Rolls-Royce deferred prosecution agreement: the SFO gains traction | Practical Law

Rolls-Royce deferred prosecution agreement: the SFO gains traction | Practical Law

The Serious Fraud Office has announced that it has agreed its third deferred prosecution agreement, this time with two subsidiaries of car manufacturer and engineering firm, Rolls-Royce Holdings plc. The DPA was approved by Sir Brian Leveson, President of the Queen’s Bench Division, on 17 January 2017, and will result in Rolls-Royce paying a settlement sum of £497 million plus a payment towards the SFO's costs.

Rolls-Royce deferred prosecution agreement: the SFO gains traction

Practical Law UK Articles 6-638-0859 (Approx. 3 pages)

Rolls-Royce deferred prosecution agreement: the SFO gains traction

by Ruth Morrow, PLC Magazine
Published on 26 Jan 2017United Kingdom
The Serious Fraud Office has announced that it has agreed its third deferred prosecution agreement, this time with two subsidiaries of car manufacturer and engineering firm, Rolls-Royce Holdings plc. The DPA was approved by Sir Brian Leveson, President of the Queen’s Bench Division, on 17 January 2017, and will result in Rolls-Royce paying a settlement sum of £497 million plus a payment towards the SFO's costs.
The Serious Fraud Office (SFO) has announced that it has agreed its third deferred prosecution agreement (DPA), this time with two subsidiaries of car manufacturer and engineering firm, Rolls-Royce Holdings plc. The DPA was approved by Sir Brian Leveson, President of the Queen's Bench Division, on 17 January 2017, and will result in Rolls-Royce paying a settlement sum of £497 million plus a payment towards the SFO's costs.
This is by far the largest DPA agreed to date, which reflects the sheer scale of misconduct involved (see box "Deferred prosecution agreements to date"). However, despite representing a significant win for the SFO, there continues to be an overall sense that large multinational companies are impossible to prosecute: if a company that has committed bribery on such a scale is not going to be prosecuted, what company will be?

Bribery and corruption

The conduct that was the subject of the SFO's bribery and corruption investigation took place in Nigeria, Indonesia, Russia, Thailand, India, China and Malaysia, and spanned more than 23 years, from 1989 right up to 2013. The allegations covered a range of matters such as making corrupt payments to agents, bribery of foreign public officials, commercial bribery, false accounting of payments to intermediaries, failure to prevent bribery by certain employees, and failure to prevent the provision of inducements that constitute bribery.
The judgment approving the DPA described the conduct of Rolls-Royce as "the most serious breaches of the criminal law in the areas of bribery and corruption, some of which implicated senior management and, on the face of it, controlling minds of the company".
In parallel with the SFO's proceedings, there have also been discussions intended to bring about similar types of agreement between Rolls-Royce and the US Department of Justice, and with the Brazilian federal public prosecutor.

Self-reporting

In large part, the investigation was conducted by Rolls-Royce itself and this was voluntarily disclosed to the SFO. The business invested significant time and money in connection with its investigation and work with prosecutors in multiple jurisdictions.
Since the investigation, Rolls-Royce has taken a number of steps to enhance its ethics and compliance procedures, and conducted a significant reorganisation of reporting lines, ensuring that compliance officers are independent of business divisions. Following the investigation, Rolls-Royce also conducted disciplinary proceedings in respect of 38 employees, of which 11 left during the disciplinary process, and six were dismissed.
The judgment noted that the effect of a DPA is to require the company concerned to become a flagship of good practice and an example to others, and that Rolls-Royce could not have done more to expose its own misconduct. It is hoped therefore that this DPA will provide an incentive to investigate and self-report wrongdoing by organisations in similar situations to Rolls-Royce (see News brief "Self-reporting financial crime: moving the goal posts").

The development of DPAs

Marcus Bonnell, Counsel in the Regulatory group at RPC, comments: "Following the implementation of the Bribery Act 2010, many firms spent considerable amounts of time and money developing systems and controls to counter the risks of bribery and corruption. That investment now looks very wise as this case demonstrates both the effectiveness of the tools now available to prosecutors and the SFO's focus in this area."
Lance Ashworth QC, of Serle Court chambers, notes that the traction that DPAs are gaining, as demonstrated by this case, highlights how big businesses are turning to DPAs in order to avoid lengthy and expensive trials, which might ultimately lead to a conviction. "This shows that big businesses are taking the SFO seriously, knowing the SFO is not going to be fobbed off" he says.
Ashworth also notes that "A conviction for bribery can, in particular, affect a business's ability to tender for public contracts, but entering into, and adhering to the terms of, a DPA means avoiding a conviction, thus avoiding this issue altogether".
In Bonnell's view, the willingness of the SFO to use DPAs to resolve such complex and serious allegations may well suggest that this is a tool that will be used frequently in the future to resolve not only allegations of bribery, but also other allegations including the new corporate offences of failure to prevent the facilitation of UK and foreign tax evasion.
Ruth Morrow, PLC Magazine

Deferred prosecution agreements to date

Deferred prosecution agreements (DPAs) were introduced by the Crime and Courts Act 2013, and allow corporate organisations to settle investigations into fraud, corruption and other corporate criminal activity without being prosecuted. In essence, a DPA states that the prosecutor will bring, but not immediately proceed with, criminal charges pending the corporate entity's compliance with agreed terms and conditions (for background see feature article "Deferred prosecution agreements: moving into the unknown").
Since DPAs were introduced, the SFO has used them to conclude two other investigations: one with ICBC Standard Bank Plc; the other with an as yet unidentified company known as XYZ Ltd (see News brief "Bribery Act 2010: SFO concludes first deferred prosecution agreement").