With much still to be decided regarding the prosecution ofindividuals over the financial scandals at Rolls-Royce and Tesco, Aziz Rahmanexamines how the fate of investigated companies can differ to that of those whoworked for them.
Last year was a costly one for two of the biggest names in British business. Rolls-Royce and Tesco.
In January 2017, Rolls-Royce agreed to pay £497M plus £13M Serious Fraud Office (SFO) costs to settle allegations that it had used bribery for decades to secure contracts around the world. Four months later, Tesco agreed to pay £129M for the accounting scandal that saw it overstating its profits to the tune of £326M in 2014.
And that was that, at least as far as the companies were concerned. Both Rolls-Royce and Tesco had reached deferred prosecution agreements with the SFO. This meant that they accepted their wrongdoing, paid their fines and agreed to certain conditions regarding their working practices. If they meet those conditions they will not be prosecuted.
The two companies, therefore, have avoided prosecution for what were major examples of wrongdoing in business. For a long time – before the DPA’s were offered by the SFO and finalised – either or both companies could have been prosecuted.
The fact that they were not must have produced huge collective sighs of relief in the boardrooms of Rolls-Royce and Tesco. But while both companies – or at least the senior figures who now run them – can feel more relaxed, the same is not so for the individuals who are thought to have been involved in the wrongdoing.
At the time of writing, the SFO is still conducting interviews into the Rolls-Royce bribery. A decision on whether to charge individuals who worked for the company is expected this spring. At Tesco, the trial of three executives charged with fraud and false accounting was stopped last month due, among other reasons, to the health problems of one of the defendants. The SFO has announced that it is seeking a retrial.
The situation with both Tesco and Rolls-Royce, therefore, is that the companies have been able to negotiate settlements that see them escape prosecution whereas the individuals allegedly involved in the wrongdoing on their behalf do not have that option. Both cases are clear indicators of the divide between corporate liability and individual liability.
While not privy to the exact details of the negotiations that the SFO conducted with both companies, it may be that its investigators thought it too difficult to identify and prosecute the “controlling mind’’ of the company. This is certainly something that SFO Director David Green has referred to, although not in specific reference to either of these cases.
The SFO would need to prove, to the criminal standard, that those aware of the criminal conduct are senior enough to speak for the company or represent its directing mind and will; which is a well-established principle. Normally, only the actions of senior figures at a company – at or around board level – would be likely to be identified as the actions of the company. Anyone acting as an agent or employee of the company is unlikely to be considered its controlling mind.
Identifying a directing mind within a company can be difficult, especially in huge companies with large and often complex management structures. It could be argued that if the government really wants more corporates prosecuted, it needs to introduce new legislation.
Last year, the UK government announced consultations on the possible reform of the issue of corporate liability – a recognition of the present difficulty in prosecuting corporates.
One option could be the government bringing in legislation that made a corporate liable for any conduct by its employees or representatives, similar in extent to the failure to prevent bribery offence in the Bribery Act. Another option would be to make it an offence for a corporate to fail in its duty to prevent economic crime. These two options would remove the need to identify the controlling mind. However, in the latter case, the prosecution would have to prove both that a crime was committed and that there was a failure of management to fulfil its duties. This could, arguably, be a bigger challenge than establishing the controlling mind.
An alternative option would be to broaden the definition of the controlling mind of the company, which may have the effect of making investigations far more straightforward for the likes of the SFO. There could even be the possibility of each business sector being reviewed individually, with each being subject to its own regulations regarding corporate liability.
We cannot say whether charges will be brought against individuals regarding Rolls-Royce’s bribery or predict the outcome of any future Tesco trial. As yet, therefore, we cannot yet argue that these cases are clear-cut examples of individuals being convicted while the corporates escape such a fate. We also cannot gauge whether these cases will have any impact on any UK government’s future decision to bring in legislation that is likely to make corporate prosecutions more likely.
But what we can say is that any future legislative changes (and any subsequent investigations) will place an onus on companies to have devised, introduced and maintained business crime prevention procedures that are fit for purpose. That is the only way they can have a strong chance of not being prosecuted or fined if wrongdoing is identified.
If we are being honest, corporates should have such procedures in place, regardless of any future changes to the law. Strong preventative measures are the only way a corporate can reduce the chances of it being subject to a criminal investigation. Even if it is still investigated, having such measures in place will be the strongest defence to any allegations made.
Any changes to corporate liability in the UK could have profound effects on the number of successful prosecutions of companies. But while we wait to see what, if any, changes are made, the only thing we can say with certainty is that corporates are less likely to fall foul of the law if they have proper preventative measures in place.