South Africa’s Standard Bank is to pay a fine of $32.6 million after its former unit in London agreed a deal with the UK’s Serious Fraud Office (SFO) to defer prosecution over an alleged bribery scandal involving the bank’s Tanzania unit.
Lord Justice Leveson at Southwark Crown Court, sitting at the Royal Courts of Justice approved the SFO’s first application for a Deferred Prosecution Agreement (DPA) which was introduced in February last year, allowing a company charged with a crime to pay a fine, repay related profits and assist in the prosecution of any individuals involved. Legal proceedings are suspended in return.
The London-based Standard Bank Plc which has changed its name to ICBC Standard Bank after China’s ICBC acquired a 60 percent interest in February this year, is charged with failing to prevent bribery under the Bribery Act 2010. However, the DPA enables the company to escape prosecution, which will be withdrawn in three years if conditions are met.
In a 2012-2013 $600m sovereign bond private placement aimed at funding infrastructure in Tanzania, the London unit of Standard Bank and the Tanzania unit which undertook the deal had proposed 1.4 percent fee on the capital raising but as plans for the transaction stalled, the fee was later raised to 2.4 percent, and the Standard Bank units agreed to pay 1 percent of it to a Tanzanian company, Enterprise Growth Market Advisors Ltd. (EGMA). However, it was unclear what the role of EGMA in the deal was.
But it became clearer as the chairman of EGMA, who is also one of three shareholders, Harry Kitilya, was also head of the government tax agency, the Tanzania Revenue Authority. The company’s managing director was Fratern Mboya, erstwhile CEO of Tanzania’s Capital Markets and Securities Authority.
The new arrangement meant $6 million was paid to a new bank account in the name of EGMA in March 2013. Ten days later, four cash withdrawals of between $1.17 million and $1.45 million occurred, almost emptying the account, apparently to ensure the money could not be traced.
The arrangements had been made by Bashir Awale, then chief executive of Stanbic Bank Tanzania Ltd (the Tanzania unit of Standard Bank), and Shose Sinare, who was at the time the bank’s head of corporate and investment banking in Tanzania.
According to SFO counsel Edward Garnier, the $6 million was meant to induce government officials to ensure Stanbic Bank Tanzania was selected to conduct the private placement. Things worked out fine and the placement generated transaction fees of $8.4 million, shared by Stanbic Tanzania and Standard Bank.
With the cash withdrawals raising suspicions in the Tanzania unit, the head office in South Africa got wind of the matter and also the London unit, which reported itself to law enforcement agencies.
“On 18 April 2013, Standard Bank’s solicitors Jones Day reported the matter to the Serious and Organised Crime Agency and on 24 April to the SFO,” the SFO said.
After investigations by Jones Day whose report was sent to the SFO on 21 July 2014, the SFO conducted its own interviews and the Director of the SFO considered that the public interest would likely be met by a DPA with Standard Bank. Negotiations were commenced accordingly.
As part of the negotiations, the SFO worked with the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC). A penalty of $4.2 million has been agreed between Standard Bank and the SEC to resolve a claim that the bank acted negligently and did not disclose to US investors the involvement of the local partner in the capital-raising mandate.
“SBPlc has agreed to pay a penalty of US$16.8million, which includes a one third reduction for the self-disclosure and cooperation. SBPlc will also pay US$7.05 million in compensation to the Government of Tanzania and US$8.9 million to refund profits related to the transaction and expenses related to the investigation. Accordingly, aggregate payments to be made by SBPlc under the DPA will amount to approximately US$32.8 million,” a statement by Standard Bank said.
Commenting on the DPA, Director of the SFO David Green CB QC said: “This landmark DPA will serve as a template for future agreements”.
“I applaud Standard Bank for their frankness with the SFO and their prompt and early engagement with us,” Green added.
Chief Secretary to the president of Tanzania Ombeni Sefue told reporters this week that the government was investigating the bribery case. He has asked Awale, who was sacked by Standard Bank, Sinare who resigned and Mboya who withdrew the untraceable money, to cooperate with investigators.
“We want to know where the money went and what it was used for. And once we have gathered enough evidence, legal measures will be taken against those involved in the scandal,” Sefue said.