Executives with sleepless nights – a fear of being rolled over
Posted on 3rd February 2017
Legal commentators have rightly hailed the announcement of a Deferred Prosecution Agreement between the Serious Fraud Office and Rolls Royce as a huge victory for SFO. It signals the arrival of the SFO in the “big league” of prosecutor/regulators for financial misconduct and represents a truly devastating judgement against Rolls Royce. However, the judgement of Sir Brian Leveson , provides a fascinating insight into some of the issues that will face other companies and how the courts may deal with those issues. In this piece, I will look at the compliance strategies that were in place and consider why they were ineffective. In later pieces, I will consider what Leveson’s judgements to date have shown us about the DPA regime and in a final piece consider how the financial penalties are being considered by the SFO/court.
In paragraph 25-29 of the Leveson Judgement, he recites, what appears to be, a truly impressive collection of anti-corruption policies.
A Code of Business Conduct was first issued in 1996 and there was a clear prohibition on the payment of any bribes. A corporate department, “Market Services” was responsible for the appointment procedure, the process of conducting of checks and the maintaining of a list of intermediaries.
In 1999, a policy was produced about the use of intermediaries. In 2003, the policy was revised to specify that due diligence was to be conducted by “Market Services”. The documentation makes clear that the policy was revised in 2004/2005/2009.
In 2009, one of the big 4 accountancy firms conducted an Anti-Bribery and Corruption Review with a substantially revised compliance framework resulting.
In 2010, an even more detailed policy was introduced.
These policies, no doubt fed into the various committees that existed at various times – from the Contract Sub Committee to the Ethics Committee – indeed it was clear that the normal institutional hallmarks of a proper compliance program were in place.
All the paperwork, all the committees…. And still perhaps the greatest corruption scandal in corporate UK to date – resulting in Rolls Royce having to pay in excess of half a billion pounds. Why and how will be the question haunting executives throughout the UK.
A clue to why this has occurred can be found by further analysis of Leveson’s judgement and the statement of facts itself.
Firstly, the extent of the allegations is laid bare. Leveson indicates that it is “….the most serious breaches of criminal law in the field of bribery and corruption (some of which by the senior management, and on the face of it, the controlling mind of the company” (Paragraph 4 of judgement).
In other words, it appears that some of the people in charge of Rolls Royce are implicated in this investigation. In case anyone missed the point, then Leveson states at paragraph 61 (when considering whether Rolls Royce should be prosecuted or subject to a DPA)
“….My first reaction when first considering these papers was that if Rolls Royce were not to be prosecuted in the context of egregious criminality over decades , involving countries around the world, making truly vast corrupt payments and, consequentially even greater profits , then it would be difficult to see when any company would be prosecuted”
From these passages, it is easy to infer that the policy/committee framework was simply window dressing – a tick box exercise that is explicitly warned against in Directors Handbook (Chapter 7) Instead, at Rolls, there was a cultural ethos that bribes were acceptable and senior management may have been actively involved in such activity. In that scenario, it is clearly easier to circumvent compliance programs.
However, there is always more to do – as indeed Rolls now acknowledges by ensuring that compliance is monitored by an external and independent individual.
DPAs do not protect individuals – only corporate entities. Indeed, a term in the DPA is that Rolls Royce must cooperate in relation to any investigation/prosecution of their former employees.
Many former executives at Rolls Royce may be feeling the heat right now. There is a clear possibility that the SFO will still seek to prosecute individuals as a result of their investigation and they will need to consider how to respond to these allegations. (Chapter 12 of Bribery, A Compliance Handbook). Even though Leveson took great care in not identifying individuals lest it be said that any future criminal trial was prejudiced – it could be argued that the tone of the judgement as above may still do that. No doubt that is being considered – but in any event, many former executives and employees of Rolls Royce are going to be having sleepless nights for some time to come.