British engineering company Rolls-Royce has agreed to pay the United States nearly $170 million as part of an $800 million global resolution to investigations by the Department of Justice, U.K., and Brazilian authorities into a long-running scheme to bribe government officials in exchange for government contracts.
According to admissions made in court papers, Rolls-Royce admitted that between 2000 and 2013, the company conspired to violate the Foreign Corrupt Practices Act (FCPA) by paying more than $35 million in bribes through third parties to foreign officials in various countries in exchange for those officials’ assistance in providing confidential information and awarding contracts to Rolls-Royce, RRESI and affiliated entities (collectively, Rolls-Royce).
Among the admissions:
In Thailand, Rolls-Royce admitted to using intermediaries to pay approximately $11 million in bribes to officials at Thai state-owned and state-controlled oil and gas companies that awarded approximately seven contracts to Rolls-Royce during the same time period.
In Brazil, Rolls-Royce used intermediaries to pay approximately $9.3 million in bribes to bribe foreign officials at a state-owned petroleum corporation that awarded multiple contracts to Rolls-Royce during the same time period.
In Kazakhstan, between approximately 2009 and 2012, Rolls-Royce paid commissions of approximately $5.4 million to multiple advisors, knowing that at least a portion of the commission payments would be used to bribe foreign officials with influence over a joint venture owned and controlled by the Kazakh and Chinese governments that was developing a gas pipeline between the countries. In 2012, the company also hired a local Kazakh distributor, knowing it was beneficially owned by a high-ranking Kazakh government official with decision-making authority over Rolls-Royce’s ability to continue operating in the Kazakh market. During this time, the state-owned joint venture awarded multiple contracts to Rolls-Royce.
In Azerbaijan, between approximately 2000 and 2009, Rolls-Royce used intermediaries to pay approximately $7.8 million in bribes to foreign officials at the state-owned and state-controlled oil company, which awarded multiple contracts to Rolls-Royce during the same time period.
In Angola, between approximately 2008 and 2012, Rolls-Royce used an intermediary to pay approximately $2.4 million in bribes to officials at a state-owned and state-controlled oil company, which awarded three contracts to Rolls-Royce during this time period.
In Iraq, from approximately 2006 to 2009, Rolls-Royce supplied turbines to a state-owned and state-controlled oil company. Certain Iraqi foreign officials expressed concerns about the turbines and subsequently threatened to blacklist Rolls-Royce from doing future business in Iraq. In response, Rolls-Royce’s intermediary paid bribes to Iraqi officials to persuade them to accept the turbines and not blacklist the company.
U.S. and U.K. DPA details. Rolls-Royce entered into a deferred prosecution agreement (DPA) in connection with a criminal information, filed on Dec. 20, 2016, in the Southern District of Ohio. According to the criminal information, unsealed Jan. 17, the company has been charged with conspiring to violate the anti-bribery provisions of the FCPA.
Pursuant to the DPA, Rolls-Royce agreed to pay a criminal penalty of $195.5 million, subject to a credit discussed below. The company has also agreed to continue to cooperate fully with the Justice Department’s ongoing investigation, including its investigation of individuals.
In related proceedings, Rolls-Royce also settled with the U.K. Serious Fraud Office (SFO) and the Brazilian Ministério Público Federal(MPF). As part of its resolution with the SFO, Rolls-Royce entered into a DPA and admitted to paying additional bribes or failing to prevent bribery payments in connection with Rolls-Royce’s business operations in seven jurisdictions: China, India, Indonesia, Malaysia, Nigeria, Russia, and Thailand between in or around 1989 and in or around 2013.
Additionally, Rolls-Royce agreed to pay a total fine of £497,252,645 (US$604.8 million). As part of its leniency agreement with the MPF, Rolls-Royce also agreed to pay a penalty of approximately $25.5 million for the company’s role in a conspiracy to bribe foreign officials in Brazil between 2005 and 2008.
Because the conduct underlying the MPF resolution overlaps with the conduct underlying part of the Justice Department’s resolution, the Justice Department said it credited the more than $25.5 million that Rolls-Royce agreed to pay in Brazil against the total fine in the United States. Thus, the total amount to be paid to the United States is $170 million, and the total amount of penalties that Rolls-Royce has agreed to pay is more than $800 million.
