When the British government imposed Direct Rule in Northern Ireland in March 1972, military policy lay in tatters. Internment without trial, deep interrogation and Bloody Sunday convinced many people that the British Army was fundamentally repressive. Yet the army maintained a policy commitment to always operating within legal constraints. This article assesses how the army, at the policy-making level, responded to allegations that it was treating the Catholic population in a brutal manner. Soldiers often believed there to be ‘smoke without fire’, that allegations were simply a smear campaign directed by the Irish Republican Army. At the same time, criminal prosecutions were allowed against some soldiers who broke the law. But these were few in number, as the authorities struggled to gather evidence. New evidence is presented on civil cases brought against the Ministry of Defence, most of which were settled out of court. Although determined to avoid admitting liability, by January 1975 the government made 410 payments in cases they expected otherwise to lose in court. Senior army commanders attempted to thwart investigations and prosecutions in Northern Ireland, and called for military law to have jurisdiction. These efforts achieved little success, but they demonstrate the limits to the army’s commitment to operating within the rule of law.