A unit of South Africa’s Standard Bank based in London has agreed to pay $32.6m (£21.7m) in fines and repayments of bribes and profits following an alleged bribery scandal in Tanzania.
The high court in London heard how the bank’s division had agreed to the payments in exchange for the Serious Fraud Office (SFO) offering it the UK’s first deferred prosecution agreement if conditions are met.
According to a report in The Guardian of London, deferred prosecution agreements (DPAs) were introduced in February last year and allow prosecutors to suspend a prosecution for an agreed period of time and then withdraw it. In exchange, companies must pay a fine, repay related profits and assist in the prosecution of any individuals.
The Standard Bank unit is charged with failing to prevent bribery under the Bribery Act 2010 but, under the DPA, prosecution has been halted and will be dropped after three years if conditions are met.
StanbicIBTC, Nigeria subsidiary of the South African bank was in October placed under a regulatory order by Financial Reporting Council of Nigeria (FRC) for poor accounting disclosure and misleading financial statements. This culminated in the suspension of its chairman, Atedo Peterside and its chief executive officer, Sola David-Borha. Two other directors of the bank suspended are Arthur Oginga, Daru Owei.
The regulatory order on Stanbic/IBTC has also been a test case on the capability of the audit giant, KPMG whose engagement partner, Ayodele Othihiwa. The audit firm is being questioned for the approach it adopted that could not detect the infractions in the 2013 and 2014 accounts.
The settlement in London relates to the banking division’s work in 2012-13 on a $600m private placement of sovereign debt to finance electricity, water and other infrastructure work in Tanzania, part of the government’s five-year development plan.
The original fee on the capital-raising proposed by the then London office of Standard Bank, and a local sister office in Tanzania, was 1.4%, but plans for the transaction stalled.
Later, the fee was raised to 2.4%, and the Standard Bank units agreed to pay 1% to a local company in Tanzania, Enterprise Growth Market Advisors Ltd.
The chairman of EGMA, and one of three shareholders, was Harry Kitilya, who was also head of the government tax agency, the Tanzania Revenue Authority.
As a result of the new fee arrangements, $6m was paid to a new bank account in the name of EGMA in March 2013. Within 10 days, the account had been almost entirely emptied after four cash withdrawals of between $1.17m and $1.45m. The proceeds have not been traced.
Standard Bank bosses eventually became concerned and after an internal investigation the case was reported to the SFO.
As well as the settlement reached in London on Monday, the scandal is subject to an investigation in Tanzania and is also being examined by the US Securities and Exchange Commission. Standard Bank will pay financial orders of $25.2m and will be required to pay the Tanzanian government a further $7m in compensation.
While the bill for the DPA will ultimately be picked up by South Africa’s Standard Bank, it no longer controls the London unit. A stake of 60% in the UK division was sold to the Chinese bank ICBC in February this year. The unit was renamed ICBC Standard Bank.
That sale included a clause requiring the South African group to pay all fines and costs relating to the scandal.
The DPA was agreed in principle by Lord Justice Leveson at a private hearing earlier this month. It was formally approved by him at the high court on Monday.