Rolls-Royce apologises for global bribery scandal involving China, Russia, Indonesia

PUBLISHED : Wednesday, 18 January, 2017, 12:11pm
UPDATED : Wednesday, 18 January, 2017, 10:46pm

The engineering giant Rolls-Royce has apologised after it was found to have paid bribes including a luxury car and millions of pounds’ worth of cash to middlemen to secure orders in six countries, including Indonesia, Russia and China.

Britain’s leading multinational manufacturer made the admissions on Tuesday at the high court in London, a day after it was revealed that it would pay £671 million (US$828 million) in penalties to settle long-running corruption allegations. In a statement read out in court, the firm said it “apologised unreservedly for the conduct which has been uncovered”.

The settlement was reached with investigators from three countries – the UK, US and Brazil – who five years ago started to scrutinise allegations that the firm had hired middlemen to pay bribes to win contracts.

Richard Whittam, a QC for the Serious Fraud Office, detailed the findings of what he said was the “largest individual investigation conducted by the SFO to date”.

The agreement between the firm and the SFO – called a deferred prosecution agreement – revealed systemic and long-running use of middlemen over three decades. The court heard that:

• In Indonesia, Rolls-Royce gave US$2.25 million and a Rolls-Royce Silver Spirit car to an individual in exchange for a “favour to Rolls-Royce on a contract” for Trent aero engines to be provided to Garuda Indonesia. Separately Rolls-Royce paid a representative from a rival bidder to deliberately submit an uncompetitive bid on a contract Rolls-Royce successfully secured.

• In Thailand, the firm paid more than US$36million between 1991 and 2005 to agents to help it secure three separate contracts to supply Trent aero engines to Thai Airways.

• In India, where the use of agents to secure defence contracts is prohibited, Rolls-Royce disguised its use of middlemen as “general consulting services”. The company also admitted paying to retrieve a leaked list of intermediaries after they were obtained by the Indian tax authorities.

• In Nigeria, Rolls-Royce failed to prevent bribery in relation to two contracts for which it was bidding. A middleman hired by the company paid bribes to public officials, although Rolls-Royce later pulled out of both deals, in part due to concerns raised over the fact that it had obtained confidential information from a competitor.

• In China, Rolls-Royce failed to prevent bribery in relation to the extension of a £5 million cash credit to China Eastern Airlines in exchange of the purchase of engines for aircraft in 2013. Some of the funds paid were intended to be used for employees of CEA to attend a two-week MBA course at Columbia University, including what Whittam described as “four-star accommodation and lavish extracurricular activities”.

• In Russia, Rolls-Royce won a contract to supply equipment to the state-owned energy company Gazprom by making payments to a senior Gazprom official.

Sir Brian Leveson QC, the president of the Queen’s bench division of the high court, said the case raised questions about whether it would ever be in the public interest to prosecute a company as big as Rolls-Royce.

“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,” he wrote in his judgment.

However, he concluded that despite the scale of the crime, it was still appropriate to allow the deferred prosecution agreement (DPA) and approved it.

Robert Barrington, the executive director of Transparency International, said the SFO had presented “a poor case” for the DPA, saying: “This gives the impression that Rolls-Royce is too big to prosecute.”

He said: “There was talk about pensioners and employees, but no mention of the victims of corruption. The poor case could have been offset by details about the prosecution of individuals, but there was nothing about that. If these are not the circumstances for a prosecution, then what are?”

More than 30 million documents relating to middlemen were examined by 70 investigators during the SFO’s £13million inquiry, and more than 200 interviews of current and former Rolls-Royce employees were carried out. Arrests and searches were made both in the UK and overseas. “It has been a huge task,” said Whittam.

The settlement means the engineering giant will avoid being prosecuted by anti-corruption investigators in the US, the UK, or Brazil, although individual executives may still be charged. Under the terms, Rolls-Royce will agree to admit wrongdoing, pay the fine and submit to other measures to monitor its conduct over a specific period. If it does not break the agreement, it will not be prosecuted at the end of the agreed period.

Leveson said: “It is important nobody thinks that in financial terms the company is being treated dramatically differently … to the way in which it would have been dealt with had it gone to court. The big difference is the extent of the cooperation.”

In agreements announced on Monday, Rolls-Royce said it would pay £497million to the SFO. It will also pay US$169m in penalties to the US Department of Justice and US$25million to the Brazilian authorities.

The anti-bribery investigations have undermined the reputation of the multinational, which sells turbines and engines for passenger jets and military aircraft around the globe. The car company of the same name is a separate firm.

Warren East, chief executive of Rolls-Royce, said: “The behaviour uncovered in the course of the investigations by the Serious Fraud Office and other authorities is completely unacceptable and we apologise unreservedly for it. This was unworthy of everything which Rolls-Royce stands for, and that our people, customers, investors and partners rightly expect from us.”