Rolls-Royce announced its 2016 results this week, revealing one of the biggest pre-tax losses in UK corporate history – £4.6bn. The results were affected by various factors including £671m incurred in settling world-wide bribery and corruption charges. Corporate Partner Sophie Brookes looks behind the headlines at the circumstances which led to the bribery fines to see what lessons can be learned by other companies aiming for a ‘Rolls-Royce standard’.
The SFO investigation
In September 2013 the Serious Fraud Office (SFO) opened an investigation into Rolls-Royce examining the conduct of its wider corporate group over several decades and across many jurisdictions. The investigation focused on the use of third party intermediaries to make corrupt payments to officials so that Rolls-Royce won certain lucrative public contracts relating to the sale of aero engines, energy systems and related services.
As a result, Rolls-Royce faced various bribery and corruption charges, including five counts of failing to prevent bribery in Indonesia, Nigeria, China and Malaysia, clearly highlighting the fact that the UK’s bribery laws apply to conduct by UK businesses both at home and abroad.
Last month the SFO confirmed that, after four years and at a cost of £13m, its investigation had resulted in a ‘deferred prosecution agreement’ (a DPA) being reached with Rolls-Royce. A DPA enables a company to account to court for its conduct without suffering the full consequences of a criminal conviction (which, for example, might prevent it from competing for public contracts). By agreeing to various terms in a DPA, prosecution of the offences is suspended although it can be resumed if the company fails to comply with the agreed terms.
In Rolls-Royce case, the DPA will last for five years and requires the company to:
- Account for profits of £258m made on the corrupt transactions
- Pay a financial penalty of £239m
- Pay the SFO’s costs of £13m
- Complete a compliance programme following recommendations made after an external review
- Continue to co-operate with the relevant authorities with future prosecutions of individuals
Settlements were also reached with regulators in the US and Brazil, bringing the total payments by Rolls-Royce to £671m.
Co-operate, co-operate, co-operate!
The use of a DPA can only be justified where it is clearly in the public interest to dispose of a case without an immediate prosecution. A key factor in previous cases involving DPAs was that they arose following self-reporting by the affected companies. In Rolls-Royce case, however, the SFO investigation was triggered by whistle-blowers inside the company making information about its conduct public. The court appears to have placed great weight on the ‘genuine’ co-operation provided by Rolls-Royce of a very high standard and at a very early stage in the SFO investigation. The court said that the company ‘…could not have done more to expose its own misconduct, limited neither by time, jurisdiction or area of business’.
Other companies facing bribery and corruption charges who wish to benefit from a DPA rather than face prosecution should look to emulate Rolls-Royce exemplary co-operation with the SFO. This involved engaging external lawyers, reviewing over 250 relationships with intermediaries, voluntarily providing all material requested by the SFO (including waiving legal professional privilege attached to certain information) and liaising with the SFO about media and other developments. The fundamental change of culture and personnel within Rolls-Royce, as well as the court’s desire to preserve a global company viewed of ‘central importance to the UK’, also appear to have influenced the approach in this case. It remains to be seen what individual prosecutions may result from the company’s continued co-operation with the SFO.
For further information, please contact:
Sophie Brookes, partner, Corporate
T: 0161 836 7823