{UAH} Tanzania: Standard Bank fined US$25.2 million US$7 million in compensation

Pension Fund in Cairo Bank ?

On 30 November 2015, a landmark judgment saw Standard Bank fined US$25.2 million and ordered to pay the government of Tanzania US$7 million in compensation for allegedly failing to prevent bribery. Nick Branson considers whether this level of reparations is appropriate, and how those implicated might be held to account for their actions.

Many Tanzanians welcomed the deferred prosecution agreement (DPA) between the UK's Serious Fraud Office (SFO) and Standard Bank as it appeared to add weight to the crusade against corruption launched by the newly-elected president, John Magufuli. Only three days earlier, Magufuli had suspended Rished Bade, the commissioner general of the Tanzania Revenue Authority (TRA), and ordered investigations into tax evasion at Dar es Salaam port.

Others, however, dug into the statement of facts, unearthing a mountain of information on hitherto low-profile financiers and civil servants, and provoking questions over the country's US$600 million sovereign note private placement, a debt issue managed by Standard Bank, now ICBC Standard Bank Plc. Suspicions have been raised at a time when Tanzania is thought to be planning a US$700 million Eurobond, and neighbouring Kenya grapples with persistent allegations regarding its own US$2 billion bond.

The allegations

The DPA suspended an indictment against Standard Bank for its alleged failure to prevent bribery, citing section 7 of the Bribery Act 2010. The Bank was fined US$25.2 million, in addition to US$7 million in compensation, payable to the Government of Tanzania.

The case relates to a US$6 million payment made by Stanbic Bank Tanzania on 1 March 2013 to a "local agent" in Tanzania, Enterprise Growth Market Advisors (EGMA). Stanbic entered into an agreement with EGMA in August 2012. At the time, Stanbic was a sister company of Standard Bank, and worked with the latter to access the debt capital markets.

Lord Justice Leveson concluded that "although the potential for corrupt practices to affect this type of business were well known, Standard Bank, which did not have adequate measures in place to guard against such risks, relied on Stanbic to conduct appropriate due diligence in relation to EGMA; Standard Bank made no enquiry about EGMA or its role."

According to the statement of facts agreed as part of the DPA, among other oversights, the bank "failed to identify and therefore deal adequately with the presence in this transaction of a politically exposed person". One of EGMA's directors was Harry Kitilya, then commissioner general of the TRA. A clear potential conflict of interest exists if a man responsible for raising revenue moonlights by offering to "facilitate" borrowing by the Tanzanian government. Kitilya retired in December 2013, five months before the bond was issued.

Although there was "no evidence that EGMA provided any services in relation to the transaction", the company was paid US$6 million. This was raised by increasing the cost of the transaction from 1.4% (US$8.4 million) to 2.4% (US$14.4 million).

Tanzanians have been quick to question the extent of this practice. In conversation with the author, Professor Ibrahim Lipumba, former national chairman of the opposition Civic United Front (CUF), argued that "if a 1% kickback was involved in this US$600m loan, what about comparable borrowing in recent years? Over the past four fiscal years Tanzania has borrowed over US$2.5 billion."

On 1 February 2016, Zitto Kabwe MP, a former chair of the public accounts committee (PAC) and leader of the opposition Alliance for Change and Transparency (ACT-Wazalendo), raised this issue in parliament. Kabwe called for the Controller and Auditor General (CAG) to audit bond sales amounting to 6.8 trillion Tanzanian Shillings between 2011/12 and 2015/16.

A new legal instrument

By contrast, the international media focused on the ground-breaking nature of the case and quoted the SFO's director, David Green QC, who hailed the "landmark DPA" as "a template for future agreements." Ben Morgan, joint head of bribery and corruption at the SFO, commended "the decision of the bank in question to participate in DPA negotiations".

Under a DPA, a corporation is charged with a criminal offence, but criminal proceedings are suspended provided the accused company meets certain conditions. The SFO may resume prosecution within three years, should Standard Bank fail to comply with the terms of the agreement. After that period, the SFO will discontinue proceedings.

DPAs have enjoyed significant growth in the US, primarily as a punitive instrument, whereas the UK variant includes a degree of compensation. Another difference is that British DPAs must be confirmed by a judge in open court, who must deem them to be in the interests of justice with terms that are fair, reasonable and proportionate.

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Bwanika Nakyesawa Luwero

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