Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight some notable settlements that were reached in the United States and the United Kingdom in November and December. In the US, the SEC settled with Marwood Group Research in connection with compliance failures relating to potentially material non-public information. In the UK, the Serious Fraud Office announced the first Deferred Proscecution Agreement for violations of the Bribery Act 2010.
SEC issues a USD 375,000 penalty to political intelligence firm Marwood for ignoring compliance officers
The SEC announced that political intelligence firm Marwood Group Research LLC had admitted wrongdoing and agreed to pay a USD 375,000 penalty for compliance failures in acquiring and handling potentially material non-public information. Marwood also agreed to retain an independent compliance consultant.
Marwood is a regulatory and legislative policy firm, registered broker-dealer and investment advisor. Marwood provided hedge funds and other clients with regulatory updates (research notes) of future developments in government action or rulemaking decisions. By collecting content for internal research notes, the firm encouraged its analysts to be in close contact with government employees who often are in possession of potentially material non-public information.
The misconduct took place in 2010 when analysts sought and received information about policy issues and pending regulatory approvals at Centers for Medicare and Medicaid, and the Food and Drug Administration. Some of the information had a substantial risk of being material non-public information. Marwood nevertheless released the information to its clients, which could influence client trading decisions.
Marwood’s internal written policies and procedures expressly prohibited the acquisition and dissemination of material non-public information and, moreover, required employees to notify the compliance department if they encountered potentially confidential matters. Compliance officers were, however, not properly informed when confidential information from government employees was obtained. The company therefore failed to establish, maintain and enforce written policies and procedures designed to prevent misuse of material non-public information.
UK’s first Deferred Prosecution Agreement
The Serious Fraud Office announced its first Deferred Prosecution Agreement (DPA), which was approved by Lord Justice Leveson at Southwark Crown Court. According to the SFO’s director, this DPA will serve as a template for future agreements.
Standard Bank Plc (now known as ICBC Standard Bank Plc) was accused by the SFO of failing to prevent attempts by its former affiliated bank, Stanbic Bank Tanzania, to bribe Tanzanian officials from 2012 to 2013. Stanbic Bank Tanzania allegedly paid USD 6 million to a local partner to induce members of the Tanzanian government to favour Stanbic Tanzania in a USD 600 million private placement.
In the UK, the courts have to examine proposed DPAs. To obtain court approval, two criteria must be met. First, it must be in the “interests of justice” for the prosecution to be deferred. Second, the terms of the deferral must be “fair, reasonable and proportionate”. Both the SFO and the court found that the first criteria had been met because Standard Bank had promptly self-reported, had fully disclosed the internal investigation, and had cooperated extensively with the SFO. The court agreed with the amount of the fine and the underlying calculation method: multiplying the amount of bribery – USD 8.4 million – by 300%, taking into account the serious nature of the conduct. The mitigating factors were that Standard Bank cooperated with the investigation and took immediate measures, and this led to a discount of one-third of the total penalty. In addition, the Judge considered the penalty to be fair because the U.S. Department of Justice had confirmed a comparable amount would be imposed in the US. The USD 8.4 million was disgorged by the DOJ because it was satisfied with the UK enforcement. As part of the DPA, Standard Bank has agreed to pay USD 25.2 million for violating Section 7 of the Bribery Act 2010.
The DPA highlights the importance of an effective compliance programme, since adequate anti-bribery procedures may constitute a defence. However, Standard Bank’s programme was lacking on several fronts, for example, no red flags were identified. This was the first time that a prosecutor took action against a company for failing to prevent bribery under Section 7. The charges against ICBC will be suspended for three years.
Standard Bank has also agreed to pay the government of Tanzania USD 7 million and pay the SFO’s investigation costs in the amount of GBP 330,000. In addition, Standard Bank will cooperate with the SFO and has agreed to an independent review by Price Waterhouse Coopers LLC of its existing anti-bribery and corruption policies. Standard Bank is required to implement all recommendations made by PWC.
In the related US enforcement action, the SEC charged Standard Bank with failing to disclose payments by Stanbic Bank Tanzania in 2013 and imposed a USD 4.2 million penalty.
This settlement is evidence of the cooperation between international enforcement authorities. This first DPA emphasises the importance for organisations to have an effective compliance program that tackles bribery and corruption issues.