Deferred Prosecution Agreement: What You Need to Know about Rolls-Royce`s Case
Rolls-Royce, a British engineering firm, made headlines in 2017 when it agreed to a Deferred Prosecution Agreement (DPA) with the UK Serious Fraud Office (SFO). The case involved allegations of bribery, corruption, and other misconduct in countries like China, Indonesia, India, and Nigeria. In this article, we`ll delve into what a DPA is, why Rolls-Royce entered into one, and what it means for the company and its stakeholders.
What is a Deferred Prosecution Agreement?
A Deferred Prosecution Agreement is a legal agreement between a prosecutor and a company that allows the company to avoid criminal prosecution by meeting certain conditions. Under a DPA, the prosecutor agrees to defer prosecution for a specific period of time while the company agrees to cooperate with an investigation, pay a fine, implement remedial measures, and/or accept an independent monitor.
DPAs were introduced in the UK in 2014 as a way to encourage companies to self-report and tackle corporate wrongdoing. They are also used in the US, where they have been in use since the early 1990s, and in other jurisdictions around the world.
Why did Rolls-Royce enter into a DPA?
Rolls-Royce entered into a DPA with the SFO in January 2017 after the regulator investigated allegations of bribery and corruption involving the company`s intermediaries in various countries. The SFO found that Rolls-Royce had made corrupt payments to agents to land lucrative contracts, and that the company had failed to prevent bribery despite being aware of the risks.
Rolls-Royce cooperated with the SFO`s investigation and admitted to the allegations. As part of the DPA, Rolls-Royce agreed to pay a fine of £671m ($838m), the largest ever imposed by the SFO, and to implement a series of compliance measures.
What does the DPA mean for Rolls-Royce?
The DPA allowed Rolls-Royce to avoid criminal prosecution, which would have had significant reputational and financial repercussions for the company. However, the DPA also imposed significant costs on Rolls-Royce, both in terms of the fine and the compliance measures.
The fine was a significant sum for the company, representing around 4% of its annual revenue. The compliance measures required Rolls-Royce to enhance its anti-bribery and corruption controls and to undergo regular independent monitoring for a period of five years. These measures resulted in additional costs for the company and placed a burden on its management and employees.
The DPA also had implications for Rolls-Royce`s shareholders and other stakeholders. The fine and compliance costs impacted the company`s financial performance, and the reputational damage caused by the allegations of misconduct affected the company`s brand. However, the DPA also provided some certainty for investors, as it allowed the company to avoid a lengthy and costly legal battle.
Deferred Prosecution Agreements are becoming an increasingly common way for prosecutors to address corporate wrongdoing. While they can be an effective tool for encouraging companies to self-report and cooperate with investigations, they also carry significant costs and implications for companies and their stakeholders.
The case of Rolls-Royce highlights the importance of implementing strong anti-bribery and corruption controls and taking allegations of misconduct seriously. Companies that fail to do so may face not only criminal prosecution but also reputational damage and financial penalties. By entering into a DPA, Rolls-Royce was able to avoid criminal prosecution but faced significant costs and ongoing compliance obligations. Time will tell whether the company is able to fully recover from the reputational damage caused by the allegations.