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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Understanding Global Bribery & Corruption Investigations in Turbulent Times

Author: Azizur Rahman  13 March 2013
6 min read

Rolls-Royce, Europe’s largest maker of commercial aircraft engines, has appointed someone to review its anti-corruption procedures because allegations of bribery dating back many years have now come to light.

The case shows how bribery is increasingly in the spotlight. With the tougher Bribery Act 2010 having been introduced since the alleged Rolls-Royce wrongdoing, the authorities can now come down harder than ever on those they suspect of corruption. Which makes it even more important for companies to follow the Rolls-Royce route to make sure they stay legal.

Rolls-Royce, arguably one of the most famous companies in the world, is in a spot of bother. It’s bother of a legal rather than a financial kind – and it shows no signs of going away in the near future.

The aircraft engine manufacturer is accused of making payments to secure a contract with Air China in 2005 and a deal with China Eastern Airlines three years ago. A Chinese executive who worked for both airlines has reportedly been arrested by the Chinese authorities on suspicion of accepting payments from intermediaries acting for western companies. It is a saga that seems to have all the ingredients of a potential scandal: big corporations, middle men, bribery accusations and arrests in foreign countries. And now, UK investigation can be added to that list. The SFO approached Rolls-Royce early last year to request information about allegations relating to intermediaries operating in foreign markets.

A whistle blower had been writing articles since 2006 alleging bad practice. He claimed the company – a FTSE 100 company, no less – had handed the son of a former Indonesian dictator $20 billion and a blue Rolls-Royce car so he would persuade one of that country’s airlines to buy Rolls engines for its aircraft. This is alleged to have happened 20 years ago but is now under investigation along with a raft of other allegations that centre on Rolls-Royce activities in China and Indonesia. A culture of bribes and illegal payments to secure sales has been alleged. The company itself has investigated many of the allegations and has made clear its firm anti-corruption stance. It has appointed David Gold, a member of the House of Lords and former partner at the Herbert Smith LLP law firm, to review the firm’s anti-corruption procedures; particularly the actions of “intermediaries in overseas markets’’. Rolls-Royce has said it has identified areas of concern in its internal investigation, which was prompted by the initial inquiry from the SFO. So far, the SFO has not upgraded its inquiry to the status of a formal probe. But regardless of whether the SFO takes this further, the fact that a major British company is being examined in detail - from within and from outside - regarding allegations relating to business conducted years ago shows the extent to which corruption is now top of the agenda.

Part of Gold’s remit is to examine the company’s compliance procedures. Critics could argue that this is a perfect case of shutting the stable door after the horse has bolted. But as an exercise in damage limitation it could prove valuable – and could protect the engine maker from far more serious consequences in the future. Those more serious consequences would be down to the Bribery Act 2010. The Act will not be relevant if prosecutions are brought against the aircraft engine giant in relation to the allegations currently under discussion, as they relate to before it came into effect in July 2011. But the Act sets new heights for Rolls-Royce - and everyone else – to reach regarding the activities of everyone acting on their behalf. With punishments under the Act including unlimited fines and up to ten years’ imprisonment, it is a piece of legislation with huge significance for the business world.

The Bribery Act 2010 makes a company liable for the corrupt actions of any staff, agents or third parties acting on its behalf, either in the UK or abroad. Under the Act, it is an offence for anyone to pay, receive or request a bribe, either directly or indirectly, at home or abroad to perform a relevant function improperly. There is also an offence of using a bribe to influence a foreign official to gain a business advantage. Companies can commit an offence where a bribe has been paid on their behalf by an associate – an employee, agent or other party acting for it. In defending themselves, any company facing prosecution under the Act will have to show that it carried out all adequate procedures to prevent any of its representatives acting improperly. If such an offence has been committed with the consent or connivance of a senior officer of the company then that person can also be held liable and proceedings can be brought against them.

For the purposes of the Act, a relevant function is any function that is either of a public nature, connected with a business or carried out in the course of employment or on behalf of a body of persons. It is performed with the expectation that it will be performed in good faith, with impartiality or by a person in a position of trust. Under the Act, improper performance of a relevant function is a failure to perform it in line with the relevant expectation; meaning the expectation of a reasonable person in the UK. Such a definition applies to improper performance abroad – local custom and practice would be disregarded, although local laws would be considered. As mentioned earlier, the offence does not have to be carried out in the UK but the person committing it must have a close connection to the UK; such as being a British citizen, national, subject or resident or working on behalf of a commercial organisation that does some of its business in the UK.

If Gold’s examination of Rolls-Royce does highlight areas where compliance needs to be tightened up, the benefit will be two-fold: it will have safeguarded itself against the possibility of future improper behaviour by its representatives and, should that still happen, it will be able to say in mitigation that it had created adequate procedures to comply with the Bribery Act. To be able to claim this, however, a company must have given careful consideration to what procedures are most appropriate, bearing in mind the way it runs its business and the bribery risks that exist in the sector in which it trades.

Being able to prove that a company has taken all possible steps to be legally compliant goes a long way to ensuring it receives a favourable hearing if an investigation is begun. Punishment may still be forthcoming from the authorities but it is unlikely to be anywhere near as large as if the company had blithely gone about its business while taking no time to examine the levels of ethical behaviour being displayed by its representatives. A strong anti-fraud culture in the workplace is something that has to be engineered from the top down. The geographical areas where a company trades, the business sectors it is involved in, its agents and business partners and the relevant laws where it does business all have to be examined carefully for the potential risk of bribery. A policy of due diligence has to be acted upon and must include “fringe’’ elements of business deals, such as facilitation payments, hospitality and referral fees. Clear reporting procedures have to be devised, implemented and publicised to staff and associates. If whistle blowing is encouraged, respected and seen to be acted upon, companies are in a much stronger position to respond appropriately when told of allegations of workplace fraud and corruption. They are also able to demonstrate to any investigating authority that they had adequate procedures in place, acted in the best manner possible and reported any signs of wrongdoing once they became apparent.

With self-reporting being encouraged by the authorities, the Rolls-Royce case will be one to watch. As Deferred Prosecution Agreements (DPA’s) are now set to become part of the British legal system, there is the possibility that the globally-recognised aircraft engine maker could gain further fame as one of the first companies to enter into a UK DPA. A DPA is an agreement between the prosecutor and a company that a criminal prosecution for an economic offence will be deferred or postponed if certain conditions are met. Such conditions can be the payment of financial penalties, making reparation to victims, introducing measures to prevent such conduct occurring again or submitting to regular reviews and monitoring. As the British government intends to make the legislation to introduce DPA’s retrospective, one could possibly be used to reach a resolution of the Rolls Royce activities currently under scrutiny. The SFO has already stated that entering into a DPA will not guarantee that a prosecution will not be brought. But as they come without the expense and uncertainty associated with a trial, it will surely be the case that DPA’s will become a favoured option for the authorities.

 Whether or not the DPA does become such a popular tool for the powers that be remains to be seen. But with the Bribery Act already effective, it is vital that any companies that discover wrongdoing in their ranks make sure they are and have been fully legally compliant. Otherwise they may be in for a very rough landing.


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Azizur Rahman

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Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

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