On 17 January 2017, Sir Brian Leveson approved only the UK’s third ever Deferred Prosecution Agreement (DPA), following a four year investigation by the Serious Fraud Office into alleged widespread bribery and corruption which resulted in Rolls-Royce agreeing to pay over £500 million in penalties and costs to the SFO.
For more background on legal framework and purposes of DPAs, please see our earlier article here.
How did this come about?
The Rolls-Royce DPA follows the largest investigation that the SFO has conducted to date, which involved a review of 30 million documents at a cost to the SFO around of £13million (which Rolls-Royce will now pay).
The SFO’s investigation concluded that Roll-Royce had engaged in corrupt practices spanning 24 years, taking place in at least seven countries, and typically involving using intermediaries to bribe businesses or politicians to secure contracts for Rolls-Royce. Although Rolls-Royce did, throughout the period, have policies in place to prevent such actions, the SFO concluded that these were not properly enforced, and staff were not properly trained in them.
Leveson LJ described the allegations against Rolls-Royce as “the most serious breaches of the criminal law in areas of bribery and corruption”.
How did Rolls Royce avoid Prosecution?
As Leveson LJ noted, the consideration of the public interest is of key importance for the court when deciding whether to approve a DPA. In effect, this means that that the more serious the offence, the more likely that prosecution (rather than a DPA) will be required. In fact, Leveson stated that on first reading the case papers, his reaction was:
“if Rolls-Royce were not to be prosecuted in the context of such egregious criminality over decades, involving countries around the world, making truly vast corruption payments and, consequentially, even greater profits, then it was difficult to see when any company would be prosecuted“.
On an initial view therefore, it may appear that Rolls-Royce was fortunate to avoid prosecution. However, the Court noted the following factors, which supported the SFO’s conclusion that a DPA was in the public interest:
In the first two DPA decisions (Standard Bank and XYZ Limited), the Court placed significant weight on the wrongdoer’s self-reporting. Rolls-Royce did not self-report to the SFO, and only began co-operating with the investigation after the SFO had notified it of its interest, following the publication of articles on the internet.
Although Rolls-Royce did not self-report, the SFO acknowledged that, following its enquiry, Rolls-Royce had shown “extraordinary cooperation” with its investigation, by:
- providing materials to the SFO voluntarily, including legally privileged documents;
- providing the SFO with pertinent information that might otherwise have been missed;
- disclosing all interview materials, again even where legally privileged;
- allowing access to over 30 million documents; and
- consulting the SFO regarding media coverage of developments, and seeking permission before winding up businesses that were potentially relevant to the investigation.
Although Rolls-Royce’s cooperation appears to have remedied its failure to self-report, Leveson LJ stressed that “the fact that the investigation was not triggered by self-reporting would usually be a highly relevant factor” when considering the suitability of a DPA.
Rolls-Royce’s cooperation alone would not have allowed it to avoid prosecution. Rolls-Royce’s evidence of a genuine change in its corporate culture was also of central importance. Rolls-Royce’s board had been completely changed, and none of its current members could be said to be linked with the criminal conduct.
Rolls-Royce has also carried out a £15million review of its anti-bribery corruption policies and procedures, and implemented changes to allow them to be effective.
The impact of the prosecution
The judge found that the impact on innocent third parties and the wider UK economy and defence capability would be greatly harmed by prosecuting Rolls Royce. However, he stressed that this did not mean that a company in Rolls-Royce’s position (that is, central to the UK economy in an important sector, and important to wider national interests) is immune from prosecution.
“… a company that commits serious crimes must expect to be prosecuted and if convicted dealt with severely and, absent sufficient countervailing factors, cannot expect to have an application for approval of a DPA accepted.”
Scope of the DPA
Significantly, the DPA did not preclude any individuals from being prosecuted for wrong-doing. Indeed, the court highlighted that in the DPA conditions, excluded “any protection of any present or former officer, employee or agent or Rolls-Royce … for any conduct not disclosed to date“.
In reaching its decision, Leveson LJ also noted the saving in resource, both to the SFO and the Court, by avoiding the need for a full prosecution, together with the likely incentivisation of other organisations to self-report.
Weighing all these factors in the balance, the Judge concluded that, subject to the terms being “fair, reasonable and proportionate”, a DPA, and not a full prosecution, was in the public interest.
The terms of the DPA
Although the court approved a DPA, Leveson LJ made clear his view that the DPA “has to be approached on the basis that it must be broadly comparable to the fine that a court would have imposed on conviction following a guilty plea”.
As such, the court arrived at the sanction ordered by the DPA having applied The Sentencing Guideline for Corporate Offenders: Fraud Bribery and Money Laundering (the Guideline). Having done so the following financial penalty was imposed:
- disgorgement of profit from the relevant transactions, amounting to some £258 million;
- payment of a financial penalty of some £ 239 million; and
- payment of the SFO’s costs, of approximately £13 million.
The disgorgement figure was agreed by the parties following a technical analysis that might not be relevant to similar future cases, and which the Court did not find it necessary to review in detail.
The financial penalty was calculated by considering the harm caused by the offending and the culpability of Rolls-Royce and arriving at appropriate multipliers as required by the Guideline. The Court then applied a 50% reduction to the penalty that would have otherwise been imposed reflecting the admission by Rolls Royce of wrong-doing (33%), and its co-operation with the investigation (17%)
Of note and significance, Rolls-Royce has been granted a period of 5 years to pay the total sanction ordered, a period which appears to be without precedent.
The DPA also contains a continuing obligation on Rolls-Royce to co-operate with all relevant authorities in relation to on-going investigations concerning the matters dealt with in the DPA, and to complete (at its own expense) a compliance programme recommended by an external review. In addition to the UK sanction set out above, Rolls-Royce has agreed to pay US$169 million and US$25 million to the authorities in the USA and Brazil respectively to settle parallel investigations.
Osborne Clarke comment
This is a sensible and expedient decision, where the court weighed up complex and conflicting factors to arrive at a conclusion that, on balance, was in the public interest.
The direction of travel indicated by the judgment is one of an increasing need for self-reporting and full co-operation thereafter. Nevertheless, whilst that it is plainly the position that the authorities will adopt publically, there must in our view be a risk that this decision might, however, disincline self-reporting. Ultimately, this decision shows that a company that does not self-report can still secure a DPA – and on terms that include a generously discounted financial penalty.
As such, we believe that there is a clear case now for consideration being given to providing companies with greater incentives to self-report. In appropriate cases, the courts should be able to order greater reductions from the sanctions than might otherwise fall to be imposed. In the USA, the Department of Justice is able to issue a formal “declination” of matters that would otherwise be prosecuted. In certain cases, this can mean the corporation avoiding any sanction, where they have self-reported the issues, fully cooperated with the DoJ and taken remedial steps that are considered satisfactory. A similar system might be of value in the UK.
In the interim, however, this DPA represents a considerable success for the SFO and one which, in our view, ought to sensibly to halt any lingering debate as to the future of the agency.