Australia: The Rolls-Royce of investigations into bribery and corruption

Rolls-Royce is synonymous with quality and reliability. But the outcome, in January, of a deferred prosecution agreement ('DPA') in the UK for bribery and corruption offences has tarnished this reputation.

This article summarises the case and considers it in the light of the Transparency International Corruption Perceptions Index ('TI CPI'). We then take a look at the developments in Australia and how the bribery and corruption landscape (regulation and enforcement) is shifting.

1 Key facts

Rolls-Royce was charged with foreign bribery and corruption spanning at least twelve countries and 24 years. Rolls-Royce companies and some high-level executives conspired to make payments to intermediaries knowing that they would be used to bribe officials in countries including Thailand, Brazil, Kazakhstan, Azerbaijan, Angola, Indonesia and Iraq. The bribes were made in return for foreign officials providing confidential information and awarding contracts to Rolls-Royce companies. The allegations included Rolls-Royce paying a USD20 million bribe to persuade Garuda to buy Rolls-Royce engines for its Airbus A330s.

The illegal conduct involved the Rolls-Royce publicly-listed company in the UK, operating in aerospace, marine and energy; and a subsidiary headquartered in the US and therefore subject to the Foreign Corrupt Practices Act.

2 Case outcomes

DPAs were reached with the UK SFO and the US Department of Justice ('DOJ'). Rolls-Royce is to pay the equivalent of over AUD1 billion in fines:

  • AUD795 million to the SFO;
  • AUD221 million to the DOJ; and
  • AUD33 million to the Brazilian Public Prosecutor's Office.

These sums are after a significant reduction in penalties 1 as a result of extensive co-operation efforts.

Had a DPA not been agreed, the case would have taken years to complete due to the duration of the alleged misconduct (over 24 years) and the number of jurisdictions involved.

Rolls-Royce shares rose 5% when the settlement was announced. The settlement removed uncertainty, and the fine is spread over five years, making it more palatable for shareholders.

3 Overview of DPAs

DPAs are voluntary, negotiated settlements between a prosecutor and a defendant for serious corporate crime. They suspend a prosecution in return for compliance with conditions, which typically require a company to:

  • Cooperate with any investigation;
  • Admit to the agreed facts;
  • Pay a financial penalty; and
  • Implement a program to improve future compliance.

If the conditions are fulfilled, the prosecution is discontinued. A breach of them, however, can result in the prosecution resuming, and further penalties. The UK allows DPAs for corporations only, while in the US, DPAs can be used for both corporations and individuals and across wider crime types.

4 Lessons from abroad

The case provides insights for corporates operating overseas, dealing with enforcement agencies, and responding to a culture of corruption.

Co-operation rewards

Corporate self-reporting is a major source of detection of foreign bribery . According to a new OECD report 2 on the UK's efforts to fight bribery, "a large proportion of the finalised foreign bribery cases, as well as ongoing investigations, have been triggered by corporate self-reports". The availability of DPAs increases the incentive for corporates to self-report. In the first two DP A decisions in the UK 3 , the Court placed significant weight on a wrongdoer's proactive self-reporting in granting the DPA.

Rolls-Royce's DPA appears to be the exception, as it did not self-report and only co-operated with the SFO following internet posts of its wrongdoing by a whistleblower . Nevertheless, the Court found that given the 'extraordinary' level of cooperation provided by Rolls-Royce and the fact that what Rolls-Royce ultimately reported was "...far more extensive (and of a different order)" than what may have been uncovered without the cooperation, were relevant factors in the SFO' s decision to offer a DPA. 4

Rolls-Royce's extensive co-operation efforts led to the UK Court accepting a 50% reduction in penalties. Contrast this with the 25% reduction offered by the DOJ in its separate DP A with Rolls-Royce, or the one-third reduction in the previous two DPA cases in the UK. This raises a question for future enforcement actions: "whether this large reduction in the absence of a self-report may undermine the incentive for corporates to self-report in future." 5

Intermediaries

Intermediaries were used to mask illegal conduct. The Court was explicit in condemning this; and made it clear that companies should look closely at why agents are engaged and paid, or whether there is a legitimate need for them at all. As a result of the investigation, Rolls-Royce suspended 88 intermediary relationships. This highlights the importance of robust due diligence to know whom you are dealing with, and to ensure that business cultures and practices are aligned.

The bribery also involved masking payments by coding them to various accounts.

