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SFO Settlement: Did Rolls Royce Exaggerate the Impact of Debarment to Avoid a Criminal Prosecution?

26th January 2017

Eva Anderson, our Senior Legal Officer and Barrister discusses issues around debarment

Rolls-Royce is now the second company to have cited potential debarment as a justification for why it should avoid criminal conviction under the 2010 UK Bribery Act.

This DPA is a significant prize for Rolls-Royce. By avoiding a criminal conviction, Rolls-Royce hopes to avoid being caught out by public sector procurement rules in a number of countries that exclude or ‘debar’ convicted companies from participating in government tenders.

This was an unanticipated outcome given that Sir Brian Leveson opened his judgment by stating ‘…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’.

Yet Rolls-Royce’s assertion that conviction may cause it to lose 30% of its order book was accepted by the SFO and the court, and ultimately tipped the balance in favour of settlement over prosecution: ‘Debarment and exclusion would clearly have significant, and potentially business critical, effects on the financial position of Rolls-Royce.’ However there is no evidence that the financial impact and loss of sales estimates put forward by Rolls-Royce were challenged by independent assessors in the course of the settlement.

Based on the success of Rolls-Royce’s submission, more and more companies under investigation for bribery will now seek to emphasise the impact of debarment on their operations in order to plead for a settlement. GPT, a subsidiary of Airbus currently under investigation for bribery in UK MOD contracts with Saudi Arabia, is like Rolls-Royce, a large, global defence contractor. It is vital that the figures put forward by companies are realistic and robustly challenged by the SFO and the court, or we will end up with very few prosecutions of companies that trade with the public sector.

Debarment is not a sanction. It is an administrative decision taken by procurement officials to protect the integrity of public spending. This judgment therefore opens up a wider question of whether it is legitimate for the SFO and UK courts to consider what debarment consequences a company might face, as this directly undermines procurement laws in the UK and abroad.

Why was Rolls Royce so keen to avoid debarment?

Rolls-Royce is one of the UK Ministry of Defence’s main suppliers. The UK spends about 200 billion pounds on public procurement annually – a significant factor in shaping corporate practices. Debarment, otherwise know as blacklisting or exclusion from public contracting, is a way for governments or international lenders such as the World Bank, to exclude corrupt bidders from contract awards. Enabling public officials to include criteria such as convictions or professional misconduct into decisions on which companies to award public tenders ultimately protects the integrity of public funds.

Approving the settlement the judge noted: ‘A conviction would undeniably affect the ability of Rolls-Royce to trade in the world…It is well known that many countries operate public sector procurement rules which would debar participation following conviction.’ This statement oversimplifies global debarment laws and implementation procedures. There are broadly two types of debarment regimes operating worldwide: mandatory and discretionary debarment. Mandatory debarment regimes exclude convicted companies unless there is a compelling reason – such as a business need – for a state procurement authority, such as the MOD, to continue contracting with a convicted supplier.i

Discretionary debarment regimes are more flexible in two ways: decisions are taken on a case-by-case basis and usually don’t require a criminal conviction. The United States and India have discretionary debarment regimes. The UK and most EU states operate hybrid regimes, granting procurement authorities both mandatory and discretionary debarment powers.ii

The U.S. is the most active in using debarment globally, and like the World Bank, publishes a list of debarred entities. No country currently operates cross-debarment i.e. debarment in the UK will not automatically lead to debarment in France or the U.S. or India. Only the World Bank operates a cross-debarment regime with other Multilateral Development Banks such as the African Development Bank.

Did Rolls Royce exaggerate the economic impact it would suffer from a conviction?

The decision not to prosecute is controversial due to the scale and extent of bribery and fraud practiced by Rolls-Royce. To argue that prosecution would be against the interests of justice, the company stressed the economic impact it would suffer from a conviction, these estimates were seemingly accepted at face value accepted by the SFO and the court:

‘I have no difficulty in accepting that which I am informed…that 15% of Rolls-Royce’s 2014 order book was from entities subject to …mandatory debarment…and, approximately, a further 15% from entities subject to …discretionary debarment’.

