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The U.K.’s DPA With Rolls-Royce Violates OECD Convention Article 5 And Other Observations


Previous posts here and here highlighted the $800 million global resolution of various enforcement actions against Rolls-Royce. As noted in a prior post, the bulk of the $800 million consisted of an approximate $625 million enforcement action by the U.K. Serious Fraud Office that was resolved through a deferred prosecution agreement – only the third DPA executed by the SFO.

This post highlights why the DPA violates Article 5 of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions to which the U.K. is a signatory country. The post also contains additional observations about the U.K. DPA.


Knowledgeable observers already know that U.K. style DPAs are significantly different than U.S. style DPAs.

Sir Brian Leveson’s Approved Judgment and Statement of Facts provide a detailed overview of the U.K’s process for DPAs (as did the first two DPAs), including the judicial review aspect of the process, and should be required reading for anyone trying to better understand the DPA process in the U.K.

If a nation is to have DPAs, the U.K. model is far more sound than the U.S. model and a further observation from U.K. DPA’s (including the Rolls Royce DPA) is that it is incredibly refreshing to read a document relevant to an alleged bribery offense drafted by someone other than the prosecuting authority.

Not So Refreshing

As refreshing as the above items were, it was not so refreshing to learn that once again Sir Brian Leveson was the judge who approved the DPA as he was the same judge who approved the prior two DPAs.

Sure there are merely three U.K. DPAs and sure there might be certain efficiencies in having the same judge involved.

However, if the beneficial aspect of U.K. DPAs (active involvement by the judiciary) is to have real meaning a more diverse collection of judges opining on DPAs would be nice. At present, the judicial scrutiny of DPAs is that of just one person.

Violation of OECD Convention Article 5

Article 5 of the OECD Convention is titled “Enforcement” and states:

“Investigation and prosecution of the bribery of a foreign public official shall be subject to the applicable rules and principles of each Party. They shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”

Much like U.S. resolution of certain FCPA enforcement actions (see my “homework assignment” here from the U.S. Senate in connection with its 2010 Senate hearing on this very issue), the Rolls-Royce DPA is in violation of Article 5 of the OECD Convention because resolution of the matter clearly was influenced by considerations of national economic interest and the identify of the legal person (that is Rolls-Royce) involved.

Indeed, the second paragraph of the Approved Judgment states:

“Rolls-Royce Holdings plc (listed on the London Stock Exchange and forming part of the FTSE 100 index) is properly considered to be a company of central importance to the United Kingdom, with a reputation in the field of engineering second to none.”

Even though the conduct of the company is described as involving “the most serious breaches of the criminal law in the areas of bribery and corruption (some of which implicated senior management and, on the face of it, controlling minds of the company), the Approved Judgment contains a separate section titled “The Impact of Prosecution” which states in full:

“The final consideration … is the impact of prosecution on employees and others innocent of any misconduct or what might otherwise be described as the consequences of a conviction. To understand the extent of that impact, it is first necessary to consider the impact on Rolls-Royce.

First, a conviction would undeniably affect the ability of Rolls-Royce to trade in the world where, as I started this judgment by observing, it is a world leader and has a reputation for excellence. It is well known that many countries operate public sector procurement rules which would debar participation following conviction. Thus, I have no difficulty in accepting that which I am informed to the effect that, as at the end of 2014, a minimum in the order of 15% of the Rolls-Royce order book was from entities subject to public sector procurement rules in countries with mandatory debarment and, approximately, a further 15% was from entities subject to public sector procurement rules in countries with discretionary debarment pursuant to express legislation.

Furthermore, it is not difficult to visualize that the direct losses to revenue which would be caused by debarment would have a long term financial effect consequent upon losing contracts which, for commercial aircraft, can extend for 25 to 30 years. There would also be incumbency effects of a short term debarment, leading to longer term exclusion from other contracts and reduced research & development caused by the loss of a key revenue stream.

Debarment and exclusion would clearly have significant, and potentially business critical, effects on the financial position of Rolls-Royce. This could lead to the worst case scenario of a very negative share price impact, and, potentially, more serious impacts on shareholder confidence, future strategy, and therefore viability.

These repercussions for Rolls-Royce risk additional repercussions to third party interests, including: i) adverse effect to the UK defence industry, where Rolls-Royce has a critical role in supplying engines for UK military and naval vessels, nuclear propulsion technology for nuclear submarines, and aftermarket services; ii) consequential financial effects on the supply chain; iii) impairment of competition in highly concentrated markets, where there are limited alternative sources of supply and significant barriers to entry; iv) a potentially significant fall in share price, which is likely to be made more dramatic by the debarment consequences of a conviction; v) possible group-wide redundancies and/or restructuring; and potential weakening of Rolls-Royce’s financial covenant for pensions.

I have no difficulty in accepting that these features demonstrate that a criminal conviction against Rolls-Royce would have a very substantial impact on the company, which, in turn, would have wider effects for the UK defence industry and persons who were not connected to the criminal conduct, including Rolls-Royce employees, and pensioners, and those in its supply chain. None of these factors is determinative of my decision in relation to this DPA; indeed, the national economic interest is irrelevant. Neither is my decision founded on the proposition that a company in the position of Rolls-Royce is immune from prosecution: it is not. It is not because of who or what Rolls-Royce is that is relevant but, rather, the countervailing factors that I have to weigh in the balance when considering the public interest and the interests of justice. As I have made clear before, and repeat, a company that commits serious crimes must expect to be prosecuted and if convicted dealt with severely and, absent sufficient countervailing factors, cannot expect to have an application for approval of a DPA accepted.”

On this issue, the Approved Judgment concludes as follows:

“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. A possible exception could be the corporate vehicle for fraud, set up for that purpose and, in the public interest, requiring dissolution (although that also might be achieved in different ways). As for the non-penal consequences of conviction, the purpose of the procurement rules is specifically to discourage corruption and they should not be circumvented.

On the other hand, I accept that Rolls-Royce is no longer the company that once it was; its new Board and executive team has embraced the need to make essential change and has deliberately sought to clear out all the disreputable practices that have gone before, creating new policies, practices and cultures. Its full co-operation and willingness to expose every potential criminal act that it uncovers and the work being done on compliance and creating that culture goes a long way to address the obvious concerns as to the past.

So the question becomes whether it is necessary to inflict the undeniably adverse consequences on Rolls-Royce that would flow from prosecution because of the gravity of its offending even though it may now be considered a dramatically changed organisation. In any event, it will have to suffer the undeniably adverse publicity that will flow from the facts of its business practices which will be exposed by the DPA so that the way in which it has done business will be obvious. Any public procurement exercise will be conducted in the light of its history and it will doubtless only win contracts on the merits of its products. That, of course, is as it should be. Neither will the conduct of Rolls-Royce escape sanction: it could only ever be fined and the DPA has to be approached on the basis that it must be broadly comparable to the fine that a court would have imposed on conviction following a guilty plea.

In the circumstances, subject to the terms being fair, reasonable and proportionate, I have come to the conclusion that it is in the interests of justice that the conduct of Rolls-Royce be resolved through the mechanism of a DPA.”

Just as the Approved Judgment began by highlighting national economic considerations and the importance of Rolls-Royce, the Approved Judgment concludes with the same message “I repeat that Rolls-Royce is an industry of central importance, with an engineering capability and capacity that is rightly the envy of all those involved in the field.”

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