When most people across the globe think of Rolls-Royce, one word comes to mind – excellence. Yet that image largely relates to Rolls-Royce Limited, the automobile manufacturer, which was founded in 1909. Just a few years later, to support England’s efforts in the First World War, the company began to manufacture airplane engines. From those humble beginnings, Rolls-Royce Holdings plc was founded. It is a British multinational public holding company that, through its various subsidiaries, designs, manufactures and distributes power systems for aviation and other industries. It is the world’s second-largest maker of aircraft engines and also has major businesses in the marine propulsion and energy sectors. It was corporately separated from Rolls-Royce Limited and auto manufacturing in 1973. But to this date, when most folks hear the name Rolls-Royce they do not think of airplane engines but some of the world’s best autos.
Unfortunately for Rolls-Royce Holdings plc that may have forever changed yesterday when the company agreed to 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).
According to the SFO Press Release, “The agreement with the company follows the SFO’s four-year investigation into bribery and corruption, an investigation which continues into the conduct of individuals. The indictment, which has been suspended for the term of the DPA, covers 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery. The conduct spans three decades and involves Rolls-Royce’s Civil Aerospace and Defence Aerospace businesses and its former Energy business and relates to the sale of aero engines, energy systems and related services. The conduct covered by the UK DPA took place across seven jurisdictions: Indonesia, Thailand, India, Russia, Nigeria, China and Malaysia.”
SFO Director David Green was quoted in the Press Release, “Bribery harms the reputation of the UK as a safe place to do business. I welcome this DPA, a significant enforcement action by the SFO, using relatively new statutory powers in respect of an important British company. It allows Rolls-Royce to draw a line under conduct spanning seven countries, three decades and three sectors of its business. I am grateful to the excellent SFO team who led on this case and for the assistance and cooperation of our trusted international partners. This is the largest ever single investigation carried out by the SFO, costing £13m and involving some 70 SFO personnel. It is the third use of a DPA since the power became available to prosecutors in 2014.”
In the US, as laid out in the Criminal Information, the company 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 those officials’ assistance in providing confidential information and awarding contracts to Rolls-Royce 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 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.
Andrew Weissmann, Chief of the Fraud Section of the Justice Department’s Criminal Division, said in the DOJ Press Release, “For more than a decade, Rolls-Royce repeatedly resorted to bribes to secure contracts and get a competitive edge in countries throughout the world. The global nature of this crime requires a global response, and this case is yet another example of the strong relationship between the United States and U.K. Serious Fraud Office and Brazilian Ministério Público Federal, and the collective efforts to ensure that ethical companies can compete on an even playing field anywhere in the world.”
The Rolls-Royce global corruption enforcement action once again points up the changing nature of the international fight against bribery and corruption. The regulators have moved past simple cooperation in the investigation phases to working together in the enforcement component. Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office said in the DOJ Press Release, “This successful parallel investigation is a tremendous example of the central importance of working cooperatively alongside our international partners to achieve a fair and meaningful resolution. This outcome is a reflection of the immense reach and capabilities of the FBI’s Washington Field Office international corruption squad and the global impact of the anti-corruption program.” Further, in addition to the work of the SFO and MPF law enforcement authorities in Austria, Germany, the Netherlands, Singapore and Turkey provided significant assistance to the DOJ. Tomorrow, I will begin an exploration of the settlement documents.
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© Thomas R. Fox, 2017