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Is the risk of debarment a legitimate defence?

Written by Eva Anderson on Monday, 6 February 2017

Rolls-Royce is now the second company to have cited potential debarment as a justification for avoiding criminal conviction under the UK Bribery Act. A Deferred Prosecution Agreement is a significant prize for Rolls and the judgment caught many corruption-watchers by surprise. As Sir Brian Leveson acknowledged in opening his judgment‘…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’.

Rolls-Royce’s assertion that conviction may cause the loss of 30% of its order book ultimately tipped the balance in favour of settlement. Sir Brian concluded that ‘Debarment and exclusion would clearly have significant, and potentially business critical, effects on the financial position of Rolls-Royce.’ But no breakdown of the financial impact estimate was put forward either in the judgment or accompanying public documents. So what was the foundation of evidence for this critical assertion and is the principle even valid?

First the evidence. It is true; Rolls-Royce does trade with countries that have legislation – on paper – to operate debarment regimes such as the U.S., UK, EU, India, Brazil and Nigeria. But implemention is patchy. Take the UK’s own approach – Transparency International can find no instance of discretionary or mandatory debarment powers being exercised to exclude a company convicted of bribery. And despite rules on debarment, barely any countries in Europe actively implement the system.

Looking at past form, the most credible threat of debarment is arguably in the U.S or India. But the system in the States is highly discretionary and the Suspension and Debarment Office in the U.S. Department of Defence, the lead agency in charge of this case, had already made a decision not to exclude Rolls-Royce. In India debarment rules have recently been modified to allow the purchase of technology from excluded companies where there is a clear business need. So it is the technology the company provides, and not a conviction, which ultimately drives decisions.

In short, the evidence that prosecution would have affected such a large proportion of the company order book is thin. And if the assumptions put forward by Rolls-Royce do not turn out to have been independently tested, this would be a worrying trend, opening up the possibility that Rolls-Royce, and other companies – such as GPT – can simply present a ‘best-guess’ estimate of future trade losses in order to avoid prosecution.

Even putting to one side the rather contentious 30% claim, what about the principle underlying this: should the SFO and the UK Courts be helping a company which has been engaged in corruption to avoid debarment? After all, the whole purpose of debarment systems is to protect public spending from companies with a track record of corrupt activity. Indeed the UK government has been at the front of efforts during the UK Anti-Corruption Summit to encourage other governments to implement debarment systems.

A strong case for leniency might be made, however, if there is good evidence that the company has put in place adequate “self-cleaning” measures – to borrow the language from EU regulations – and has cooperated fully with the authorities throughout the investigation. Again, the scorecard is a little unclear in this case.

On self-cleaning, Rolls may point to the appointment of Lord Gold in 2013 to lead a review of the company’s approach to anti-bribery. But the extent to which the company has reformed is extremely difficult to verify. Lord Gold has produced two interim reports in respect of risk areas identified in Rolls-Royce and recommendations for change. Neither is publicly available and it is also unclear how the court or the SFO will evaluate how well Rolls-Royce has implemented these changes.

As to whether Rolls-Royce genuinely cooperated with relevant authorities, that may have been the case with the SFO, but the Statement of Facts<https://www.sfo.gov.uk/cases/rolls-royce-plc/> also details how Rolls-Royce deliberately evaded attempts by Indian ministers to ban the use of agents. Instead, they continued to pay kickbacks to win defence contracts. And when the Indian MOD and tax authorities started to investigate Rolls-Royce’s list of agents, the company bribed a tax inspector to retrieve the list in an attempt to try to prevent further investigations.It is ironic that a company that has actively obstructed authorities in one jurisdiction has been awarded leniency for cooperation in another.

This blog was originally posted at The Lawyer.

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Read 9 times Last modified on Monday, 02 July 2018 12:10
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Eva Anderson

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