a Deferred Prosecution Agreement.


What have we learned about using DPAs? Several important things. Significantly, that the court will quite rightly analyse in detail the first question it has to tackle which is, whatever the proposed terms, is the case generally one that it is likely to be in the interests of justice to resolve by way of a DPA?

From this case, Lord Justice Leveson identifies four relevant features in this respect; the seriousness of the conduct, the way in which the organisation behaved once it became aware of it, any history of previous similar conduct, and, in this case, the extent to which the current corporate entity has changed from the one at the relevant time.

It seems to me that the second of these – the way in which the organisation behaved once it became aware of the conduct – is particularly worth noting at a conference on managing risk, for this reason: it is something that even after the problem has occurred and the harm is done, it is still possible to influence in a positive way. Companies and their advisers would do well to reflect on those things that Lord Justice Leveson identifies as having influenced the court’s assessment of the public interests of justice under this head: As the judge says:

“The second feature to which considerable weight must be attached is the fact that [the Bank] immediately reported itself to the authorities and adopted a genuinely proactive approach to the matter…In this case the disclosure was within days of the suspicions coming to the Bank’s attention, and before its solicitors had commenced (let alone completed) their own investigation.”

He goes on to highlight certain features of what happened next – there was an investigation by the Bank’s advisers sanctioned by the SFO; the Bank fully cooperated with the SFO from the earliest possible date by, among other things, providing a summary of first accounts of interviewees, facilitating the interviews of current employees, providing timely and complete responses to requests for information and material and providing access to its document review platform.

We have been saying for some time that we thought the bar on cooperation would be a high one if it is to satisfy the court that a DPA is in the interests of justice, and, in this case at least, that appears to have been right. As I have previously said, from our position we observe two schools of practice emerging in the corporate and legal markets: those who choose to take that approach and genuinely engage with us; and those who are stuck in the past, either pretending to do so and trying to game the system, or outright rejecting it. In the past, we used to see internal investigations that were kept from us right until the end, and culminated in a “whitewash” document, intended to put the matter to bed before we had even looked at it. I think people have realised they are a waste of money, and we don’t see them so often any more. They are virtually extinct.

These days we are more likely to see investigations led by law firms taking place in parallel with ours. They will litter their correspondence with pledges of cooperation, but in fact seek to hinder, delay and generally disrupt what we are doing: we see these efforts for what they are, too, “pseudo-cooperation”. There is no magic language that can be sprinkled over lawyers’ correspondence that changes our assessment of the substance of the cooperation a company has actually offered. And when it comes to a DPA, that assessment is crucial. We will only invite a company into DPA negotiations if our Director is persuaded that they have offered genuine cooperation. And this is because we have now had confirmed what we thought all along, namely that the court will be asking the same question. We are not prepared to risk compromise to the DPA process or our credibility as a user of it by putting forward cases to the court that are anything less than 100% appropriate.

What will happen then to the so-called “pseudo-cooperation” investigations? They are not yet extinct, but investigations of this nature are on the ‘endangered species’ list. People are starting to understand that they, too, are a waste of money.

Every law firm we deal with tells us their corporate client is going to cooperate fully with our investigation. Only a percentage of them actually do, in our assessment. So, the message for you is, if your instructions to your external lawyers are to cooperate with us, make sure they are really doing that. Others are.

And that means – prompt reporting, scoping and conducting your own investigation in conjunction with us, taking into account our interests in doing so and providing access to the kind of material we need to test the quality of evidence gathered and your own conclusions on it. You should also remember that we will have at the forefront of our mind – and so you should too – the justice of the case as it concerns other parties, in this jurisdiction or others. Hopefully, after all that is said, actually not much of this is news to you.

Finally – what, from the SFO’s perspective is the significance of the first section 7 offence under the Bribery Act. It is twofold – first in relation to identifying the offence itself, and second in relation to adequate procedures.

For me, this case should act as a wake-up call for those of you who are aware of similar situations, in any sector. I think it is quite easy to over-analyse circumstances surrounding the predicate bribery offence that an organisation may have failed to prevent. It is maybe tempting to lend weight to competing theories about what the role of a third party was; what a payment was really for; what the intention of making it was; why there doesn’t seem to be much evidence of work done for the payment and so on.

