Expert welcomes 'big league' Rolls-Royce bribery settlement, but more DPA incentives needed

Out-Law News | 20 Jan 2017 | 10:57 am | 2 min. read

The £497 million deferred prosecution agreement (DPA) agreed this week between Rolls-Royce and the Serious Fraud Office (SFO) places the latter "in the big league when it comes to investigating and resolving bribery investigations", an expert has said.

However, anti-corruption expert Barry Vitou of Pinsent Masons, the law firm behind Out-Law.com, warned that the tool would not incentivise self-reporting of misconduct without bigger discounts on fines.

Writing on his blog, thebriberyact.com, Vitou pointed out that Rolls Royce obtained a 50% penalty discount to reflect its guilty plea and early co-operation, despite the fact that its wrongdoing had been uncovered by the SFO.

"A core goal of the DPA regime has always been to encourage self reporting," he wrote.

"What incentivises a board to self report misconduct in circumstances where it is still possible to obtain a DPA and obtain a 50% discount without doing so? The answer: companies who self report should receive much bigger discounts ... If boards are to seriously consider self reporting they must have a clear economic choice in front of them," he wrote.

Discounts of "up to and including" 100% of any penalty or fine should be available to companies that self-report and then successfully conclude a DPA, reflecting the position in the US, Vitou said. Discounts of this magnitude would mean that corporate boards "would need to consider whether they were properly performing their fiduciary duty to the company in gambling on not getting caught", he wrote.

DPAs are designed to encourage businesses to self-report wrongdoing in the hope of more lenient treatment, including the possibility of avoiding a criminal investigation and potential prosecution if strict conditions set by a judge are met. Prosecutors in the UK have had the power to put DPAs in place with corporate offenders since February 2014.

The SFO's first DPA was concluded in late 2015 with ICBC Standard Bank, after it was found that the company had failed to prevent bribery during a period in 2012/13. The bank was given a 33% discount on its penalty, reflecting the discount usually given to companies that plead guilty to corruption charges at the earliest possible stage. In a second DPA, agreed in July 2016, a company known only as XYZ benefited from a 50% discount to its penalty for admitting its involvement in corrupt practices.

The DPA agreed with Rolls-Royce was agreed following a four-year investigation into the company by the SFO, and covers 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery, according to a statement from the SFO. This conduct spanned three decades and seven jurisdictions, and involved Rolls-Royce's civil aerospace and defence aerospace businesses, as well as its former energy business.

Rolls-Royce has agreed to a number of terms as part of the DPA, including the financial penalty and co-operating with future prosecutions of individuals. Arrangements for monitoring compliance with these conditions are also set out in the terms of the agreement. If Rolls-Royce does not honour these conditions, the SFO will be entitled to resume its prosecution of the company.

The company has also reached settlements with regulators in the US and Brazil, meaning it will ultimately pay around £671m in fines. These include a $170m settlement with the US Department of Justice and a $25m settlement with Brazil's Ministério Público Federal.

"By anyone's standards this is one of the Top 10 enforcement actions of all time," said Pinsent Masons' anti-corruption expert Barry Vitou.

"The resolution of this matter will be welcomed by Rolls-Royce but should serve as a reminder and a wake up call to other companies. The decision represents a win for the SFO and reinforces the idea that DPAs are here to stay. More will undoubtedly follow," he said.