The Rolls-Royce and Tesco deferred prosecution agreements (DPA’s) made the headlines earlier this year. And both companies were happy to accept them.
Rolls-Royce paid a total of £671M to settle allegations that it used bribes to land export contracts, while Tesco paid £129M as a penalty for having misreported its profits.
Big penalties, certainly. But, crucially, for both companies, it was a price worth paying, as obtaining a DPA means the company will not face a criminal prosecution.
There must be many companies being investigated – or that fear they will be investigated – that would gladly accept a DPA as an alternative to prosecution. But DPA’s are not given out liberally by the authorities. If a company wants one, therefore, it has to know how to manage its affairs when an investigation commences.
DPA’s were introduced under the provisions of Schedule 17 of the Crime and Courts Act 2013. They are available to the Crown Prosecution Service (CPS) and the Serious Fraud Office (SFO).
A DPA is an agreement reached (under the supervision of a judge) between a prosecutor and an organisation which could be prosecuted. It allows a prosecution to be suspended for a defined period provided that the organisation meets certain specified conditions.
A company must admit the criminal behaviour and agree to work under certain conditions that the SFO or CPS decides to impose. Such conditions include alterations to working practices, staff changes, paying fines or introducing anti-corruption measures.
If the company continues to meet these conditions for a set length of time, it avoids prosecution. If it does not meet them, it is prosecuted.
The authorities will only offer a DPA to a company under investigation if they believe it is a more suitable course of action than a prosecution. A large part of this will depend on whether the company has shown a genuine will to put right the wrongdoing and prevent it happening again.
A company at the centre of wrongdoing will need to seek specialist legal advice as early as possible. Such an expert can assess the wrongdoing, advise on how to report it to the authorities – if the authorities are not already aware of it - and help devise procedures to prevent it happening again.
Such an approach can help the company prevent further wrongdoing. But what can it do to prove it is worthy of a DPA?
If a company is to have any chance of obtaining a DPA, it has to co-operate fully with the investigators.
In the case of Rolls-Royce, it did not self-report its wrongdoing to the SFO: that information came from third parties. But once this was out in the open, it did all it could to assist the SFO in its investigations.
We know this was an important factor because, in the settlement, it is explained that the aircraft manufacturer’s “extraordinary co-operation’’ was the reason it had been granted a DPA. Such co-operation not only helped Rolls-Royce obtain a DPA; it also counted towards the 50% discount on the size of the financial penalty imposed on the firm
No co-operation (or not enough in the eyes of the authorities) would have meant no DPA. The settlement calls Rolls-Royce’s co-operation “highly material’’ to the interests of justice – which is why it gained a DPA instead of being prosecuted. This is a clear indicator of the value of co-operation.
A DPA is only likely to be offered if the SFO (or CPS) recognises that there have been fundamental changes in the way the company under investigation operates.
If we take Rolls-Royce as an example again, the settlement declared that the aircraft giant is “no longer the company that once it was’’.
During the investigation, Rolls-Royce introduced anti-bribery measures, carried out its own investigations, reviewed its ethics and compliance policies and training and re-examined its approach to due diligence, risk assessment and relationships with intermediaries.
The SFO viewed these actions as proof that Rolls-Royce was genuine in its desire and attempts to bring about a culture change in the way it does business. There is little doubt that if the SFO had seen Rolls-Royce’s actions as window dressing to pay lip service to the idea that it was intent on changing the way it worked, there would have been little or no chance of a DPA being granted.
A genuine and demonstrable desire to do business in a better, more principled way can only improve the likelihood of a DPA being offered.
This approach can include changes in personnel. Rolls Royce disciplined 38 people and by the time the DPA was concluded all the senior executives who had been in charge during the period under investigation had departed.
Similarly, Tesco saw a number of senior departures, with Chief Executive Dave Lewis stating “We have worked hard to make Tesco a different company’’.
Changes at board level and senior management level are an indicator of alterations to a company’s culture, which show that a company is serious about correcting its wrongs. Which enhances its chances of a DPA.
The approaches outlined above are important when it comes to the possibility of a company obtaining a DPA.
But it is also important that a company takes the right approach during negotiations. This does not mean “playing hardball’’, as that would probably work against the company. What it does mean is emphasising some significant factors that may tilt investigators towards favouring a DPA.
It can be no coincidence that while Rolls-Royce was being investigated, the SFO was made aware that the company employed 50,000 people and that any prosecution of the firm may harm these jobs, as well as the wider UK defence industry and its supply chain.
Not every firm under investigation can make such claims. But they may well have their own set of circumstances that can be explained and emphasised in order to convince investigators of the value of a DPA.
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