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Thursday
Jan262017

Rolls-Royce Aftermath: Should we all stop using agents?

Writing in The Guardian, the paper’s financial editor Nils Pratley recently summed up £671 million ($800 million) in fines meted out to Rolls-Royce, in the aftermath of the various corruption investigations, as “big, ugly and serious."

Pratley's four-word summary sounds like a title for a Hollywood blockbuster. When one drills down to the core issues, it really reads like one, too.

Rolls-Royce is a brand synonymous with excellence. Its cars epitomize luxury, often customized, which only the very rich can afford. Rolls-Royce aircraft engines and other propulsion products pay testament to the engineering brilliance that has been the company’s stock-in-trade since its inception. The attention to detail is outstanding.

So why on Earth did it have to resort to bribery to seal business deals?

The fines are punitive and reflect the seriousness of the infringements: £497 million ($627 million) is to be paid to the UK’s Serious Fraud Office. A further $169 million will go to the U.S. Department of Justice, and $25 million to the Brazilian authorities. Thankfully for Rolls-Royce and its shareholders the obligation to pay the fines is spread out over five years.

But what went wrong?

It would appear the scandal came to authorities’ attention via a whistleblower, adding weight to my previous observations that whistleblowing is fast becoming one of the core tools of the anti-corruption and compliance overseers. Rolls-Royce has effectively complied with the SFO investigation on a "without prejudice" basis, agreeing to the huge fines being levied in order to avoid criminal prosecution.

The scenario involves another of my pet dislikes: the intermediary. Intermediaries are synonymous with corruption. They ask for and receive significant sums of money from firms seeking to do business in a foreign land, in order to grease the palms of those in a position to influence commercial decisions. In doing so, the companies concerned hope to put some distance between themselves and the corrupt chain of events that will hopefully lead to a signed contract. Essentially, intermediaries act as laundrymen for the payment of bribes.

The use of intermediaries is therefore not conducive to good business practices. Even if the company believes that the "agent" is legitimate and acting honestly, how can they really know what is going on? Compliance and due diligence demand that companies be aware of each link of the chain. It is no longer acceptable to plead ignorance on the basis that you were unaware of what was going on. Turning a blind eye could see directors and executives prosecuted, and the company (as in this case) facing punitive fines.

There is an old French proverb that says: “From word to deed is a great space.” The Rolls-Royce hierarchy would do well to remember this. Claiming to have reformed in order to save oneself from being debarred from bidding for public contracts needs to be a meaningful resolve. The use of third-parties needs to end. In fairness, this is exactly what Rolls-Royce is saying it will now do.

The embarrassment caused to Rolls-Royce and the damage to its good name is tangible. Whether or not this story will hinder it commercially remains to be seen. But corporate greed will never diminish; it drives the wheels of commerce and appeases the demands of the shareholder.

As Bob Dylan once wrote, "the times they are a-changing." Accordingly, the sooner that multi-nationals accept that deploying intermediaries or agents in an attempt to conceal the payment of a bribe is fraught with regulatory danger, the sooner directors will be able to enjoy a good night’s sleep.

___

Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors.

Reader Comments (1)

For all the concern about whether and how the new administration in the U.S. will continue to aggressively enforce the FCPA, this case demonstrates that Anti-Corruption risk goes far beyond our domestic boundaries. Increased cooperation among enforcement authorities around the world means that vigilance is an imperative, wherever you do business. "This successful parallel investigation is a tremendous example of the central importance of working cooperatively alongside our international partners to achieve a fair and meaningful resolution," said FBI's Criminal Investigative Division, Assistant Director in Charge Paul M. Abbate. I don't believe FCPA enforcement will decline under the Trump administration, but even if it does, there's still a great deal at stake and many other regulations to be concerned about.
January 26, 2017 | Unregistered CommenterLisa Stewart Hughes
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