Today I continue my exploration of the Rolls-Royce global corruption enforcement action by considering the company’s resolution in the US under the Foreign Corrupt Practices Act (FCPA).

Before we dive into that, I first want to honor Jeff Bagwell for his election into the baseball Hall of Fame (HOF). Bagwell is the second Astro to make the HOF following fellow original Killer-B, Craig Biggio, who entered two years ago. He was Rookie of the Year in 1991. He was 1994 National League MVP and a four-time All-Star. Bagwell is Houston’s all-time leader in home runs (449), RBI (1,529) and walks (1,401). Unfortunately for Bagwell, the Astros and Astros fan, his career was cut short by chronic arthritic right shoulder.

He was also the subject of probably the most one-sided trade in baseb all history as the Astros got him for journeyman Larry Anderson from the Boston Red Sox. Anderson played one-half season for Boston. Bagwell spent his entire 18-year career with the Astros. So thank you to the Boston Red Sox for sending a native New Englander to star for the Astros and lead us to our first and only World Series appearance.

According to the Department of Justice (DOJ) Press Release, Rolls-Royce entered into a Deferred Prosecution Agreement (DPA) in connection with a Criminal Information, filed on December 20, 2016, in the Southern District of Ohio, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. Pursuant to the DPA, Rolls-Royce agreed to pay a criminal penalty of $195,496,880, subject to a credit. This amount was 25% below the suggested bottom range of the US Sentencing Guidelines.

As I have previously blogged, Rolls-Royce also settled with the UK’s Serious Fraud Office (SFO) and the Brazilian Ministério Público Federal (MPF). In addition to the UK fine, Rolls-Royce also agreed to pay a penalty of approximately $25,579,170 for the company’s role in a conspiracy to bribe foreign officials in Brazil between 2005 and 2008. Because the conduct underlying the MPF resolution overlaps with the conduct underlying part of the department’s resolution, the department credited the $25,579,170 that Rolls-Royce agreed to pay in Brazil against the total US fine. Therefore, the total amount to be paid to the US is $169,917,710, and the total amount of penalties that Rolls-Royce has agreed to pay is more than $800 million.

As set out in the Criminal Information, Rolls-Royce admitted that between 2000 and 2013, the company conspired to violate the FCPA by paying more than $35 million in bribes through third parties to foreign officials in various countries in exchange for their assistance in providing confidential information and awarding contracts to Rolls-Royce, RRESI and affiliated entities (collectively, Rolls-Royce):

In Thailand, Rolls-Royce admitted to using intermediaries to pay approximately $11 million in bribes to officials at Thai state-owned and state-controlled oil and gas companies that awarded approximately seven contracts to Rolls-Royce during the same time period.

In Brazil, Rolls-Royce used intermediaries to pay approximately $9.3 million in bribes to bribe foreign officials at a state-owned petroleum corporation that awarded multiple contracts to Rolls-Royce during the same time period.

In Kazakhstan, between approximately 2009 and 2012, Rolls-Royce paid commissions of approximately $5.4 million to multiple advisors, knowing that at least a portion of the commission payments would be used to bribe foreign officials with influence over a joint venture owned and controlled by the Kazakh and Chinese governments that was developing a gas pipeline between the countries.  In 2012, the company also hired a local Kazakh distributor, knowing it was beneficially owned by a high-ranking Kazakh government official with decision-making authority over Rolls-Royce’s ability to continue operating in the Kazakh market.  During this time, the state-owned joint venture awarded multiple contracts to Rolls-Royce.

In Azerbaijan, between approximately 2000 and 2009, Rolls-Royce used intermediaries to pay approximately $7.8 million in bribes to foreign officials at the state-owned and state-controlled oil company, which awarded multiple contracts to Rolls-Royce during the same time period.

In Angola, between approximately 2008 and 2012, Rolls-Royce used an intermediary to pay approximately $2.4 million in bribes to officials at a state-owned and state-controlled oil company, which awarded three contracts to Rolls-Royce during this time period.

In Iraq, from approximately 2006 to 2009, Rolls-Royce supplied turbines to a state-owned and state-controlled oil company.  Certain Iraqi foreign officials expressed concerns about the turbines and subsequently threatened to blacklist Rolls-Royce from doing future business in Iraq.  In response, Rolls-Royce’s intermediary paid bribes to Iraqi officials to persuade them to accept the turbines and not blacklist the company.

Even with this conduct Rolls-Royce was able to obtain the aforementioned 25% credit under the US Sentencing Guidelines. This credit was obtained through cooperation and remediation. The cooperation included conducting a thorough investigation, making factual presentations to the DOJ, facilitating witness interviews and document production, “collecting, analyzing, and organizing voluminous evidence and information” for the DOJ and providing facts learned during witness interviews conducted by the company. From the prior description laid out in the UK Approved Judgment, the UK court found the level of cooperation to be extraordinary.

Equally instructive was the extensive remediation engaged in by the company. While it was laid out in much greater detail in the UK Approved Judgment, the DOJ noted they terminated all 17 employees implicated in the corruption scheme who were still employed by Rolls-Royce. All corrupt third parties were terminated as well. The company implemented enhanced procedures to review and approve third parties while shifting its sales strategy away from a third party focus. The company engaged Lord Gold to serve as a compliance oversight advisor. Lord Gold also made compliance program and policy recommendations to the Board of Director’s Safety and Ethics Committee. Finally, the company implemented “new enhanced internal controls to address and mitigate corruption and compliance risks.”

One can only conclude that at some point the company got that old-time (compliance) religion and realized if it was to crawl out of the criminal hole it found itself in then cooperation and remediation was the only way forward. Bringing in Lord Gold, who was the DOJ approved Compliance Monitor for BAE Systems after its FCPA settlement, was widely lauded and turned out to be a propitious move by the company. One can only conclude from reading Justice Leveson’s Judgment, that bribery was part of the business plan of the company, with approval from the highest levels of the organization, for over 20 years. However, all three settlements make clear that a company can reduce the penalty through extensive cooperation and remediation.

Next week, I will conclude with what it all means.

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© Thomas R. Fox, 2017