Something that struck me from this case is how simple it can be to spot corruption. That the underlying arrangements were corrupt was, the judge found, “the only inference”. For my part, I think juries too would find it straightforward to see the corruption in arrangements like the one in this case. The trite line from investigation reports that “there is no evidence to conclude that X took place…” can come across as rather disingenuous where there are very strong inferences that X took place, and those inferences are ones that people objectively assessing a situation might be quite comfortable drawing. So whether you work for a company or are an adviser, if you know about similar conduct, you are on notice that yes – that is what bribery looks like and, yes, if you failed to prevent it that is a criminal offence. It might be worth taking a step back from the layers of analysis and advice, and seeing what’s staring you in the face.

And that leaves us with adequate procedures. Is there a legitimate defence if a section 7 offence has taken place? I expect there will be cases where the defence is actually contested at trial from which we will perhaps all learn more, but again part of me wonders whether this is an area that suffers from too much navel-gazing.

Where the risks and red flags are prevalent, it seems to me no amount of just sticking to a policy is going to be adequate, in the final reckoning. What is really needed is a culture in which people are able to spot what is in front of them, and react to it. The question people exposed to high risk situations need to ask themselves shouldn’t be, “Have I got a policy in place that makes this ok?”, but rather, “Is this, in fact, ok?”.

The observations Lord Justice Leveson makes in his judgment tend to support this. I acknowledge it is not intended to be an exposition on this eagerly anticipated point, and nor in the circumstances could it have been. But it seems to me that the effectiveness of an organisation’s procedures should be judged by how things manifest themselves in a particular transactional context, not in the abstract. The quality of an organisation’s compliance culture isn’t defined by how much money it has spent on trying to implement it, or how earnestly people at the top talk about it, but rather by how people at the coal face actually live it.

So those were my three observations: on the case itself; on the use of DPAs; and on the section 7 offence.

I’d like to close with a final thought. For many reasons the advent of the use of DPA legislation is a positive thing for our justice system, and at this particular moment it is something you will probably continue to hear us talk about and that will receive plenty of coverage – both positive and negative no doubt – from other quarters. The reason we will keep explaining our take on the process is that we want it to work. Parliament created it, and we along with colleagues at the CPS have the responsibility to deliver it. But please don’t mistake our willingness to go down this route on this case for a desire to force a DPA onto every corporate case that we take on. In some, quite specific situations they will be appropriate, and we will always have in mind their possible use, but they are not the answer to everything. It is a high bar, for a DPA to be suitable, and where it is not met we have the appetite, stamina and resources to prosecute in the ordinary way.”

[Commentary. It was strange for Morgan (who prior to joining the SFO worked at various large law firms) to say that SB’s lawyers had the “courage to innovate” by voluntarily disclosing to the SFO.  Let’s call a spade a spade – the lawyers benefited as well from the disclosure and let’s not forget – in the words of the Judge – SB voluntarily disclosed “within days of the suspicions coming to the Bank’s attention, and before its solicitors had commenced (let alone completed) its own investigation.” In the minds of many, SB’s disclosure would not be “innovative”, but rather premature, careless and indeed reckless. Morgan’s speech was also selective in that he failed to address numerous alleged aspects of the overall conduct and circumstances relevant to Sec. 7’s “failure to bribery” offense.]


Several law firms published client alerts and publications about the SB enforcement action. Many of these were merely descriptive of what happened, but others were more analytical and the below alerts/publications caught my eye.


In this client alert, Eoin O’Shea (Reed Smith) wrote:

“The compensation and disgorgement elements seem reasonable in the circumstances. But I am not so sure about the actual level of penalty. The court found that the culpability in this case was closer to “high culpability” than to “medium culpability” and came to a penalty figure by multiplying the $8.4 million fee to Standard by 300%, yielding $25.2 million. This was reduced by a third to reflect a (notional) guilty plea, yielding $16.8 million.

