After a four year investigation by the UK's Serious Fraud
Office ("SFO") into car and engine manufacturer
Rolls-Royce, a UK Court approved a Deferred Prosecution Agreement
("DPA") in January 2017.1 The investigation
focused on bribes Rolls-Royce paid to secure valuable export
contracts in various markets, including China, Brazil and
Indonesia. Although the DPA allows Rolls-Royce to avoid
prosecution, the company will have to pay £671 million
(approximately US $800 million) to UK, US and Brazilian authorities
in order to settle its bribery and corruption offences.
After the DPA was approved, SFO director David Green explained,
"I think it shows very clearly that the SFO has teeth and that
the SFO will not go away."
This is only the third DPA approved by a UK Court and is by far
the largest. Before approving the agreement, the Court was required
to address two issues: (1) whether the DPA was in the interest of
justice; and (2) were its terms fair, reasonable and proportionate?
The Court's positive determination of both issues will be the
source of much analysis by contentious regulatory lawyers. However
the case should be of interest to the D&O insurance community,
as well. For Rolls-Royce, further investigations into individuals
in connection with the case continue. In this regard the judge
noted the involvement of "senior management and, on the face
of it, controlling minds of the company."
As a result of the Rolls-Royce investigation, some points for
insurers to consider include:
It is settled law in England &
Wales that fines and penalties are not insurable losses. However,
DPAs do not prevent ancillary or subsequent investigations into
individuals (indeed they may trigger them), and so Insured Persons
will, in these circumstances, expect their company's D&O
policy to respond to any Defence/Investigation costs they incur as
a result of the investigation.
SFO investigations and DPAs can also
be the trigger for parallel or subsequent civil action against
individuals. Here, damages/settlement sums, as well as the costs of
defending the cases could trigger D&O insurance cover (subject
to relevant policy terms, conditions and exclusions).
The Rolls-Royce DPA and preceding
investigation shows the SFO has the appetite, but more critically,
the funding to maintain large scale investigations. The SFO's
track record of high-value/high-profile investigation has been
'mixed' ( its troubled and later aborted action against
high-profile entrepreneurs, the Tchenguiz brothers being an obvious
low point), which has led some UK commentators to question if its
willingness to take on expensive and highly publicized cases might
wane. After the Rolls-Royce decision, however, its director sent a
positive message that such was definitely not the case. For
insurers this could signal a desire by authorities to hold more,
and more high-profile individuals, as well as companies, to
account. We might reasonably expect more DPAs, and therefore, an
increase in related D&O claims activity to follow. In
anticipation of this development, insurers might want to review
policy wordings to consider, for example, Investigation Costs
sub-limit and excess provisions, exclusions for fraud or deliberate
misconduct, and whether the cost of internal investigations before
SFO involvement (perhaps more prevalent in the financial sector
since the introduction of new UK whistleblowing rules in 2016)
would also be covered.
1. Visit https://www.sfo.gov.uk/cases/rolls-royce-plc/
for a copy of the Deferred Prosecution Agreement, the Deferred
Prosecution Agreement – Statement of Facts, and the U.K.
Court's decision approving the Deferred Prosecution Agreement
in this case.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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