On January 16 2017 Rolls-Royce announced and the Serious Fraud Office (SFO) confirmed that a deferred prosecution agreement, subject to approval by the court, had been reached between them. The following day, approval was given publicly by Sir Brian Leveson, president of the Queen's Bench Division of the High Court. Leveson had given approval to the two previous deferred prosecution agreements, although this was by far the largest application for approval.

The deferred prosecution agreement with Rolls-Royce covers the conduct of the two entities: Rolls-Royce plc and a subsidiary, Rolls-Royce Energy Systems (both now owned by Rolls-Royce Holdings plc). It covers the conduct of both entities in Nigeria, Indonesia and Russia, and of Rolls-Royce plc in Thailand, India, China and Malaysia. The conduct concerned its civil aerospace business, defence aerospace business and former energy business. It involved:

  • agreements to make corrupt payments to agents in Indonesia and China (1989 to 2006), and Russia (2008 to 2009);
  • concealment or obfuscation of use of intermediaries in India (2005 to 2009);
  • failure to prevent bribery by employees or intermediaries in Nigeria and Indonesia (2013); and
  • failure to prevent the provision by Rolls-Royce employees of inducements in China and Malaysia (2013).

The conduct also involved an agreement to make a corrupt payment between 2006 and 2007 to recover a list of intermediaries that had been taken by a tax inspector from Rolls-Royce in India.

The deferred prosecution agreement will result in a payment by Rolls-Royce of £497,252,645 (£258,170,000 as disgorgement of profits and £239,082,645 as a financial penalty). This will be paid in four instalments, with the last in 2021. Rolls-Royce will also pay the SFO's full costs of £13 million.

Rolls-Royce had retained Lord Gold in January 2013 to conduct an independent review of its approach to anti-bribery and corruption compliance, and had already provided two interim reports. The deferred prosecution agreement requires the SFO to be provided with the third interim report and Rolls-Royce to produce a written plan to implement the recommendations in it, as well as any outstanding recommendations from the previous interim reports. Thereafter, Rolls-Royce must complete the actions contained in the plan.

The SFO investigation had followed internet postings in early 2012 about the operation of Rolls-Royce's civil business in China and Indonesia, which had come to the attention of the SFO. Rolls-Royce had immediately commenced an investigation that led to a report into the findings on those and other issues.

Although the SFO investigation had not been triggered by a self-report, the nature and extent of Rolls-Royce's cooperation had been such that the court was asked not to distinguish between its assistance and that which was self-reported from the outset. The cooperation included Rolls-Royce voluntarily supplying the SFO with reports in respect of its internal investigations (including its interviews, having waived any claim for legal professional privilege on a limited basis), revealing more than what was in the public domain. Leveson held the view that the extent of the assistance provided by Rolls-Royce was highly material to both the interests of justice and the assessment of the balance between prosecution and a deferred prosecution agreement, and also to the appropriate discount to allow from the financial penalty imposed. He also took into account the impact of a prosecution of Rolls-Royce, and that Rolls-Royce is no longer the company that it once was. It now has a new board and executive team who have embraced the need to make essential changes, including new policies, practices and culture.

To ensure a coordinated global resolution of the matter, Rolls-Royce has also reached a deferred prosecution agreement with the US Department of Justice (payments totalling $169,917,710) and a leniency agreement with Brazil's Ministério Público Federal (payments totalling $25,579,179).

For further information on this topic please contact Kathleen Harris, Sean Curran, Stuart Baker or Oliver Cooke at Arnold & Porter Kaye Scholer LLP by telephone (+44 20 7786 6100) or email ([email protected], [email protected], [email protected] or [email protected]). The Arnold & Porter Kaye Scholer LLP website can be accessed at www.apks.com.