Of course these are matters where courts have a good deal of discretion. Nevertheless is this case really one of “high” culpability? Payments to government officials are serious offences but the bank wasn’t actually accused of paying anybody. It was only accused of failing to prevent bribery. A failure to prevent wrongdoing by third parties is not a crime of intent, recklessness or even negligence. It involves no proof of mens rea by the accused. Indeed, in this case there was insufficient evidence to prosecute any staff at the bank.

The judgment recognised that the offence is “not a substantive bribery offence” (as stated in the DPA Code) but appears to have given this little weight in considering culpability.


The issue of whether the company might have had a defence of “adequate procedures” to a section 7 charge was also considered by the court, albeit briefly, when considering culpability. The discussion here is disappointing because it focusses on the specific compliance problems connected to the conduct in Tanzania, rather than whether there was an effective anti-bribery policy or culture across the bank as a whole. I’m not sure this is the right approach. When sentencing an organisation, it is relevant to consider whether the misfeasance was a case of “a few bad apples” or more widespread systemic failings. If the latter, the culpability may be higher than the former.

At one point the judge observed: “Although there were bribery prevention measures in place, these measures did not prevent the suggested predicate offence”. If the adequate procedures defence was actually in issue (in a trial) this would be a dangerous example of begging the question. The question of whether ABAC procedures were, in general, adequate cannot be determined by whether the particular bribes charged have slipped through the net. If it could be, then no commercial organisation would ever be able to invoke the defence.

Given the context of the discussion, it’s likely that the judge did not intend this statement to be any more than an observation on culpability when considering a possible sentence. But it’s the sort of language that invokes sharp intakes of breath among those working in bribery law.”


This Cordery piece notes:

“As regards the 3-year period of the DPA this is perhaps a little higher than what might be expected. By way of comparison, monitorships were popular in the US, but, seem perhaps to be declining in popularity in the US. In 2014 we understand that only one was put in place in the Avon settlement, and then for only 18 months. The US Department of Justice have given 3-year terms, for example in the HP case, but that would seem to be almost the higher end of what might have been expected.”


 This Gibson Dunn publication states:

“Key outstanding questions relating to the operation of the regime for DPAs

The application of DPAs in cases requiring proof of mens rea

The offence under section 7 of the Bribery Act 2010 which forms the basis of the Standard Bank DPA is an offence of strict liability, which does not require the prosecutor to establish any mental element on the part of the defendant organisation.  Rather, the offence is established where a person who is shown to be “associated” with the relevant commercial organisation is proven to have committed an act of bribery intending thereby to obtain or retain business or a business advantage for the commercial organisation.  The only relevant mental element is that of the associated person, not that of the defendant organisation.

This is highly significant in the context of the DPA regime, as a prosecutor considering a DPA must be satisfied that the evidential test is met (see above).  In cases unlike those under the section 7 offence requiring proof of mens rea on the part of the defendant corporation, this will require the SFO to be satisfied that the U.K. requirement that the relevant mens rea be attributable to a person representing the “controlling mind” of the company (the “attribution test”) is either met or capable of being met upon further investigation.  Satisfying the attribution test, however, usually requires prosecutors to find a senior corporate executive or board member who can be shown to have had the requisite mens rea.  As SFO Director David Green QC has stated, email communications can often be traced no higher than middle management ranks and rarely implicate senior corporate officials, with the result that companies themselves are often protected from criminal liability for wrongdoing by employees.

This test is plainly more difficult for prosecutors to meet than U.S. respondeat superior principle, which frequently leads to a company being fixed with criminal responsibility for the conduct of low-level employees being imputed to a company as long as that conduct was within the scope of their employment.

In practice, the attribution test may well operate as a natural barrier to the SFO’s ability to extend the reach of the DPA regime beyond the strict liability section 7 offence.  It will be interesting to see whether forthcoming DPAs will extend to offences involving proof of mens rea.  Indeed, an open question is whether the SFO and the courts might consider that the involvement in wrongdoing of the kinds of senior officials necessary to meet the attribution test would militate strongly in favour of prosecuting a corporate entity, rather than offering it the benefit of a DPA.”


