Today I continue my exploration of the Rolls-Royce global corruption enforcement action which included the largest fine to-date under the UK Bribery Act, with its total fines and penalties under three agreements being around £671 million (more than $800 million). These three agreements include a Deferred Prosecution Agreement (UK DPA) with the UK Serious Fraud Office (SFO) for violations of the UK Bribery Act; a criminal penalty of $170 million under a DPA (US DPA) with the US Department of Justice (DOJ) for a long-running global conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and, finally, in Brazil, Rolls-Royce will pay a $25.5 million criminal penalty under a leniency agreement with the Ministério Público Federal (MPF). Today I want to explore the UK DPA and the Approved Judgment issued by the UK Court, Sir Brian Leveson PC QC presiding, which judicially approved the UK DPA.
Informed readers will immediately note that the Judge is the same one from the prior two DPAs issued under the UK Bribery Act; involving Standard Bank plc and the anonymously identified “XYZ Ltd”. This triumvirate of Approved Judgments allows not only greater insight into Justice Leveson’s thinking but a continuity not often seen in US opinions.
As the Court noted, “a DPA is potentially available for certain economic or financial offences to a body corporate, a partnership or an unincorporated association in respect of whom the only criminal sanction is financial: it does not cover (nor does it protect from prosecution) any individual. It provides a mechanism whereby, subject to the approval of the court, prosecution can be avoided by entering into an agreement on negotiated terms with a prosecutor designated by the 2013 Act.” In the UK, the Court’s role is different than that of the US as “Following the commencement of negotiations and what might become an agreement, the scheme mandates that a hearing must be held in private for the purposes of ascertaining whether the court will declare that the proposed DPA is “likely” to be in the interests of justice and its proposed terms are fair, reasonable and proportionate.” Thereafter, the Court “continues to retain control and can decline to conclude that it is, in fact, in the interests of justice or that its terms are fair, reasonable and proportionate.”
More than once Justice Leveson notes that the conduct of Rolls-Royce was about as egregious as one could imagine. Drawing from his earlier Approved Judgment in the Standard Bank plc matter, he said, “The first consideration must be the seriousness of the conduct for the more serious the offence, the more likely it is that prosecution will be required in the public interest and the less likely it is that a DPA will be in the interest of justice.” Additionally, the company did not self-disclose to the SFO. Normally these two factors would mandate a criminal prosecution but for several factors the Court found it was in the interests of justice that it accept the DPA.
The primary reason was the extraordinary cooperation by Rolls-Royce once it was notified by the SFO of allegations of bribery. The Court noted the company had spent some £123 million on the investigation and went through an exhaustive list of actions the company had done to cooperate with the SFO. This led the Court to conclude, “The fact that an investigation was not triggered by a self-report would usually be highly relevant in the balance but the nature and extent of the co-operation provided by Rolls-Royce in this case has persuaded the SFO not only to use the word “extraordinary” to describe it but also to advance the argument that, in the particular circumstances of this case, I should not distinguish between its assistance and that of those who have self-reported from the outset.”
The Court then detailed the extensive remediation engaged in by Rolls-Royce. Heaping high praise on Lord Gold, who was brought in to lead the internal investigation, make recommendations and act as a “quasi-monitor” he also listed some of the specific actions by the company. They included: 1) enhancing policies and procedures covering high risk areas of Rolls-Royce’s business divisions; 2) creating top level commitment to ethics and compliance through improved communication and annual manager led ethics training; 3) developing a risk assessment framework and implementation of risk assessment procedures into business divisions; 4) improving due diligence in respect of intermediaries comprising business justification and reviewing some 250 third parties, leading to the suspension of 88 such relationships; 5) instituting compulsory compliance training for all staff with extensive monitoring of anti-bribery and corruption procedures; 6) engaging in regular audits anti-bribery and corruption procedures and investigations of issues; 7) implementing compliance procedures and training in respect of concessions provided in the Civil Aerospace industry; 8) disciplining up to 38 employees with 11 terminations.
There was also a wholesale turnover at the Board level, who became much more engaged in compliance oversight. All of this led the Court to conclude, “I accept that Rolls-Royce is no longer the company that once it was; its new Board and executive team has embraced the need to make essential change and has deliberately sought to clear out all the disreputable practices that have gone before, creating new policies, practices and cultures. Its full co-operation and willingness to expose every potential criminal act that it uncovers and the work being done on compliance and creating that culture goes a long way to address the obvious concerns as to the past.”
The UK financial penalty was (i) Disgorgement of profit on the transactions of £258,170,000; (ii) Payment of a financial penalty of £239,082,645; and (iii) Payment of the costs incurred by the SFO (put at £12,960,754). The Court performed a thorough analysis of each component of the financial penalty and was satisfied as to the range. The Court also laid out its conclusions on this aspect of the DPA in a spreadsheet attached as Appendix B. (Appendix A was a detailed Statement of Facts.)
The Court concluded with “Further Observations” as to why the acceptance of the DPA was in the public’s interest. The first was that the basis underlying the DPA had received a “robust challenge to the approach following a detailed analysis of the circumstances of the investigated offences, and an assessment of the financial penalties” so that the Court believed it was fair. Second was that Rolls-Royce is an “industry of central importance” to the UK and as such a settlement was more in the interests of the country, the company’s shareholders, its employees, customers and “those with whom it deals.”
The Court also pointed out the clear precedential value of the Rolls-Royce resolution for other companies which might find themselves in similar straights. Labeling all those who rotely criticize DPAs as either “A cynic (or irresponsible company)” or who claim that by hiding corruption and not self-disclosing to authorities their wrong-doing with the mistaken calculus it somehow saves them money, “Qui te apart from the total failure to acknowledge the difference between right and wrong, that is to fail to understand that such an approach carries with it cataclysmic risks. Whatever the costs Rolls-Royce have incurred, they are modest compared to the cost of seeking to brazen out an investigation which commences; absent self-disclosure and full co-operation, prosecution would require the attention of the company to be entirely focused on litigation at the expense of whatever business it is trying to conduct and conviction would almost inevitably spell a far greater disaster than has befallen Rolls-Royce.”
The differences in the UK DPA process allows for greater transparency and consideration of the reasons why such instruments are in the public interest. Not only does the company gain considerably from the certainty of a resolution, the UK government provides clear guidance on how companies can approach their legal responsibilities. Finally, the UK process allows a measure of judicial review to determine if the DPA is in the public interest as well. This added component would be a welcome addition to the US practice.
Tomorrow, I will begin an exploration of the US side of the equation.
The UK DPA process allows for greater transparency and consideration why DPAs are in the public interest.Click to tweet
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© Thomas R. Fox, 2017