The UK’s growing focus on corporate criminal liability was seen in two recent pieces of news.
Last Friday the government announced a consultation on extending the reach of corporate criminal liability to additional economic crimes, in order to avoid the current English law requirement to identify a “directing mind and will” of the company (i.e. the most senior management) to prove corporate liability, which has proved a hurdle in prosecuting large corporates. As is well known, the UK Bribery Act 2010 introduced the corporate offence of failure to prevent bribery which bypasses this hurdle, and already, an offence of failure to prevent tax evasion is making its way through parliament, to which the government is now considering adding fraud, false accounting and money-laundering.
Just as that consultation was being launched, the already existing reality of criminal liability for bribery was being felt by Rolls Royce. Following a three year investigation, the company reached a £497 million settlement with the Serious Fraud Office (“SFO”).
On 17 January 2017, Sir Brian Leveson QC approved a Deferred Prosecution Agreement (the “UK DPA”) between the SFO and Rolls-Royce plc and Rolls-Royce Energy Systems Inc (together “Rolls Royce”) for a total of approximately £497 million (largely comprising disgorgement of £258 million profit and a £239 million financial penalty), the third DPA under English law. The UK DPA relates to a number of charges of carefully planned bribery, corruption, false accounting, and conspiracy to corrupt, across several jurisdictions (Nigeria, Indonesia, Russia, Thailand, India, China and Malaysia) involving foreign public officials over an extended period (1989-2013), resulting in over £250 million of gross profit.
In a coordinated global resolution of the conduct, parallel agreements have been reached between Rolls Royce and the U.S. and Brazilian governments in relation to similar conduct. Rolls Royce has agreed a DPA (the “US DPA”) with the US Department of Justice (the “DOJ”) to pay a penalty of US$170 million. Under a Leniency Agreement with Brazil’s Ministério Público Federal, it will also pay a penalty of US$25.6 million, bringing the total payments to around £671 million (US$809 million).
Notable features of the UK DPA are:
- It is the largest of its kind, at nearly £0.5 billion. The English court noted that the DOJ had confirmed that the financial penalty was comparable to a US penalty.
- It confirms the SFO’s ability and willingness to take on extensive investigations into the biggest corporate names.
- It underlines the increasing cross-jurisdictional cooperation between law enforcers and global nature of corporate accountability. The DOJ took into account similar factors as the English Court in agreeing the US DPA, including settlement with Brazilian prosecutors.
- The court accepted that a DPA was a legitimate alternative to prosecution despite describing the offences as “the most serious breaches” and the lack of an initial self-report, because of Rolls’ Royce’s “extraordinary cooperation”, a significant change of management, a significant enhancement to its compliance programme, and the harm which a prosecution would do to employees and other stakeholders.
- It requires Rolls Royce’s ongoing cooperation with the SFO, in particular in relation to ongoing investigations of suspected wrongdoing by individuals.
- There were several factors which multiplied the financial penalty to 300-400% of the perceived harm caused by the wrongdoing, including the planned and organised nature of the unlawful activity, the corruption of government officials and ministers, the duration of the wrongdoing over a 24 year period, and attempts to conceal and obstruct detection.
- Rolls Royce achieved a discount of 50% to the financial penalty owing to its early settlement and cooperation. This is to be welcomed, as it provides an additional incentive for corporates to investigate potential wrongdoing and cooperate with authorities in order to resolve what might otherwise be catastrophic criminal prosecution.The Rolls Royce DPA should demonstrate to corporates that even in the most serious of wrongdoing and the lack of a self-report, the SFO and the English court is open to a DPA, provided the corporate reacts appropriately when the matters come to light.
This is the third DPA which the SFO has entered into, following DPAs with Standard Bank Plc (now known as ICBC Standard Bank Plc) for a US$25.2 million penalty and a further US$7 million in compensation to be paid to the Government of Tanzania, and with XYZ Ltd for around £6.5 million in connection with contracts to supply its products to customers in a number of foreign jurisdictions. The SFO will take a number of factors into account in deciding whether a DPA is in the public interest, and the English court (which must approve any proposed DPA) must consider similar factors in deciding whether it is in the interests of justice. For more detail on this, and relevant factors, see our previous Client Alerts on DPAs and on UK prosecutors’ guidance.
The Rolls Royce DPA should demonstrate to corporates that even in the most serious of wrongdoing and the lack of a self-report, the SFO and the English court is open to a DPA, provided the corporate reacts appropriately when the matters come to light.