What is also clear is that the SFO is determined to ensure that DPAs are not seen as a form of “soft option” for corporate wrongdoers.  The application of a financial penalty of $16.8 million is among the highest fines imposed in enforcement of UK criminal laws.  It is also the largest fine ever imposed for corruption in the UK.  When set alongside the disgorgement, compensation, costs, co-operation and compliance obligations also imposed on Standard Bank, it is clear that the agreement of a DPA will have serious consequences for the defendant organisation.  Indeed, the overall package of financial obligations (penalty, disgorgement, compensation and costs) is the second highest ever imposed for corruption, trailing only behind the £30.5 million (today equivalent to close to $46 million) imposed on BAE in 2010.”


There is no allegation of knowing participation in a positive offence of bribery alleged against Standard Bank, or even against any of its employees.  The offence is limited to an allegation of failure to prevent bribery committed by associated persons (namely, its sister company with which it was jointly dealing with the Government of Tanzania, and employees of that sister company), and having inadequate systems to prevent associated persons from committing bribery.

It is notable in this respect that among the inadequacies in Standard Bank’s procedures referred to in the Statement of Facts and in the judgment were its insufficient training of its own employees about their relevant obligations and the absence of necessary procedures when two entities within the Standard Bank group were involved in a transaction and where one such entity engaged a third party consultant to deal with host state government entities.


The adequate procedures defence

Due to the need … to satisfy the evidential test set out in the DPA Code, as the offence in this case fell under section 7, the SFO and Lord Justice Leveson were required to consider not only whether Standard Bank had failed to prevent the acts of bribery of its subsidiary and the latter’s employees, and whether this had been done with an intent to secure business or a business advantage in Standard Bank’s favour, but also whether Standard Bank would have available to it the “adequate procedures” defence in section 7(2).  In this regard they considered Standard Bank’s existing procedures to prevent the bribery in question.

Standard Bank was found by the SFO not to have adequate measures in place to guard against the risk of potential corrupt practices known to affect this type of business.  It appears from the judgment that the SFO and the Court considered relevant in this respect the following matters:

(i)   “The applicable policy was unclear and was not reinforced effectively to the Standard Bank deal team through communication and/or training.  In particular, Standard Bank’s training did not provide sufficient guidance about relevant obligations and procedures where two entities within the Standard Bank Group were involved in a transaction and the other Standard Bank entity engaged an introducer or a consultant.

(ii)   that Standard Bank relied on SBT, “a sister company in respect of which Standard Bank had no interest, oversight, control or involvement“, to conduct due diligence in relation to EGMA and itself made no enquiry about EGMA or its role in the transaction.  It was relevant in this context that Standard Bank was engaged with SBT as joint lead manager, that the transaction was with the government of a high bribery risk country, and involved receipt by a third party of US $6 million, with only very limited KYC.

(iii)   The KYC carried out by SBT did not involve “enhanced due diligence processes to deal with the presence of any corruption red flags“.  There were also failings in not identifying the presence of politically exposed persons.

(iv)   The absence of an “anti-corruption culture” within Standard Bank with regard to this transaction.

These controls weaknesses appear to have afforded the SFO and the Court significant comfort in confirming that the evidential test for a DPA was met in this case.

For organizations considering the implications of this judgment (which focuses, inevitably, on the specific facts of the Standard Bank case) for the application of the adequate procedures defence generally, the importance of efforts to establish a strong tone from the top and culture of compliance emerges strongly.  The judgment appears to indicate that Companies seeking to establish the defence in section 7(2) will have to tailor their employee training, their due diligence procedures, their manner of collaborating with sister companies and subsidiaries, and their dealings with third parties to the particular risks being faced in their business, taking into account country risk, market risk, counter-party risk and transaction risk.  They will take responsibility for the operation and effectiveness of their own procedures and the assessment of their own risks, and will not rely on due diligence carried out by third parties (even sister companies).  They will treat higher-risk situations with greater caution, and they will be able to point to the broader prophylaxis of a deeply-embedded compliance culture and well-trained employee population.  Moreover, they will ensure measures are in place to confirm that employee training is completed, refreshed and kept-up-to date.  These themes are not new, having been anticipated in the Ministry of Justice’s 2011 Guidance on the adequate procedures.   Sir Brian Leveson’s judgment appears, in our view, to have confirmed the value of that Guidance.

