Expert view: the lessons from the Rolls Royce case

Expert view: the lessons from the Rolls Royce case

Feb 24, 2017

Almost five years on from the enactment of the Bribery Act in the United Kingdom, one of the great expectations of the compliance community has come to fruition. In Rolls Royce, British anti-bribery and corruption enforcers now have their first significant corporate scalp. Exiger director Rob Wilson and EMEA chair Lisa Osofsky make some observations on Rolls’ culture of compliance.

Rolls Royce has the ignominious title as record-holder for the largest ever British corporate fine for economic crime. It agreed to pay this in return for a deferred-prosecution arrangement (DPA) with the English courts, alongside similar deferred-prosecution penalties in the US and Brazil.

However, the other expectation, vociferously anticipated in 2010/11 and repeated after Rolls Royce’s capitulation by the Bribery Act’s detractors on all sides of British business, has thankfully not come to pass. Neither the enactment of the Act nor its enforcement have led to mass job-losses and no British businesses have lost contracts to competitors elsewhere on the globe. Rolls may yet end up employing more staff (or at least reconfiguring the jobs of its employees) to clean up its internal processes while continuing to win contracts all over the world, fulfil orders and create wealth and employment.

A handful of senior managers at Rolls might have moved on from their posts since the Serious Fraud Office opened its investigations a couple of years ago, but the financial markets at least have already viewed the fine and settlements as a success. Rolls settled for a total of £671m (of which nearly £497m is payable to HM Treasury alone) as part of its DPA with the Serious Fraud Office and the rest to the US Department of Justice and Brazilian enforcement agencies. Shares in the aerospace and defence specialist parts maker, meanwhile, are still up around 12% weeks on from the settlement, adding around £1½ billion to its market value. The figures point to an £800-million overall victory for Rolls and prove that it has managed to put the criminal investigations behind it. 

As part of the principle of agreeing a DPA with the High Court in London and the scale of the fine, judges considered the effect on the company and its ability to continue to trade, invest and remain in business. The court tried to balance the competing needs of punishment and deterrence, expressing a desire to encourage reform and rehabilitation from within the Rolls Royce corporate culture.

The main motivation for Rolls Royce to honour its DPA does not simply derive from the size of the fine; the terms themselves call for a root-and-branch cultural change. If the company can rehabilitate itself from the inside, it can make the necessary changes stick. To its credit, Rolls Royce’s executive leadership alerted the Serious Fraud Office to suspected malpractices and co-operated fully with SFO investigators before coming to a settlement. That alone showed that its leadership took corruption seriously and its relatively new CEO deserves some praise.

The test of a good DPA, in the SFO’s terms, is whether it sets the kind of example that inspires firms to put compliance with the appropriate criminal and regulatory regimes back at the heart of decisions to do with commercial and  financial risk. In essence, it concerns cultural change, which ultimately should be in the best interests of customers, staff and shareholders alike.

Certainly Rolls Royce should not fear that it is competing on anything but a level playing field with its rivals in other leading European economies and in America. Germany and France (the two other European venues for gigantic aerospace and defence firms) have introduced anti-bribery legislation that is similar to the UK’s. The US Foreign and Corrupt Practices Act has, meanwhile, been in place since 1977 and (though some may argue that the US typically targets foreign companies) it has not cramped American firms’ competitive edge. The long arm of the US court system continues to impose the anti-bribery duties and obligations this Act requires wherever any company with US activities conducts business. British firms such as Rolls Royce (which have many US operations) have been bound by the FCPA for years, so the arrival of the Bribery Act should not change matters. The only real difference between today’s situation and that of five years ago is that the SFO has been given the resources to pursue its investigations more vigorously.

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*Lisa Osofsky is available on +44 (0) 207 489 5509 or at;
*Rob Wilson is available on +44 (0) 207 516 5927 or at rwilson@exiger.

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