In my C-Suite Risk Report posting in March, I discussed the UK’s Serious Fraud Office’s (SFO) investigation into Rolls-Royce (RR) and the UK Court’s approval of a Deferred Prosecution Agreement (DPA). As a result of that DPA, RR avoided prosecution, but paid £671m (approximately US $800m) to UK, US and Brazilian authorities in order to settle bribery and corruption allegations. The RR DPA was followed by another DPA in April involving supermarket/grocery giant Tesco who paid £129m (approximately US $165m) in what was the fourth DPA to be concluded since 2014. Because of reporting restrictions, the details of the Tesco DPA are not yet known. However, the investigation was connected to a well-publicised accounting scandal in 2014.
My March posting about the RR DPA concluded with a warning to the D&O insurance community that the number of DPAs was likely to carry on increasing at a quickening pace – the Tesco DPA is further evidence supporting this prediction. Further, I predicted that the implications of this trend for insurers was likely to include more investigations and related civil actions against the individuals involved.
However, the UK Conservative Party’s policy manifesto (a listing of its policies to be implemented if elected), published in May 2017, means this anticipated trend may not, in fact, emerge or at least not to the extent previously anticipated. If elected, the Conservative party has promised to bring the SFO under the remit of a newly established National Crime Agency (NCA). Commentators in the UK are noting that, if this occurs, it is reasonable to expect that the NCA will not demonstrate the same appetite, as the SFO has, for undertaking complex, multi-jurisdictional and often extremely expensive investigations like the ones involving RR and Tesco. The new agency would be operating with a much wider remit and may, instead, choose to focus its resources on other types of financial criminal activity where prosecutions are more easily achieved.
This issue is of course unlikely to be a relevant factor for the vast majority of the British electorate when it makes its final decision on 8 June 2017. For insurance market participants, however, the election result may potentially halt the anticipated trend for more DPAs in the future. Moreover, it is possible the ancillary and subsequent regulatory investigations and civil actions into individuals may not be the emerging trend that many in the industry had previously predicted.