Insight into the level of penalties for offences under section 7 of the Bribery Act 2010

In his judgment, Lord Justice Leveson outlines how the financial penalty which forms part of the Standard Bank DPA was calculated, in application of the relevant Sentencing Council Guideline (the Definitive Guideline on Fraud, Bribery and Money Laundering Offences, in force since October 2014).  That calculation required consideration both of Standard Bank’s culpability in committing the offence and of the harm thereby caused or intended.

As regards culpability, while the corruption of government officials tended towards this case being treated as being in a high category of culpability, Lord Justice Leveson was at pains to emphasise that the specific allegation in this case was a breach of section 7 of the Bribery Act 2010, and as such, a failure to put in place appropriate mechanisms to prevent the bribery in question and “not a substantive bribery offence”.  He noted in particular that the evidence does not reveal that executives or employees of Standard Bank intended or knew of an intention to bribe.  Given Standard Bank’s lead role in the transaction, the uncertainty within the deal team as to the purpose of the payment to EGMA, and the failures of Standard Bank’s bribery prevention measures in a transaction in which bribery risk “should have been anticipated”, Lord Justice Leveson expressed the view that the “correct culpability starting point should either be high culpability, which is later adjusted to the lower or middle part of that category range by the appropriate harm figure multiplier, or medium culpability, which is later adjusted to the higher part of that category range by the appropriate harm figure multiplier”.  He noted that the SFO had opted for the latter view, and that, as the categories are not “watertight compartments” but part of a continuum, he considered this approach reasonable.

As regards harm, Lord Justice Leveson noted that under the Sentencing Council Guideline, the starting point for medium level of culpability is 200% of the ‘harm’ – that is to say, the gross profits, with a range of 100% to 300% (as compared with a starting point of 300% for high culpability, and a  range of 250-400%).  Considering aggravating factors (substantial public harm in Tanzania, serious failures against a background of FCA enforcement measures) and mitigating factors (previous clean record, prompt self-report, full cooperation, the absence of evidence of wider failures within the organisation and the fact that the organisation is now under different ownership), Lord Justice Leveson found a multiplier of 300% (at the upper end of medium culpability) to be appropriate.

The application of the 300% multiplier led to a figure of US $25.2 million.  Under the Sentencing Council Guideline, the Court must “step back” and consider whether the measures imposed satisfactorily achieve “removal of all gain, appropriate additional punishment and deterrence”. Lord Justice Leveson considered Standard Bank’s financial position and found the penalty to be reasonable in that context.

Finally, given that paragraph 5(4) of Schedule 17 to the Act requires a financial penalty agreed under a DPA to be broadly comparable to the fine a court would have imposed on a guilty plea, Standard Bank was entitled to a one-third reduction in fine.  As a result, the fine agreed in the Standard Bank DPA of $16.8 million was found to be reasonable.

Lord Justice Leveson went on to note that the U.S. Department of Justice had “confirmed that the financial penalty is comparable to the penalty that would have been imposed had the matter been dealt with in the United States and has intimated that if the matter is resolved in the UK, it will close its inquiry“, and found that this tends to support the conclusion that the terms of the Standard Bank DPA are fair, reasonable and proportionate.

Key outstanding questions relating to the operation of the section 7 offence

The guidance afforded by this judgment in relation to the approach to sentencing for the section offence and to the adequate procedures defence are very welcome to both industry and the legal profession.  However, a number of important elements of the section 7 offence are not addressed in detail in this judgment, and will remain a source of uncertainty for corporations in considering their exposure under that offence.

Chief among these elements is the notion of “associated persons”.  It is entirely unsurprising that a sister company of Standard Bank appointed jointly with Standard Bank as joint lead managers on the transaction at hand, and employees of that sister company who were part of the deal team in question, should be treated as satisfying the test for an associated person in Section 8 of the Bribery Act 2010.  As such, this case offers little in the way of guidance on the much more difficult questions as to the circumstances in which third parties, such as agents, contractors, service providers, and other representatives of a commercial organisation will be treated as “performing services for or on behalf” of the organisation, so that acts of bribery of those third parties can give rise to liability for the latter.

