The largest fine in UK criminal enforcement history and the use of a deferred prosecution agreement signals the latest move towards a US style criminal enforcement model.
Over a 24 year period, the Rolls-Royce group paid bribes, utilising a number of intermediaries, in order to secure lucrative engine and technology supply contracts in seven different jurisdictions. Rolls-Royce's wrongdoing included multiple counts of:
- conspiracy to corrupt, namely by using intermediaries to pay bribes in order to obtain contracts in Indonesia, Thailand, India and Russia
- the Bribery Act 2010's “corporate offence”, namely by failing to prevent intermediaries from paying bribes in order to obtain contracts in Indonesia, Nigeria, China and Malaysia.
The previous senior management had been aware of the conduct in 2010, two years before the investigation started, but, notably, had not notified the Serious Fraud Office (SFO).
The SFO investigation
In 2012 the SFO became aware of concerns about Rolls-Royce's civil operations in China and Indonesia from allegations posted on the internet. After contacting Rolls-Royce for information the company began an internal investigation. Rolls-Royce subsequently provided significant co-operation with the SFO in respect of its investigation, including voluntary disclosure of:
- the findings of the internal investigation
- 30 million underlying documents
- a 2010 investigation report identifying wrongdoing, which Rolls-Royce did not report to the SFO at the time.
Rolls-Royce also waived any potential claims of legal professional privilege over internal investigation and interview memoranda.
The deferred prosecution agreement
A deferred prosecution agreement (DPA) is not available as of right. A company must be invited to agree one. Court approval is required. And this approval will only be provided if the DPA is in the interests of justice and the terms of the DPA are fair, reasonable and proportionate.
In this case, the court gave its approval (see the full DPA). Sir Brian Leveson concluded that, despite Rolls-Royce's failure to self-report, there were sufficient reasons to grant the DPA. In particular, the:
- "full and extraordinary cooperation" it had provided during the SFO's investigation
- significant changes in the composition of the board
- overhaul of compliance procedures following an independent third party review
- disciplinary proceedings against implicated employees
- adverse impact of prosecution on innocent persons connected to Rolls-Royce, namely employees, shareholders, suppliers and customers.
The DPA will last until 17 January 2021 at the earliest. The terms are as follows:
- financial penalty: £239,082,645 (after 50% discount)
- disgorgement of profit: £258,170,000
- SFO costs: £12,960,754
- continued co-operation with the SFO
- implementation of a corporate compliance programme based on a review commissioned by Rolls-Royce at its own expense
- Lord Gold to act as a quasi-monitor
- Rolls-Royce entered into similar agreements with the US Department of Justice (under which it was fined $170 million) and the Brazilian Ministério Público Federal (under which it was fined $25 million). The SFO co-ordinated its investigations with both agencies.
- total penalty therefore stands at approximately £671 million. Add to this the reported £123 million costs incurred by Rolls-Royce, plus ongoing compliance costs during the life of the DPA, and the total cost will likely approach £1 billion.
What does it mean for businesses operating in the UK?
This latest enforcement action points to two things: first, the general and continuing Americanisation of corporate criminal enforcement in the UK and, second, a concerning level of inconsistency in the message to businesses operating in the UK.
Do we need to self-report?
The answer now appears unclear. Sir Brian Leveson remarked that self-reporting to the SFO would usually be highly relevant when deciding whether or not to approve a DPA. Indeed, in the other two SFO DPAs, agreed with Standard Bank and XYZ Ltd, early self-reporting was considered a, if not the, critical factor in granting a DPA. In Rolls-Royce's case, a DPA was approved despite the fact that they did not self-report. Indeed, the company had been aware of the problems since at least 2010 and still did not approach the SFO. The outcome appears to contradict both the earlier DPAs and the drumbeat message from the SFO that failure to self-report early will make a DPA virtually impossible. We now know that the position is not so straightforward.
DPA or prosecution?
The scale of the bribery conducted by Rolls-Royce was so egregious that it appeared to make prosecution inevitable. Sir Brian Leveson noted that the conduct involved a far worse scheme of bribery and corruption than the SFO's previous bribery cases. And yet, a DPA was deemed to be in the interests of justice. The outcome begs the question: what conduct will justify prosecution as opposed to a DPA? The concern is that the SFO may not have had the firepower to take on Rolls-Royce in full criminal proceedings: a DPA brought a cost-efficient, expedient result. Query whether smaller businesses will be treated in the same way.
How big could the fine be?
Rolls-Royce’s fine is the largest imposed in UK criminal enforcement history. It is nearly double the highest fine ever imposed by the FCA for financial crime, namely the £284 million fine imposed on Barclays Bank plc for FX market manipulation. It dwarfs the largest fine imposed under a DPA so far, namely the £22 million penalty imposed on ICBC Standard Bank for failure to prevent bribery. It is far more akin to the fines the US Department of Justice has for years been imposing on criminally culpable corporations. Businesses operating in the UK need to accept that the UK’s penal regime can no longer be seen as a “soft touch”: fines are likely to be similar to, or in this case even greater than, those received in the USA.
What discount can we get?
This is the second case where a 50% discount was applied to the penalty. This is greater than the standard 33% normally available under DPAs pursuant to the Sentencing Guidelines. Again, this was attributed to Rolls-Royce's cooperation in the investigation. However, ICBC Standard Bank appeared equally committed to co-operation and, indeed, self-reported within weeks of identifying the bribery. Yet it only received a 33% discount. In any event, doubt remains whether such discount levels will constitute a sufficient incentive to effectively concede defeat at such an early stage.