Show Notes for Episode 5, Year End Review, Part II

We turn to the 2016 year in review, in this Part II of a two-part series.

Jonathan Armstrong leads a discussion on Privacy Shield, information and data privacy issues the past year. Mike Volkov relates what he saw as the top enforcement highlights from 2016, the block-buster year for FCPA fines and penalties and the growing trend of globalization of enforcement. Matt Kelly discusses the arrival of front pay, and general escalation of retaliation risk for company’s vis-a-vis whistleblowers, ideas on auditing corporate culture and what types of data and information should go on a compliance dashboard.

For Matt Kelly’s posts on these topics see the following:

  1. Another Front in Retaliation Risk: Front Pay
  2. Ideas on Auditing Organizational Culture
  3. What Goes on a Compliance Dashboard?

Rants will return next week.

The members of the Everything Compliance panel include:

  • Jay Rosen (Mr. Translations) – Jay is Vice President of Legal & Corporate Language Solutions at United Language Group. Rosen can be reached at rosen@ulgroup.com.
  • Mike Volkov – One of the top FCPA commentators and practitioners around and is the Chief Executive Officer (CEO) and owner of The Volkov Law Group, LLC. Volkov can be reached at mvolkov@volkovlawgroup.com.
  • Matt Kelly – Founder and CEO of Radical Compliance, is the former Editor of the noted Compliance Week Kelly can be reached at mkelly@radicalcompliance.com
  • Jonathan Armstrong – Rounding out is our UK colleague, who is an experienced lawyer with Cordery in London. Armstrong can be reached at armstrong@corderycompliance.com.

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.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

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.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

Show Notes for Episode 1

At the SCCE 2016 Compliance and Ethics Institute, I sat down with four of the top compliance commentators in the field for my first roundtable-style podcast. It was so successful that I persuaded the gang to come back together every couple of weeks for a formal podcast, which is entitled Everything Compliance. The premier episode is available for your listening pleasure today. I will post a new episode every two weeks.

I host these four well-known compliance practitioners and commentators:

  • Jay Rosen (Mr. Translations) – Jay is Vice President of Legal & Corporate Language Solutions at United Language Group. Rosen can be reached at jay.rosen@ulgroup.com.
  • Mike Volkov – One of the top FCPA commentators and practitioners around and is the Chief Executive Officer (CEO) and owner of The Volkov Law Group, LLC. Volkov can be reached at mvolkov@volkovlawgroup.com.
  • Matt Kelly – Founder and CEO of Radical Compliance, is the former Editor of the noted Compliance Week Kelly can be reached at mkelly@radicalcompliance.com
  • Jonathan Armstrong – Rounding out is our UK colleague, who is an experienced lawyer with Cordery Compliance Limited in London. Armstrong can be reached at armstrong@corderycompliance.com.

The format is a roundtable discussion where I throw out a question to one commentator to lead the discussion. From that starting point we will all join in. I also include an “On My Mind” segment where each participant discusses what is on the forefront of their mind. This podcast is longer than my others, coming in at around 60 minutes, which allows us to explore the week’s issues in depth.

In the inaugural episode we discuss the following subjects:

  1. Mike Volkov leads a discussion of the unintended consequences of the Yates Memo/Pilot Program for internal investigations. We explore the issue of “de-confliction” where the government asks a company to halt its own internal investigation for the government to be the first to interview witnesses. We explore de-confliction in the context of a requirement of cooperation to gain the benefits of the pilot program and how such a request from the Department of Justice (DOJ) could lead companies to be unable to disclose to other agencies or to shareholders and keep a Board in the dark about the alleged wrongdoing. What does this mean for the company and the internal investigator?

For Volkov’s post on conflicts of interest (COI) in internal investigations after the Yates Memo, click here.

  1. Matt Kelly leads a discussion on compliance and corporate governance. We explore the issue of compliance being involved in issues around pricing and sales in companies like Valeant and Wells Fargo. We discuss the role of compliance in areas outside of strict legal compliance but may move towards reputational risk, going into such areas as the new revenue recognition standards and executive compensation.

For Kelly’s blog post on the intersection of CEO pay and Chief Compliance Officers (CCOs), click here.

  1. Jonathan Armstrong leads a discussion of funding and the UK Serious Fraud Office (SFO), in the context of the recent announcement that the SFO has received additional or supplemental funding to investigate Unaoil. Why does the SFO need supplemental funding and how does it obtain it? What does all of this mean for the continued existence of the SFO in light of a former critic now being PM? Finally, Armstrong ties all of this into Brexit, his recent interview of Max Schrems and issues surrounding Privacy Shield.

For Armstrong’s interview with Max Schrems, click here and Cordery’s FAQs on Privacy Shield, click here.

  1. Jay Rosen takes us through the compliance conference scene. For those of you who are avid attenders of the various conferences, he discusses some of the key differences in the types observed, such as the nuts and bolts types (SCCE) and others which focus more on commentary (FCPA Blog NYC Conference). He discusses the relative strengths of each and how a compliance professional should think about selecting one or more to attend. He ends with his thoughts on why compliance certification is a plus (or minus).

For Rosen’s blog post Designing Your 2017 Ethics, Compliance & FCPA Conference Schedule, click here.

This new podcast Everything Compliance joins the four other podcasts I have on different aspects of compliance. The original FCPA Compliance and Ethics Report focuses on the nuts and bolts of compliance. Unfair and Unbalanced – is a podcast I do with SCCE CEO Roy Snell. In it we focus on wide ranging issues for the compliance profession. Compliance into the Weeds – is a podcast I do with Matt Kelly where we take a deep dive into the weeds of a compliance issue, typically technology, internal controls or GRC. We both indulge our inner geekiness in this podcast. Jay Rosen and I wrap up each week in FCPA, compliance and ethics with This Week in FCPA. All of these podcasts are available to you on my site, FCPAcompliancereport.com, and are available on iTunes under the same name.

 

 

 

In this episode I continue my conversation with compliance experts Matt Kelly, Mike Volkov and Jonathan Armstrong from the SCCE 2016 Compliance and Ethics Institute. We visit about the following topics: (1) Parallel tracks of sessions at SCCE events for different levels of compliance practitioners; (2) should the compliance function be involved with executive compensation issues and clawbacks; (3) Tom’s highlights of the SCCE Compliance Award winners; (4) the difference between SCCE and FCPA corridor events; (5) will universities answer the call for academic training for compliance professionals; (6) are companies continuing to make the same mistakes over and over leading to continued FCPA enforcement actions; (7) what is the Board of Directors’ role in compliance; (8) Jonathan Armstrong discusses the change in perceptions around the UK Serious Fraud Office and enforcement of the UK Bribery Act; and (9) human trafficking in the US.