No further breakdown of these estimates or support for this argument is given in the judgment, nor accompanying public documents. So the inevitable question is what is the foundation of evidence for this critical assertion? While 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, each of these respective countries implements these in their own way, and with considerable discretion. Most of the countries do not even currently implement their debarment regimes. So the question of whether a prosecution would actually lead to debarment in other jurisdictions is surely a highly contentious fact.

Take the UK’s own approach toward debarment for example, we have been unable to find an example of a convicted company – such as Sweett Group or Mabey & Johnson – where the UK has actually used discretionary or mandatory debarment powers to exclude a company convicted of bribery.iii And despite EU debarment rules, barely any countries in Europe actively implement debarment. In fact, of the research we conducted across Europe, only the Czech Republic confirmed that they had actually debarred a company for paying bribes.iv

Even if the UK and EU were to start actively implementing their debarment regimes, these laws specifically allow for a government procurement authority to argue a ‘business need’ exception, or for companies to submit that they have effectively reformed or ‘self-cleaned’ in such a way as to avoid mandatory debarment.v Similarly Nigeria is not known to have operated its debarment regime since the law was enacted. The likelihood of Rolls-Royce being excluded in these markets at all seems very low.

Perhaps the most credible risk might be in the U.S. or India given past form. But the U.S. has a highly discretionary debarment regime 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. So a conviction would not have affected this outcome. Similarly, for Brazil, Rolls-Royce has reached a settlement agreement with Brazilian authorities. India on the other hand has only debarred a handful of companies and recently modified its debarment rules to allow it to continue purchasing technology from excluded companies where there is a business need to do So it is the technology the company provides, and not a conviction, which ultimately dictates debarment decisions in India.

In short, Rolls-Royce’s case that it may lose 30% of its order book if it were to be convicted is an assertion worthy of further justification.
If this was an error of fact, might the judgment be appealed?

The terms of this DPA specifically state that the SFO may institute fresh proceedings ‘if the SFO believes that during the course of negotiations of the Agreement Rolls-Royce provided inaccurate, misleading or incomplete information to the SFO and Rolls-Royce knew, or ought to have known, that the information was inaccurate, misleading or incomplete.’

There is no clear evidence that we have been able to point to so far that either the judge or the SFO tested the assumptions put forward by Rolls-Royce, or that of any of the other companies prosecuted for bribery. If this turns out to be the case, it would be a worrying trend and could open up the possibility that Rolls-Royce, and future companies – such as GPT – can simply present a ‘best-guess’ estimate of future trade losses in order to avoid prosecution.

Should the SFO and the UK Courts be helping a company to avoid debarment anyway?

There are good reasons for countries to implement debarment rules; and at the UK Anti-Corruption Summit in May 2016, the UK committed, along with other countries at the Summit, to do just that. The ability of procurement chiefs to exclude companies engaged in illegal practices helps shift the burden onto companies to take real responsibility for their own risk management and remediation efforts. As a consequence, this deters companies from engaging in corruption, encourages companies to deal promptly and openly with any instances of corruption, and limits the government resources required to monitor and investigate malpractice.

Rolls-Royce might argue that it has already met this bar by appointing Lord Gold in 2013 to lead a review of the company’s approach to anti-bribery and corruption compliance. In the course of his retainer, Lord Gold has produced two interim reports in respect of risk areas identified in Rolls-Royce and recommendations for change. Neither is publicly available. There also appears to be no standard against which the court or the SFO judges how well Rolls-Royce has implemented these changes.

The DPA agreement states that Rolls-Royce will provide an implementation plan to the SFO in 5 days. But what does that mean in practice? Neither the SFO nor Sir Brian Leveson QC are corporate governance experts. Indeed, Rolls-Royce had a global compliance program and prohibition on the payment of bribes throughout the period the company was engaged in systemic bribery with the knowledge of senior managers. So the key question the SFO will need to grapple with is, what the criteria will be for making this judgment and whether those making it have the right expertise to assess what has really changed?

