News 30th Jan 2017

A Failure of Nerve: The SFO’s Settlement with Rolls Royce



The TI-UK blog features thought and opinion from guest writers as well as TI staff. Any opinions expressed by external contributors do not necessarily reflect the views of Transparency International UK.

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Sue Hawley is an anti bribery expert with Corruption Watch, her blog was originally published on the Corruption Watch website here.

So Rolls Royce has been fined £671 million under a global settlement for a bribery scheme that ranged from the 1980 right up until 2013 and spanned 13 countries. The Deferred Prosecution Agreement (DPA) with the UK’s SFO resulted in a fine of £497.2 million for payment of bribes concealed in well over $56 million of commission payments paid mainly via intermediaries in Nigeria, Indonesia, Malaysia, Thailand, India, China and Russia. The DPA with the US Department of Justice (DOJ) resulted in a fine of $170 million for payment of $35 million in bribes through intermediaries in Angola, Azerbaijan, Kazakhstan, Iraq, Thailand, and Brazil. The Brazilian prosecutors’ office has also reached a leniency agreement with Rolls Royce under which the company will pay $25 million for bribery in the Petrobras scandal.

The DPAs were rushed through so that the US agreement could be finalised before the Trump administration takes office – Trump has described the US’s Foreign Corrupt Practices Act as a ‘horrible law’ and said he will repeal it.

In his judgement, Sir Brian Leveson remarked that his first reaction was that if Rolls Royce’s “egregious criminality over decades” was not to be prosecuted “it was difficult to see when any company would be prosecuted.” However, he ultimately decided that because of Rolls Royce’s extensive cooperation during the investigation and because Rolls-Royce now has an entirely new Board and executive team, and has made considerable changes to its policies, the DPA was in the interests of justice.

The UK’s third DPA with one of the UK’s most politically and strategically important companies raises some serious questions about the DPA regime and the willingness and ability of the prosecuting authorities to prosecute what was clearly an egregious, sustained, and global pattern of wrongdoing ingrained in the very culture of the company and involving senior former executives.

In particular, the DPA raises the following key issues:

The UK’s DPA Regime Has Been Significantly Weakened By The Rolls Royce Precedent:

Previously the SFO has emphasised that companies should self-report information about wrongdoing that the SFO could not otherwise have known about. Both the previous two DPAs were based on this type of self-report. This did not happen with Rolls Royce: two whistleblowers posted allegations online and the SFO approached Rolls to ask them about the allegations. The SFO argued in this case that because Rolls Royce’s cooperation was so extensive and resulted in Rolls providing the SFO with further information of wrongdoing which the SFO was not aware of, it should be treated as having self-reported. The Rolls Royce DPA, therefore, sets a precedent that a company can fail to disclose – in fact deliberately decide not to disclose information about wrongdoing (the judgement says that Rolls Royce knew about conduct since 2010 and decided not to notify authorities), but if it then cooperates with the SFO it will still be eligible for a DPA. Companies will heave a sigh of relief that they can now safely take the risk of not disclosing wrongdoing to the SFO, but still receive all the advantages of a DPA if they do get caught as long as they then play ball. This DPA therefore potentially undermines incentives for companies to self-report – a key plank of why DPAs were introduced.

The Terms Of The UK DPA Which Include A 50% Discount In Fine, A Five Year Payment Plan And A Lack Of Transparency About How The Full Benefit Received By Rolls From The Contracts Was Calculated, Are Overly Generous And Unmerited:

Despite the fact that Rolls Royce did not self-disclose, Sir Brian Leveson still decided that it was eligible for a 50% reduction in fines under the DPA. The Department of Justice was not so generous. It gave Rolls a 25% discount in acknowledgement that it had not self-disclosed the wrongdoing. Leveson’s decision to start allowing 50% reductions in fine under DPAs is a deliberate shift away from the 30% reduction stipulated by the Crime and Courts Act 2013, and raises questions about who Leveson is accountable to when changing DPA policy on such a fundamental basis.

It is worth noting that while the US DOJ has demanded the fine upfront, the SFO has given Rolls Royce 5 years to pay the fine in instalments. This overly generous treatment raises serious questions about how much of a deterrent the DPA provides and whether fines of this type are likely to become regarded by companies as a potential cost of doing business.

The SFO Has Given An Inappropriate Assurance To Rolls Royce About Not Investigating And Prosecuting Additional Criminality Should It Emerge Alongside The DPA:

The SFO has assured Rolls-Royce (para 134) that “it would not consider it to be in the interests of justice to investigate or prosecute it for additional conduct” that pre-dates the DPA but which might arise from the SFO’s ongoing investigations into Airbus and Unaoil. But if those investigations, which the judgement reveals are currently “insufficiently advanced” to provide evidence on potential wrongdoing by Rolls Royce, reveals criminality by the company, it would be wholly inappropriate for the SFO not to penalise the company for that criminality. Additionally, it would raise questions as to why Rolls Royce had either not uncovered such criminality itself in the course of its internal investigations, or if it had, why it had not disclosed it to the SFO. That is to say, the very basis of Rolls Royce’s DPA might be called into question by information that arises from these other SFO investigations. The assurance has worrying overtones of the immunity clause that the SFO gave to BAE Systems in its 2010 settlement, which was roundly criticised by the Judge who oversaw that settlement and by the OECD.

