THE ROLLS-ROYCE DPA – LESSONS THAT CAN BE LEARNT
Aziz Rahman outlines the lessons that corporates and senior executives under investigation can learn from the huge Rolls-Royce bribery settlement.
After almost five years of investigations, Rolls-Royce has agreed to pay £671M to settle the bribery allegations against it. It avoided prosecution by entering a deferred prosecution agreement (DPA) with the Serious Fraud Office (SFO). The firm even obtained a discount on the penalties included in the DPA.
But the question needs to be asked: how did Rolls-Royce obtain a discounted penalty when it did not even self-report the wrongdoing it carried out?
In the first ever DPA, reached in 2015, Standard Bank’s solicitors reported the bribery in Tanzania to the SFO. Rt Hon Sir Brian Leveson – who also presided over the Rolls-Royce DPA – praised Standard for self-reporting. Yet Rolls-Royce only gave information to the SFO when its wrongdoing was already out in the open and the authorities were set to investigate. It seems to have been rewarded with a DPA for being reactive as opposed to proactive.
The reasons for this are to be found in the DPA. In the Rolls-Royce settlement, it is made clear that the aircraft manufacturer had been granted a DPA because of the “extraordinary cooperation’’ it had volunteered. Such cooperation counted towards a 50% discount on the financial penalty that Rolls-Royce was ordered to pay.
Rolls-Royce could have faced far harsher penalties. But the settlement acknowledges that it is “no longer the company that once it was’’ and had introduced anti-crime procedures.
So what can other corporates who come under investigation learn from how Rolls-Royce obtained a DPA on such lenient terms without self-reporting?
The case shows the value of cooperating with the authorities. Rolls-Royce and its subsidiary company Rolls-Royce Energy Systems were accused of corrupt payments to agents, failure to prevent bribery or illegal use of intermediaries in seven countries. The evidence was fairly damning and Rolls-Royce decided to cooperate with the authorities.
Working with the authorities has paid off for the company. The full transcript of the settlement refers to Rolls-Royce’s assistance being “highly material’’ to the interests of justice – as well as to the crucial factors of whether to prosecute or offer a DPA and the terms of any DPA.
Cooperation has been a tactic that has saved Rolls-Royce from a far worse fate. Knowing when and how to cooperate, however, is not a simple deduction. Knowing precisely how to react to any allegations requires expertise and experience in what is a very challenging field of law.
Knowing how to negotiate once discussions have begun is equally as important as a willingness to cooperate. In discussions with the authorities, the right negotiation stance can make the difference between being prosecuted and being offered a DPA – and the difference between a DPA with harsh or lenient penalties.
The transcript of the settlement refers to Rolls-Royce employing a total of 50,000 people and being “of central importance to the United Kingdom’’. It also notes that a prosecution would have damaged the UK defence industry, harmed businesses in the supply chain, distorted market competition and prompted redundancies and a fall in the share price.
These arguments will surely have been made by Rolls-Royce’s defence team, as will the point that a prosecution would have been costly – on top of the £13M for the SFO investigation – and would not have been in the public interest.
There was a lot of evidence against Rolls-Royce. But the aforementioned issues could all have been used as cards to play at the table when it came to negotiating with the SFO. Such issues also indicate the need to have such negotiations carried out on your behalf by legal representatives who are skilled and experienced in dealing with agencies such as the SFO.
As the investigation proceeded, Rolls-Royce conducted its own investigations; even appointing Lord Gold to review its ethics and compliance policies.
The company improved communication and training regarding ethics and compliance, modified the way it carries out due diligence, revised its risk assessment procedures, reviewed arrangements with intermediaries and disciplined 38 employees.
The fact that such actions are mentioned in the final settlement indicate that they have had an impact on the decision to grant a DPA and the terms of it. When deciding whether a company should be offered a DPA, the authorities are looking for signs that the company is not merely paying lip service to the need to change working practices.
Convince the authorities of your genuine desire to put right the wrongs and your chances of a DPA will be enhanced. But take advice on what changes to make and how to make them.
Rolls-Royce’s cooperating, negotiating and efforts to tackle the problem are logical approaches for anyone looking to minimise the damage from a catastrophic situation. But the issue of corporate liability versus personal liability, is crucial to this case – and is likely to be in many future DPA’s.
This case involved large-scale bribery of foreign officials, wrongdoing in various countries, damage to the markets, in-depth planning and the involvement of senior Rolls-Royce figures. The settlement goes as far as to call it “egregious criminality over decades’’ involving some of the company’s “controlling minds’’. Yet this does not necessarily mean senior executives will be convicted.
But it must be remembered that a company securing a DPA does not mean its individuals will escape prosecution. Yet such individuals, if they seek the right legal approach, can challenge and discredit the allegations against them.
For example (and as we have written about elsewhere) SFO prosecutions can be challenged on everything from the application and execution of search warrants through to the credibility of the information the agency is relying on. There are also other weapons in a defence team’s armoury that can be used if matters go beyond the investigation stage.
We cannot say exactly how the final episode of this lengthy tale of corruption will be concluded. But we can say for certain that the whole saga has emphasised the need for corporates and individuals to be able to access informed, expert legal advice on business crime matters before, during and after any investigation.