Factors considered. A number of factors contributed to the Justice Department’s criminal resolution with the company, including that Rolls-Royce did not disclose the criminal conduct to the Department until after the media began reporting allegations of corruption and after the SFO had initiated an inquiry into the allegations and that the conduct was extensive and spanned 12 countries.
The company did, however, cooperate with the Justice Department’s investigation, the agency said: “Rolls-Royce has also taken significant remedial measures, including terminating business relationships with multiple employees and third-party intermediaries who were implicated in the corrupt scheme; enhancing compliance procedures to review and approve intermediaries; and implementing new and enhanced internal controls to address and mitigate corruption and compliance risks.”
Thus, the criminal penalty reflects a 25 percent reduction from the bottom of the U.S. Sentencing Guidelines fine range. In addition, the Justice Department said it considered the parallel resolutions reached by the SFO and MPF in determining the resolution.
Global effort.“The global nature of this crime requires a global response, and this case is yet another example of the strong relationship between the United States and U.K. Serious Fraud Office and Brazilian Ministério Público Federal, and the collective efforts to ensure that ethical companies can compete on an even playing field anywhere in the world,” said Chief Andrew Weissmann of the Fraud Section of the Justice Department’s Criminal Division.
Paul Abbate, Assistant Director in Charge of the FBI’s Washington Field Office, also noted that the investigation exemplifies the importance of international cooperation to achieve a fair and meaningful resolution. “This outcome is a reflection of the immense reach and capabilities of the FBI’s Washington Field Office international corruption squad and the global impact of the anti-corruption program,” Abbate said.
The SFO noted that the Rolls-Royce investigation is the “largest ever single investigation carried out by the SFO, costing £13m and involving some 70 SFO personnel.
It is the third use of a DPA since the power became available to prosecutors in 2014; the first DPA the SFO reached was with Standard Bank. The second is with a company currently referred to as XYZ, due to ongoing related legal proceedings.
“The SFO conducted its investigation with trusted partners around the globe, resulting in a coordinated resolution with the U.S. Department of Justice and Brazil’s Ministério Público Federal,” the agency said. “The SFO is grateful for the cooperation and support those partners provided.”
In a prepared video statement, Rolls-Royce CEO Warren East apologized for the misconduct. “The behavior uncovered in the course of the investigation by the SFO and other authorities is completely unacceptable and we apologize unreservedly for it,” he said.
“Along with colleagues all around the world, I share a sense of disappointment and anger at how some people within our company behaved, and I know that we all share a determination to see that Rolls-Royce comes out of this episode a better managed business,” East added.
Since reporting concerns to the SFO in 2012, Rolls-Royce has been working closely with the authorities, including:
Disciplinary action. “This has resulted in a number of people leaving the business, and we no longer use any of the intermediaries who have been implicated,” East said.
Zero tolerance of business misconduct. “In recent years, we’ve taken extensive action to strengthen our ethics and compliance procedures, so that high standards of conduct are embedded as an essential part of the way we do business. Specifically, we’ve set clear standards for the behaviors we expect of our people and those with whom we do business.”
New ethics and compliance team. “We’ve recruited a senior team of ethics and compliance experts and put specialists and trainers within our business,” East said.
Speak-up culture. “We actively encourage everyone to report concerns and have created a new reporting channel, including a 24-hour Ethics Line,” East explained.
Fewer intermediaries. “We have dramatically reduced the number of intermediaries we employ around the world and ensure that the advisors that we do retain meet our high ethical and compliance standards and understand exactly what is expected of them,” East added.
In 2013, Rolls-Royce appointed Lord Gold, an expert in ethics and compliance, to oversee these initiatives. “He continues to work with us, and when he completes his final report, we will publish it,” East said.
Trust is essential to our business. I believe winning ethically, transparently, and fairly is the only way to win business sustainably. That is how Rolls-Royce acts today and will act in the future,” East concluded. “We will emerge as a more trusted, resilient, and better managed business.