UKBA: The Heat is On

The agency hammers down on sanctions against Rolls-Royce amidst bribery allegations

As part of our ‘Bribery- The Reality’ series, our London-based compliance and ethics expert Keith Read, unfolds the case at one of the most iconic brands of luxury and modern engineering across the globe, Rolls-Royce.

Key highlights

  • Rolls-Royce will pay £671M ($8.3M) in penalties for bribery and corruption that took place over a 24-year span (1989-2013).
  • Total fine amount is the largest in the history of the English legal system.
  • Rolls-Royce reported a 1.8 billion-pound ($2.37 billion) first-half loss last year due to the pound weakening.
  • Roll-Royce has apologized “unreservedly” in court.
  • Under the Deferred Prosecution Agreement (DPA) along with the UK’s Serious Fraud Office (SFO), the company will improve its Anti-Bribery & Corruption (AB&C) compliance performance, yet the specifics of exactly how are not clear.

“Egregious” criminality
For nearly two decades, Rolls-Royce made a new name for itself away from one of the most iconic brands connected to fame and fortune to a company that has deep and complex bribery-related issues and a breeding ground for worldwide corruption.

“My reaction when first considering these papers was that if Rolls-Royce were not to be prosecuted in the context of such egregious criminality over decades, involving countries around the world, making truly vast corrupt payments and, consequentially, even greater profits, then it was difficult to see when any company would be prosecuted,” said a judge overseeing the case.

But yet, the issues remain. Given the involved policies, processes and sums, some of the most senior management at Rolls-Royce at the time must have known what was going on. The former company leadership knew about the issue in 2010, but failed to say anything. And as such, it remains to be seen what individual prosecutions result from the SFO’s current criminal investigations.

The Rippling Aftermath
The company has since changed out its executive team, with 17 others leaving. It has also reviewed some 250 agents and intermediaries that were used to win business in overseas markets and has suspended or terminated over 35 percent of them. Under the DPA, it’s AB&C program will undergo significant overhaul.

A DPA was agreed on in lieu of full prosecution on the basis that the company is now different in culture in comparison to the past where, by any measure, corruption was an accepted business practice. Rolls-Royce made a public statement on January 16 to fully cooperate with the DPA, agreeing to make payments of nearly $1.7M to the Department of Justice (DOJ) and Brazil’s federal public prosecutor (MPF).

Looking Ahead and Preventing Bribery – How Far Would You Go?
It’s clear that the core of most company compliance and ethics programs involve training. In fact, many companies take great pride in their achievement levels.

However, in reviewing some of the Rolls-Royce country examples (included below) such as Indonesia, where the company paid a representative from a rival bidder to deliberately submit an uncompetitive bid. Many compliance officers, General Counsels, and others would acknowledge that training alone is just simply not enough. There is more to do if bribery and corruption is to be genuinely prevented.

Similar to most bribery cases, the bribery that occurred at Rolls-Royce was driven by supply, demand and a supportive culture for such. Behind these main three elements, are a host of ancillary factors including:

  • Perverse incentives
  • Sources of funds and a corporate mindset
  • Bribery serves the ‘greater good’
  • Bribery is acceptable under these conditions

To much surprise, there is a host of tools and techniques that companies can use to remove or reduce bribery and its impact. They include tools such as:

  • Benford’s Law
  • The bribery ‘Perfect Storm’
  • Source of funds analysis
  • Perverse incentives analysis
  • ‘Stand in the Space’

Coupling these tools with other techniques and approaches can form the basis of a comprehensive active anti-bribery and corruption toolset. However, few – if any – companies are currently mounting a concerted Stand in the Space program. By not doing so, there are potential risks of exposure to what might very well be significant – albeit unavoidable – bribery risk.

Achieving a 100 percent completion rate on AB&C training is the goal and best practice for compliance and ethics professionals, it’s advantageous to ask yourself, “How far would I go?” to prevent bribery.

Rolls-Royce: The Reality of Bribery
Download a PDF of Rolls-Royce: The Reality of Bribery by clicking on the image above.

Policies
The company first issued a written policy governing the use of agents and intermediaries in 1999. This was administered by the company’s Marketing Services Division, although inexplicably no process for due diligence was specified. Additional approval was required from a senior Rolls-Royce employee where the proposed payment exceeded 5 percent of the contract price, and that policy was extended in 2003 to require additional approvals.

Penalties
Rolls-Royce is to pay $825M in penalties after long-running investigations into claims it paid bribes to land export contracts. The settlement means the engineering giant will avoid being prosecuted by anti-corruption investigators in the UK, US and Brazil.

Internal Investigation
Rolls-Royce’s internal investigation involved disciplinary proceedings against 38 individuals leading to 11 employees leaving the company during the disciplinary process and six being dismissed. Others have suffered sanctions short of dismissal.

Criminal Investigation
The SFO has confirmed that it is carrying out criminal investigations into former Rolls-Royce employees and others, believe to be the agents and middlemen through which the company paid more than $100M in bribes to government officials and companies in 12 countries across five continents.

Saying and doing are two different things: putting employees to the test
During my time as CCO at British Telecom, I wrote to employees inviting them to a fake ‘Day at the Races’, phrased to reflect the very lessons that they should have learned in their training. At face value, the AB&C training employees underwent six weeks prior to the fake invite, was very successful.

Put simply, the level of acceptances and lack of questioning from employees was astonishing – despite every recipient of the invite having directly completed comprehensive training beforehand.

Another example brought some more hard truths on my training perspective. I sent a bottle-shaped box to every procurement officer during the holiday season. This box actually contained a copy of the company’s Code of Conduct, a gentle, yet cheeky reminder of our current policies that pertain even during holiday seasons.

The messages were never forgotten, using tactics like these. Ultimately, it gave me greater confidence that the company’s AB&C Corporate Shield was indeed robust and effective.

The Bribery Triangle
While many of the examples of Rolls-Royce bribery are inherently shocking, they are all arguably made exponentially worse by two leading factors:

  1. Rolls-Royce is an iconic global brand.
  2. The company experienced previous bribery-related issues and as such must have had all their anti-bribery policies in place.

In the context of Rolls-Royce there are three primary elements of the bribery equation, as shown in the figure to the left, that can be used to remove, or at the very least reduce, bribery from occurring and metastasizing in a company and its culture.

The Bribery Triangle (left) identifies three key drivers (supply, demand, environment and culture) – supply of funds, goods, favors, services and/or other incentives for bribery, demand for bribery and the environment to support bribery – all clearly include culture on both sides of the equation. For example, the bribe payer and receiver.

Culture also subsumes the vital elements of pressure to the briber, the opportunity and eventually, rationalization and support.

It’s clear: the governance culture and environment at Rolls-Royce was, at best, poor. There was a ready supply of bribery funds. They were willfully and knowingly operating in markets saturated with bribery risk.

Bribery undertaken on an industrial scale
It is rare to not find top-level commitment and risk-assessment front and center in any bribery prevention advice. Given that, some of the countries that Rolls-Royce were involved in would be deemed high-risk by Berlin-based NGO Transparency International and others — it is inexplicable that bribery and corruption was not identified as a key risk by Rolls-Royce.

However, in common with other major headline-grabbing bribery cases, bribery and corruption risk did not matter. The bribery was then undertaken on an industrial scale. Against that, the vast majority of companies, and their compliance and ethics officers, GC’s and others, are entirely committed to bribery and corruption.

For those who operate ethically and in compliant regulations, the Rolls-Royce case will no doubt be a long-term and valuable example of real consequences of bribery, in terms of fines, costs, management distraction and, now, potential prison sentences.