“If Rolls-Royce were not to be prosecuted in the context of such egregious criminality over decades, involving countries around the world, making truly corrupt vast payments and, consequentially, even greater profits, then it was difficult to see when any company would be prosecuted”.
These were the thoughts of the President of the Queen’s Bench Division when he first saw the papers in the case of SFO v. Rolls Royce. So how did he get from here, to approving a Deferred Prosecution Agreement (“DPA”) between the parties?
What is a DPA?
A Deferred Prosecution Agreement (“DPA”) is an agreement between a nominated prosecutor and a corporate body (or partnership) under which the prosecutor agrees to defer a criminal prosecution against that body. In return, the corporate agrees to adhere to certain terms specified under the DPA.
DPAs are an American invention: and in fact Rolls-Royce signed DPAs in the US and Brazil in relation to similar conduct, with penalties of $169million and $25.6million respectively. DPAs were introduced into our law by way of the Crime and Courts Bill 2013. Although the prosecutor and company agree the proposed terms of the DPA between then, final approval lies with the court. The court must consider whether the proposed DPA is ‘likely’ to be in the interests of justice and if its proposed terms are fair, reasonable and proportionate (see paras 7(1) and (4) of Schedule 17 of the 2013 Act).
What does the Rolls-Royce DPA relate to?
The criminal conduct largely relates to intermediaries making corrupt payments in order to secure business. The corrupt acts took place in 7 countries, and occured over a 24 years period. The conduct involved ‘very senior’ Rolls Royce employees, and can properly be described as endemic, given it relates to the aerospace, energy and defence aspects of the Rolls-Royce business.
The charges are as follows:
- Six offences of conspiracy to corrupt, contrary to section 1 of the Criminal Law Act 1977;
- Five offences of failure of a commercial organisation to prevent bribery, contrary to section 7 of the Bribery Act 2010;
- One offence of false accounting contrary to section 17(1)(a) of the Theft Act 1968.
What factors did the court consider when determining if the DPA is in ‘the interests of justice’ and, whether its terms are ‘fair, reasonable and proportionate’?
One key factor considered by Sir Brian Leveson (PQBD) provides a good example of why DPAs are a necessary addition to the prosecutor’s arsenal: the special position of Rolls Royce in the British economy. Given the importance of Rolls Royce to British industry, defence and exports, it would not be in the public interest for a sanction to be imposed which could cause Rolls Royce to struggle, or fail. A criminal conviction can have the effect of debarring a company from bidding for public contracts, and 15-30% of Rolls Royce’s business takes place in countries exercising mandatory or discretionary debarment. The court also accepted a conviction would reduce the funds available for research and development, and would have a potentially significant effect on the share price. The judge stated “I have no difficulty in accepting that these features demonstrate that a criminal conviction against RR would have a very substantial impact on the company, which, in turn, would have wider effects for the UK defence industry and persons who were not connected to the criminal conduct, including Rolls Royce employees, and pensioners, and those in its supply chain”. He stated “None of these factors is determinative of my decision in relation to this DPA: indeed, the national economic interest is irrelevant” . Of course, in reality and in practice, this is a key consideration and a reason why DPAs were introduced as an alternative to prosecution.
A highly persuasive factor for Sir Brian Leveson was the ‘extraordinary cooperation’ Rolls-Royce engaged in with the SFO. The company was praised for conducting a thorough and extensive self-investigation and providing all of the product to the SFO voluntarily (over 300 million documents). The cost of the internal investigation and cooperation with the SFO set Rolls Royce back £139 million.
Sir Brian Leveson P also stated that Rolls-Royce is ‘No longer the company it once was’. It sought to clear out all of the disreputable practices, identify the responsible individuals, took appropriate disciplinary action, and created new policies, practices and procedures.
What are the terms of the DPA?
The key terms of the DPA are as follows:
- An obligation on Rolls Royce to co-operate with the relevant authorities: this includes a responsibility to assist in the criminal investigation into individual employees and intermediaries.
- Disgorgement of profits to the tune of £258m.
- Financial penalty of £239m (50% discount applied for cooperation and guilty plea).
- Requirement to pay the SFO’s costs.
Lessons for companies
It is worth noting the manner in which the SFO were ‘tipped off’ as to corruption at Rolls: quite simply, they saw articles on the internet accusing Rolls Royce of corruption. It demonstrates that in today’s modern world, prosecutors don’t necessarily need a whistleblower to discover criminality in a company. They use the internet and social media, just like the rest of us.
The praise lavished on Rolls Royce for engaging with the SFO is tactical. Rolls Royce did not ‘self-report’: the SFO started the investigation of its own volition. However due to the ‘extraordinary’ engagement, the court in considering the DPA held that Rolls should be treated as if it had in fact made a ‘self-report’. This is a strong message to companies on the merits of engagement with the prosecutor. In case there was any doubt on this point, the court went one further and explicitly stated “…a DPA will likely incentivise the exposure and self-reporting of wrong doing by organisations in similar situations to Rolls Royce. This is of vital importance in the context of the investigation and prosecution of complex corruption cases in bringing more information to the attention of law enforcement…”.
It is important to note that a DPA only defers the prosecution of the corporate: it does not debar a prosecution against any employee of the company. It is clear that individual Rolls-Royce employees are currently being investigated and could well face criminal prosecution. In such an event, the terms of the DPA require Rolls-Royce to actively assist the SFO with those prosecutions. It seems unjust that an individual operating in a company where corruption is endemic could be criminally prosecuted for a specific act of corruption; whereas the company can ‘buy its way out’ of prosecution. To add insult to injury, the company will then be obliged to assist the prosecutor in its investigation into the individual! However, note that the position may well be different depending on the seniority of any employees incriminated: The judge stated that if the conduct had involved members of the Board, it would have affected his decision of whether to approve the DPA.
Given this is only the third DPA approved in this country, it is clear that Sir Brian Leveson P has sought to make a DPA an ‘attractive’ prospect for a company which finds itself under investigation by a nominated prosecutor. Sir Brian Leveson could not have been more explicit on that point: “A cynic (or irresponsible company) might look at the costs which Rolls-Royce have incurred in their own investigation and wonder whether it be more sensible to keep quiet and hope that its conduct does not fall under the eye of the authorities….such an approach carries with it cataclysmic risks. Whatever the costs Rolls-Royce have incurred, they are modest compared to the cost of seeking to brazen out an investigation which commences…conviction would almost inevitably spell a far greater disaster than has befallen Rolls-Royce”.
It is easy to criticise DPAs in principle – Sir Brian Leveson P himself cautioned against doing anything ‘to encourage the view that those with money can ‘buy’ themselves out of prosecution and conviction’. But of course a corporate body cannot serve a prison sentence, it can only suffer in financial terms. Rolls-Royce has still suffered to the tune of over £650 million, but without the risk of such financial detriment leading to the loss of British jobs, or the collapse of a British aeronautical and mechanical institution. However the agreement is likely to be highly criticised by anti-corruption campaigners, who will say that Rolls Royce has got off very lightly indeed, given the scale of its wrongdoing.
Guest Post by Merry Van Woodenberg, barrister, 9-12 Bell Yard