Similarly, the associated person must be shown to have carried out the acts of bribery in question with the intent to obtain or retain business or an advantage in the course of business for the commercial organisation.  In the case at hand, Lord Justice Leveson inferred the relevant intent from the absence of any services having been provided by the recipient of the bribe, EGMA, and from the fact that the involvement of a local partner and the fee (i.e., the bribe) were only disclosed to Standard Bank sometime after it had been proposed to the Government of Tanzania.

Imponderables remain (inevitably going unaddressed in this judgment due to the co-incidence of interest of Standard Bank and SBT in the transaction with the Government of Tanzania) as to how such intent is to be established, and how (or indeed if) prosecutors are to distinguish between an associated person’s bribery intended to feather his own nest from bribery intended to benefit his principal, the commercial organisation.”


This publication by FieldFisher states:

“It is unsurprising that today’s DPA involves a section 7 offence as it is the only corporate offence not requiring satisfaction of the identification principle. The identification principle determines whether the offender was a directing mind and will of the company, a notoriously hard test for a prosecutor to prove, and often a practical bar to corporate convictions. A section 7 offence (of failing to prevent bribery) dispenses with this requirement and therefore provides a more attractive avenue by which to achieve a realistic prospect of conviction in accordance with the full code test for prosecutions as set out in the DPA Code of Practice.”


The SEC Gets Creative In Also Bringing An Enforcement Action Against Standard Bank


Previous posts here, here, and here have highlighted and analyzed the U.K. enforcement action against Standard Bank (SB) based on allegations that a former “sister company” inserted a local partner into a private placement bond offering on behalf of the Government of Tanzania that was used to facilitate improper payments to government officials.

The end result of this was that SB’s fee in the $600 million offering was not 1.4% but 2.4% (with the additional 1% being paid to the local partner).

The Judge in the U.K. matter concluded that there was insufficient evidence to suggest that any SB employees committed a bribery offense and that were was no evidence “that anyone within Standard Bank knew that two senior executives [at the former sister company] intended the payment to constitute a bribe, or so intended it themselves.”

Elsewhere the Judge repeated: “the evidence does not reveal that executives or employees of Standard Bank intended or knew of an intention to bribe.”

Nevertheless, SB was charged with a Sec. 7 violation of the Bribery Act for failing to prevent bribery (a first in the U.K. in connection with foreign bribery) and agreed to pay approximately $33 million to resolve the matter via a deferred prosecution agreement (also a first in the U.K.).

The SEC also got in on the action by announcing a $4.2 million enforcement action (via an administrative action) against Standard Bank for violating Section 17(a)(2) of the Securities Act of 1933 (’33 Act) based on the same core conduct alleged in the U.K. action.

The SEC’s release states:  “The SEC did not have jurisdiction to bring charges under the FCPA because Standard was not an “issuer” as defined by that Act.”

Not to suggest that an FCPA enforcement action against SB was warranted, but truth be told the SEC has previously brought Foreign Corrupt Practices Act enforcement actions against non-issuers.

For instance, in 2010 the SEC brought a $11.3 million FCPA enforcement action against Panalpina Inc. even though the SEC acknowledged in its complaint that the company was not “an issuer for purposes of the FCPA.” Rather, the enforcement action was premised on allegations that Panalpina “while acting as an agent of its issuer customers” violated the FCPA and that Panalpina “also aided and abetted its issuer customers’ violations.” Similarly, in a $125 million FCPA enforcement action in 2010 in connection with Bribery Island, Nigeria conduct the SEC included as a defendant Snamprogetti Netherlands B.V.

Back to the SEC’s enforcement action against SB.

Unlike the FCPA which is part of the Securities Exchange Act of 1934, as indicated above, Section 17(a)(2) is the part of the ’33 Act, a statutory scheme that broadly governs the offering of securities.

Specifically, Section 17(a)(2) states, under the heading “Fraudulent Interstate Transactions,” as follows.

“It shall be unlawful for any person in the offer or sale of any securities (including security-based swaps) or any security-based swap agreement … by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly—

(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”

Key elements of a Section 17(a)(2) violation are thus materiality and use of U.S. interstate commerce or mail. (For an informative article about Section 17(a)(2) see here).

