The Rolls-Royce DPA: an end to corporate prosecution?

On 17 January 2017, the Serious Fraud Office (SFO) enjoyed its best result since R v Hayes with the securing of a deferred prosecution agreement (DPA) with Rolls-Royce, the British aero-engineering company. After announcing the agreement in principle, approval was given at a hearing before Sir Brian Leveson QC, President of the Queen’s Bench Division.  The agreement will result in the payment of approximately £500 million and a payment in respect of the SFO’s costs.The Director of the SFO, David Green CB QC, commented in a SFO press release that:

“Bribery harms the reputation of the UK as a safe place to do business. I welcome this DPA, a significant enforcement action by the SFO, using relatively new statutory powers in respect of an important British company. It allows Rolls-Royce to draw a line under conduct spanning seven countries, three decades and three sectors of its business. I am grateful to the excellent SFO team who led on this case and for the assistance and cooperation of our trusted international partners”.

For a full consideration of the DPA, see Legal update, Third deferred prosecution agreement approved between SFO and Rolls-Royce (Crown Court).

The third DPA:

The agreement with Rolls-Royce is by far the most significant agreed by the SFO with a corporate entity, and the first time the sums of money involved equate to those brought in a significant US case. The penalty, including fine, disgorgement and costs, totaling nearly £500m in the UK alone, is by far the most severe financial sanction ever imposed by the justice system of England and Wales. To put the fine in context, it is nearly double the highest fine imposed by the FCA for financial crime related matters (against Barclays Bank plc in 2015) and on a completely different scale to any of the civil settlements entered into with companies under the previous SFO Director, Richard Alderman.

Such a sanction may spell the end to the disparity in sentencing between England and Wales and the US. In the Innospec judgement, Thomas LJ said there should be no distinction.

The Rolls Royce agreement also provides additional guidance on the terms on which a company can bring a case to the SFO, and guidance on the amount of discount for fines as a result of co-operation.  Significantly, it also makes it clear that self reporting is not a pre-requisite for a DPA, and will not automatically result in a more favourable financial settlement. As a consequence, corporations can be more confident about how they will be treated if they choose to co-operate with the SFO.

The agreement also makes clear that wholesale changes in the senior management of the company will be required in order to persuade a court to approve a DPA. Sir Brian Leveson commented that Rolls-Royce has taken a number of steps to enhance its ethics and compliance procedures, reorganised the reporting lines, and made wholesale changes to the board and senior management.

The SFO’s approach:

The SFO’s  approach has been relatively consistent over the past few years. Broadly speaking, the following points are “red lines”:

  • Co-operation must be full. There will obviously be some debate as to “full”, but the contrasting position between Rolls-Royce and Sweett Group demonstrate the penalty for non-cooperation. Co-operation will include agreement on how to progress the investigation, and not concealing information from the SFO.
  • Legal advisors must also adopt a co-operative approach. While legitimate claims to LPP will be respected, seeking to run an internal investigation behind the cloak of LPP will not be viewed sympathetically. The Director has also adopted a tougher stance against defence lawyers who appeared to have developed a “cozy chat” approach under Richard Alderman – see Legal update, SFO publishes new operational guidance on presence of legal advisers at section 2 interviews.

It however raises the question whether offending will ever be so serious that a DPA cannot be considered. If a company responsible for multiple counts of corruption in multiple jurisdictions, involving multiple millions of pounds, over more than a decade, is not going to be prosecuted for corruption, just when could a company that self-reports and co-operates ever be prosecuted?

Secondly, accepting Sir Brian Leveson’s firm assertion that “nothing must ever be done to encourage the view that those with money can ‘buy’ themselves out of prosecution and appropriate conviction”, the perception that large multinational companies are impossible to prosecute will continue, certainly when a company like Smith and Ouzman is subject to prosecution for corruption on a radically smaller scale.

Finally, the judgement did not make it clear whether there are any ongoing investigations into individuals, although a speech by Hannah von Dadelszen, Joint Head of Fraud, made it clear the investigation into the individuals continues. Having identified a number of concerns regarding the behaviour of individuals, the DPA must be seen as just the beginning of this matter.

Where does this leave the consultation on the reform of business crime?

HM Government has opened a consultation on the reform of corporate fraud, money laundering and false accounting. The call for evidence seeks views on whether further reform is needed to combat corporate criminality in the UK. It will run until March 24 2017. For more information see Legal update, HM Government has opened a consultation on the reform of corporate fraud, money laundering and false accounting.

The SFO have consistently backed the reform of corporate crime by introducing a new offence of failing to prevent economic crime. At the 2016 Cambridge Symposium, David Green CB QC stated

“A “failure to prevent economic crime” offence would significantly increase the prosecutors’ reach in those cases where a company should be held to account for the conduct of persons associated with it. It would also underpin the anti-corruption, responsible capitalism and social justice agendas, and the prosecutors’ contribution to those efforts”.

The consultation goes far beyond a consideration of failure to prevent offences, proposing five options:

  • Amendment of the identification doctrine by broadening the scope of those regarded as being a directing mind of a company.
  • The creation of a strict liability offence to make the company guilty, through the actions of its employees, representatives or agents, of the substantive offence, without the need to prove any fault element such as knowledge or complicity at the corporate centre.
  • A strict (direct) liability offence, which would focus on the responsibility of a company to make sure that offences are not committed in its name or on its behalf, leading to convictions without the need for proof of any fault element, not of the substantive offence, as with vicarious liability, but of a separate offence akin to a breach of statutory duty to ensure that economic crime is not used in its name or on its behalf.
  • Failure to prevent as an element of the offence, where the prosecution have to prove not only that the predicate offence occurred but also that it occurred as a result of a management failure, but also that the company had not taken adequate steps to prevent the unlawful conduct occurring.
  • Regulatory reform on a sector by sector basis, citing the significant reform in the regulation of the financial services industry in order to deter misconduct through strengthening individual accountability.

If the preferred approach to resolve corporate offending is a DPA, it raises the question whether making it easier to prosecute a company is actually necessary? For more information see Practice note, Corporate criminal liability in the UK. 

The international element:

In addition to the agreement with the SFO, Rolls-Royce has reached a parallel DPA with the US Department of Justice (DOJ) and a leniency agreement with Brazil’s Ministério Público Federal (MPF). The agreements relate to bribery and corruption involving intermediaries in a number of overseas markets. In addition to the UK DPA, Rolls-Royce has agreed to make payments to the DOJ totalling $169,917,710 and to the MPF totalling $25,579,179. Although presenting a “done deal” to the court was criticised in Innospec, it seems the international dealings were conducted with with the knowledge of the court. Seeing parallel UK and US settlements may provide some comfort to companies concerned that an agreement reached in the UK could lead to further investigations in other jurisdictions.

Finally, in the week that the UK’s lead anti-corruption agency achieved a settlement, Donald Trump will be inaugurated as the 45th President of the United States. Mr Trump has not been sympathetic towards the Foreign Corrupt Practices Act 1977, describing it as “a horrible law that should be changed…that puts US business at a huge disadvantage”. It would be ironic if the week in which the SFO secured a first US-style payment, the US signaled the end of companies being fined multiple millions for overseas corruption.

Practical Law David Bacon

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