Rolls-Royce agrees to settle bribery and corruption claims in largest ever Deferred Prosecution Agreement
UK based global engineering giant, Rolls-Royce, has reached an agreement with the Serious Fraud Office (SFO) and US and Brazilian authorities to pay £671m in order to settle long-running multinational bribery and corruption cases.
Rolls-Royce, which has customers in over 150 countries, faced a number of bribery and corruption charges in respect of its overseas procurement practices and had been under investigation by international enforcement agencies for the past five years.
In the UK, this landmark settlement is only the third Deferred Prosecution Agreement (DPA) reached by the SFO since their introduction under the Crime and Courts Act 2013. The DPA, which is by far the most significant in value of the three, will see Rolls-Royce avoid prosecution by anti-corruption enforcement agencies investigating the matter across three continents.
Under the terms of the DPA, Rolls-Royce will pay in the region of £497m plus costs to the SFO. Under similar agreements, a further £141m will be paid to the US Department of Justice and £21.5m to Brazilian regulators.
The allegations highlight Rolls-Royce’s use of ‘intermediaries’, local representatives used by Rolls-Royce to facilitate international sales contracts, and include the following:
- Agreements to make corrupt payments to agents in connection with the sale of civil aircraft in Indonesia and Thailand as well as gas compression equipment in Russia.
- Concealment or obfuscation of the use of intermediaries involved in its defence business in India, where the use of such intermediaries was restricted.
- An agreement to make a corrupt payment to recover a list of intermediaries that had been taken by a tax inspectors in China.
- Failure to prevent bribery by employees or intermediaries. The ‘jewel in the crown’ offence under section 7 of the Bribery Act 2010 of failure of commercial organisations to prevent bribery.
Deferred Prosecution Agreement
A DPA is a voluntary agreement, available only to a body corporate, partnership or unincorporated association in relation to certain financial and economic crimes. Prosecution is deferred for a defined period of time, provided the organisation in question meets specified conditions.
Conclusion of a DPA requires an application by the SFO to the Court, which must be satisfied that any agreement reached by the parties is both in the interests of justice and that the terms are fair, reasonable and proportionate.
Rolls-Royce’s Chief Executive, Warren East, suggested that the DPA followed a period of ‘extraordinary co-operation’ with the investigating authorities, an assertion that appears to have been recognised in the judgment of Lord Justice Leveson.
The alleged offender will inevitably face far greater scrutiny from regulators under the terms of a DPA and will undoubtedly be required to re-visit internal procedures and safeguards against future offences and to ensure the highest ethical standards are met.
In 2013, Rolls-Royce appointed ethics specialist Lord Gold to oversee a review of its anti-corruption procedures. The FTSE 100 engineering group has since recruited ethics and compliance specialists to provide employee training programmes and implement revised company policies. Reporting channels have also been improved, including the addition of a 24-hour ethics line available worldwide. The use of intermediaries is also said to have been reduced dramatically.
It would appear that such steps act as a necessary demonstration of insight in respect of DPA negotiations and reflect compliance with the UK Bribery Act 2010 and the Foreign Corrupt Practices Act 1977.
Impact on the Serious Fraud Office
In certain quarters, the SFO has been lauded for its handling of the Rolls-Royce case. Former FBI Deputy General Counsel, Lisa Osofsky, heralded the DPA as a ‘sea change’ in the SFO’s war on bribery and corruption, even suggesting that it would help the UK agency ‘be seen on an equal footing with powerful US enforcement authorities’.
Elsewhere, however, questions have been raised in relation to the efficacy of such agreements. There has been particular backlash in this case due to the number of public contracts held by Rolls-Royce and concerns expressed over its ability to engage in public tenders.
We would suggest that, although a DPA was a successful tool in this case, it will not always be appropriate to other offending corporates. Accordingly, the mantra of ‘prevention is better than cure’ seems apt.
Statement from Rolls-Royce
Rolls-Royce CEO Warren East statement on agreements with investigating authorities pic.twitter.com/NJrDgcCGQ7
— Rolls-Royce (@RollsRoyce) January 17, 2017
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