It is notable that the DOJ’s DPA specifically requires the company to continue to cooperate with it “in any and all matters relating to the conduct [subject to the DPA] … and other conduct” under investigation by the DOJ until the term of the DPA ends, and to inform it of any further evidence or allegations of bribery. The SFO’s DPA only commits the company to cooperate if the SFO launches a prosecution.

The ‘Adverse Consequences’ That Rolls Royce Might Suffer If It Were Prosecuted, In Particular Being Debarred From Public Contracts, Were Vastly Overplayed And Their Consideration As A Public Interest Factor Against Prosecution Undermines Government Commitments To Ensure Corrupt Bidders Are Excluded From Public Contracts:

At the UK Anti-Corruption Summit in May 2016, the UK committed, along with other countries at the Summit, to exclude corrupt bidders from public contracts. However, one of the key public interest arguments given for not prosecuting Rolls Royce was that it would face exclusion from public procurement. As the judgement itself acknowledges, only 15% of Rolls Royce’s contracts would have been affected by mandatory exclusion from public contracting – a fact that suggests that claims made by the SFO and accepted by Sir Brian that a prosecution might lead to Rolls Royce’s demise were vastly over-stated. Given that EU exclusion regimes now specifically allow for companies to argue that they have effectively reformed or ‘self-cleaned’ in such a way as to avoid mandatory debarment, the likelihood of Rolls Royce being excluded at all was in any event very low.

The Impact Of Rolls Royce’s Corruption On The Countries In Which It Paid Bribes Was Given No Weight In The Proceedings:

While the innocent employees and shareholders who could potentially be affected if Rolls Royce were prosecuted were given specific mention, no reference was made to the victims of the corruption that Rolls Royce committed. None of the prosecuting authorities from the countries where bribes were paid appear to have been given a right to make representations to the court. And no real assessment of the potential harm caused by Rolls Royce’s corruption appears to have been made by the SFO. Such corruption undermines democracy, the rule of law and socio-economic development, disadvantaging citizens in victim countries.

Finally, The DPA Raises Questions About Accountability For Judicial Scrutiny Of DPAs Itself And Lack Of Third Party Representation:

Only one senior UK judge currently hears DPAs: Sir Brian Leveson. Given that DPAs cannot be judicially reviewed or challenged, it is questionable whether the process should be left in the hands of only one judge who gets to set case law on DPAs. There is no route for third parties to make representations to the court who might have evidence or reasons for questioning why a DPA might not be in the public interest. Sir Brian therefore only ever hears arguments from two parties, the SFO and the company, who are in agreement about the DPA being a good thing. The danger is that Sir Brian Leveson is not only reformulating DPA policy on the job with no oversight, but may get so familiar with the arguments in favour of DPAs, that his critical oversight is dimmed. 

What The SFO Needs To Do Now

If the SFO’s DPA with Rolls Royce represents a failure of nerve, there are a few key things the SFO must do now to show that it is serious about ensuring that the vast wrongdoing exposed in its investigation of Rolls Royce does not go completely unpunished:

  • The SFO Must Bring Prosecutions Against The Intermediaries Involved Where Possible:


    In particular, it should continue its investigation into Unaoil vigorously (the danger is that it could lose appetite for such an investigation now the Rolls Royce allegations have been resolved), the Choudhries who acted as an intermediary for Rolls Royce in India, and the UK based intermediary cited in relation to corruption allegations in Kazakhstan in the DOJ’s DPA.

  • Individual Prosecutions Against The Executives Involved Will Be A Key Test Of The SFO’s Commitment To Dealing With The Alleged Corruption Effectively:


    The SFO has said that it is pursuing investigations against individuals. Bringing those individuals, particularly senior level executives, who were responsible for the wrongdoing alleged in both the SFO and DOJ DPAs is essential.

  • The SFO Must Look At Whether There Are Assets Belonging To Corrupt Officials Linked To The Bribes Paid By Rolls Royce And To Intermediaries Based In The UK And Whether There Are Grounds For Confiscating Them:


    At least one of the intermediaries involved in the alleged wrongdoing is known to have property in the UK, and it is possible that some of the officials involved, who are known to the SFO from its investigation, may also.

Failure to continue to act with determination on these matters will undermine the UK’s stated commitment to fighting corruption by British companies and will strongly suggest that the introduction of the DPA regime still results in too-cosy settlements that effectively allow big and powerful companies off the hook.


image: Chatfield (CC BY 2.0)