As mentioned above, the SEC’s administrative order was based on the same core conduct alleged in the U.K. action. In summary fashion, the order states:

“This case involves Standard Bank Plc’s (“Standard”) failure to disclose payments made by Standard’s affiliate, Stanbic Bank Tanzania, Limited (“Stanbic”), in connection with $600 million of sovereign debt securities issued by the Government of Tanzania (“GoT”) in 2013. Standard (an international investment bank located in London) was aware that its affiliate, Stanbic, paid $6 million of the proceeds of the offering to an entity called Enterprise Growth Markets Advisors Limited (“EGMA”). Standard failed to disclose the existence of EGMA and the fees it was to receive. At all relevant times, EGMA’s chairman and one of its three shareholders and directors was a representative of the GoT. Several red flags indicated the risk that the portion of the offering proceeds paid to EGMA by Stanbic was intended to induce the GoT to grant the mandate for the transaction to Standard and Stanbic. Standard acted as joint Lead Manager in the offering of Tanzanian sovereign debt securities without disclosing that EGMA was involved in the transaction and would receive a substantial fee in connection with the transaction.”

Under the heading “Standard’s Failure to Disclose,” the order states:

“Standard was negligent in not taking any steps to understand what role EGMA would be playing in the transaction in return for its $6 million fee and there are no records of contemporaneous communications among Standard and Stanbic personnel concerning the ownership of EGMA, its relationship to the GoT, or why it was being made part of the transaction.


The investor representation letter failed to include material facts about the transactions namely any mention of EGMA, its shareholders’ ties to the GoT, its lack of a substantive role in the transaction, and that it was to receive a $6 million fee.


Standard did not disclose the involvement of EGMA and the fee EGMA was to receive.”

As to the jurisdictional nexus in Section 17(a)(2), the order states:

“On February 27, 2013, the GoT issued its floating-rate amortizing, unrated, unlisted, sovereign bonds through a Regulation S private placement. As set forth in the transaction documents, the gross proceeds of $600 million were transferred by the facility agent to the GoT’s account in New York, on March 8, the GoT then transferred the total 2.4% fee of $14.4 million to Stanbic in Tanzania. Stanbic deposited EGMA’s 1% fee, or $6 million, into an account EGMA had previously opened at Stanbic. After EGMA made payments of the legal costs related to the transaction, approximately $5.2 million of its $6 million was withdrawn in cash between March 18 and 27, 2013. Standard did not become aware of those cash withdrawals until after they were made, and does not have knowledge as to the ultimate disposition of those withdrawn funds.”

In conclusion, the SEC order states:

“By offering the Tanzanian sovereign bonds, Standard had a duty to disclose to investors material facts that it knew or should have known concerning the transaction.

As a result of the conduct in failing to disclose the material facts described above, Respondent committed violations of Sections 17(a)(2) of the Securities Act.”

Other than mentioning the conclusory legal term “material” three times, the SEC’s order contains no specifics regarding this required legal element. The standard definition of material is whether there is a substantial likelihood that the information would be viewed by the reasonable investor as having significantly altered the total mix of information made available concerning the security.

It is a highly dubious proposition that the 116 sophisticated, institutional investors that participated in the $600 million private placement offering would have viewed the participation of EGMA and its 1% fee as being material.

As noted in the SEC’s release:

“The SEC’s order requires Standard to cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) of the Securities Act of 1933 that prohibits obtaining money by any materially untrue statement or omission, and to pay a $4.2 million civil penalty.  The order also requires Standard to pay disgorgement of $8.4 million, which the Commission has deemed satisfied by a payment of equal amount in the U.K. matter.”

In the SEC release, Gerald Hodgkins (Associate Director of the SEC’s Division of Enforcement) states:

“Standard failed to disclose EGMA’s involvement in the bond offering to investors despite red flags suggesting some of the proceeds of the offering were going to EGMA for the purpose of influencing the Tanzanian Government’s selection of bankers for the transaction. This action against Standard demonstrates that when suspicious payments made anywhere in the world result in tainted securities offerings in the United States, the SEC is fully committed to taking action against the responsible parties.”

Powered by WordPress. Designed by WooThemes