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
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
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
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.