The bar needs to be sufficiently high – by avoiding a conviction, the SFO has enabled Rolls-Royce to avoid on-going scrutiny by procurement chiefs applying the self-cleaning provisions detailed in EU and UK procurement rules that require a company to demonstrate ‘the steps taken by the company to prevent the offence occurring’ and other factors.vii The SFO’s needs to make sure that the bar it sets is not lower than that established by UK procurement laws, or its actions may ultimately prove to be counter-productive.

And what about compensation for victims?

The judgment leaves no doubt that Rolls-Royce was organised and systematic in its approach to corruption – using a network of agents and employees in Angola, Azerbaijan, Kazakhstan, Iraq, Thailand, and Brazil to pay at least $56 million of bribes in seven countries, over a period of at least 27 years.

While the SFO acknowledges in the judgment that compensation should be sought for victims when addressing corporate offending, the judgment states that it is: ‘impossible in this case… due to the “factual complexity of the totality of the allegations …including the use of intermediaries…makes quantifying bribes paid impossible.’

By paying bribes to public officials to win contracts, Rolls-Royce’s business practices perpetuate corruption in countries where populations are struggling to hold their government officials accountable. The UK recently committed to spending 860 million pounds in foreign aid to Nigeria. These efforts are seriously undermined if British companies are entrenching corruption in government, by bribing officials to abuse their positions. 25% of Nigeria’s budget is spent opaquely, supposedly on defence equipment acquisitions, yet officers on the front line fighting Boko Haram report that they do not have weapons to fight, as the procurement budget has been misspent.viii

The judgment does little to address the impact of Rolls-Royce’s crimes on its victims. The willingness of large, multinational companies to obey or break the law has an immediate and very real impact on levels of corruption in the defence sector. The Statement of Facts for this case details the extent to which Rolls-Royce tried to undermine anti-corruption reforms by India’s government. In 2006, in an attempt to crackdown on corruption in the defence sector, the Indian government appointed reformist minister A.K. Anthony as Minister of Defence. To reduce the risk of defence companies using agents to offer bribes to civil servant in return for awarding contracts, the Indian MOD banned their use and asked bidders to sign “Integrity Pacts” undertaking to not pay bribes or use agents. Breach of an Integrity Pact would lead to debarment from Indian contracts. Despite this, Rolls-Royce deliberately evaded attempts to reform the sector and continued to pay kickbacks to win defence contracts. 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.

In short, Rolls-Royce’s case that a conviction would lead to automatic debarment and have a very substantial impact on the company’s future trading surely requires further justification than the SFO provided on Tuesday.


i) See Derogation Provision, page 20, Evaluation of the functioning and impact of the EU Defence and Security Public Procurement Directive (2009/81EC) across 20 EU states, July 2016, Eva Anderson, Transparency International Defence and Security Program
ii) See page 20, ibid.
iii) A section 7 bribery Act offence could incur discretionary, but not mandatory, debarment
v) See page 23, ibid. Note self-cleaning is not available in UK defence procurement rules, but – as noted previously – a derogation is.
vii) See page 7, Evaluation of the functioning and impact of the EU Defence and Security Public Procurement Directive (2009/81EC) across 20 EU states, July 2016
viii) For example, during the height of the conflict with Boko Haram, corrupt Nigerian senior army officers stole ammunition and fuel budgets from front-line soldiers, leaving them with no alternative other than to flee and discard their weapons and vehicles when attacked by Boko Haram. In a December 2015 court martial, sixty-six soldiers on trial for mutiny had their death sentences commuted after the court heard that the soldiers had pleaded to be given weapons and equipment to combat the insurgency, but the funds had been stolen or misspent. Source: “Nigerian military commutes death penalty of 66 soldiers to jail terms”, Premium Times, 19 December 2015,

image: Lebtahi (CC BY-ND 2.0)