Culture and crime

Rolls-Royce interviewed 229 employees, conducted internal disciplinary proceedings against 38, and fired 11. One of the Court's key considerations when granting the DPA was whether any current director or senior manager was involved in the misconduct. Had they been, the Court would not have approved the DPA and the prosecution would have proceeded, despite the cost and time involved.

5 Countries where the bribery took place and how they scored on the TI CPI:

The Rolls-Royce case reinforces the need for extra vigilance in countries where information like Transparency International's Corruption Perceptions Index shows that there is high level of corruption. The index measures perceptions of corruption on a scale of 0 (highly corrupt) and 100 (very clean). The countries where the bribery took place included some of the lowest-ranked countries:

Countries involved in the bribery scheme

6 Using artificial intelligence to fight crime

With the aid of technology and computer algorithms designed to expedite the review of thousands of documents, the SFO was able to "crack the case 'exponentially quicker ' than if it was investigated manually", said David Lumsden, the chief executive of Ravn Systems. 6

A Financial Times article reports that Ravn's software helped the "seven-person investigations team sift through 30 million documents, processing 600,000 every day." 7 The software is able to "sift, index and summarise documents as a human investigator would do, but much faster and without human error". 8 The software helped sort documents into privileged and non-privileged, a process that would have taken months of manual review.

Where large volumes of data need to be reviewed, Technology Assisted Review ('TAR') or Computer Assisted Review ('CAR') are more efficient and cost-effective than the traditional, laborious manual review of documents.

Where large volumes of data need to be reviewed, Technology Assisted Review ('TAR') or Computer Assisted Review ('CAR') are more efficient and cost-effective than the traditional, laborious manual review of documents.

7 Developments in Australia

The Rolls-Royce decision should cause companies everywhere to consider whether their compliance programs and risk assessment procedures are adequate. The decision also serves as a reminder that whilst there are developments in this area in Australia (including the recent Tabcorp matter), our regulatory regime still seems inadequate to deal with large and complex bribery and corruption.

Some of the key areas of focus for potential reform are:

Changes to the whistle-blower regime

Flagged towards the end of last year, these changes propose to extend whistle-blower protections under corporations law to cover disclosures relating to other legislation. Financial rewards for whistle-blowers exist in the US and have recently been flagged for discussion by the Australian government.

Enforcement cooperation program similar to the DPAs in the US and UK

The Australian government is considering a DPA-style regime. This could see larger fines in Australia and could focus the need for companies to have better processes to prevent foreign bribery and corruption. It would also increase the incentives for companies to self-report.

Debarment policies

Public sector procurement is vulnerable to corruption. Australia has yet to implement transparent policies dealing with public procuring agencies giving work to companies who have a history of bribery and corruption. Currently, there is no obligation on public procurement agencies to debar companies based on domestic/foreign bribery.

Technology Assisted Review in Australia

Australian courts are becoming familiar and more comfortable with the use of TAR in legal proceedings. A recent court decision 9 ordered the use of TAR to review 1.4 million documents in accordance with a specific set of instructions, to be managed by a court-appointed referee. Prior to this decision, there had been little case law on the use of TAR in Australia.

Australia is a long way behind the US and UK in dealing with foreign bribery and corruption. But they are on the Government's agenda, and change is coming, albeit slowly.

Footnotes

1 50% in relation to the SFO penalty, and 25% in relation to the DOJ penalty.
2 OECD Working Group on Bribery, Phase 4 Report on Implementing the OECD Anti-Bribery Convention in the UK (Mar,2017), para 21.
3 Standard Bank and XYZ Limited. The Rolls-Royce case is the third decision settled by DPA in the UK.
4 Judgment of Sir Brian Leveson, 17 January 2017, Serious Fraud Office and Rolls-Royce Plc & Anor, para 22.
5 OECD Working Group on Bribery, Phase 4 Report on Implementing the OECD Anti-Bribery Convention in the UK (Mar,2017), para 22.
6 As reported in ' SFO expected to promote Ravn's crime-solving AI robot' , by Madhumita Murgia, published in the Financial Times on February 13, 2017
7 As above.
8 As above.
9 Craig Macaulay, an Executive Director from our Melbourne Office, discussed the recent Victorian Supreme Court decision lending support to the use of Targeted Assisted Review in Australia in 'Australia joins the TAR trend' ( click here to read the article). Craig has also published a more in-depth examination of the use of TAR in 'Further Advances in Technology Assisted Review ( click here to read the article).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions