Tuesday, January 17, 2017

Rolls-Royce apologises in court after settling bribery case

The agreement revealed Rolls-Royce’s systemic and long-running use of intermediaries.

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 Indonesia, Russia and China and other countries.
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 £671m 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”. Whittam told the court that Rolls-Royce had admitted it had failed to stop corrupt payments in Nigeria and Indonesia, and had paid bribes in Russia. Other illicit payments were made in Thailand and Nigeria.
A string of points within the agreement between the firm and the SFO – called a deferred prosecution agreement – revealed Rolls-Royce’s systemic and long-running use of intermediaries. In Indonesia, Rolls-Royce employees admitted paying $2.25m (£1.8m) and gifting a Rolls-Royce Silver Spirit car to an individual. The payment was made in order that the individual would “show favour to Rolls-Royce for a contract” to supply Trent engines to Garuda Airways, Whittam said.

The company also admitted paying a competitor in Indonesia to deliberately submit an uncompetitive bid, helping Rolls-Royce to later win the bid.
The agreement read out in court also revealed how between 1991 and 2005 Rolls-Royce on three occasions paid $36.3m to intermediaries, some of which was later paid to employees of Thai Airways, in order to secure bulk orders for Trent aero engines.
In India, the court heard, Rolls-Royce concealed its use of middlemen – which companies were banned from hiring to win arms contracts – under the term “general consulting services”. Rolls-Royce also admitted conspiracy to corrupt on one occasion in India. After the Indian tax authorities seized a list of names of people employed by Rolls-Royce in 2002, the engineering company paid to have the list of names retrieved.
The company admitted failure to prevent bribery in relation to two contracts in Nigeria. An intermediary hired by the company paid bribes to public officials, although Rolls-Royce later pulled out of both deals, in part over concerns that it had obtained confidential competition information.
In 2013 the company failed to prevent bribery in relation to the extension of a £5m cash credit to China Eastern Airlines in exchange for the purchase of engines for aircraft. 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”. The company also admitted failing to prevent a bribe being paid in relation to Air Asia.
More than 30m documents relating to middlemen were examined by investigators, 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 high court was told negotiations between the firm and investigators had been “concertinaed” to complete an agreement with US regulators before Donald Trump becomes president on Friday.
The settlement means the engineering giant will avoid being prosecuted by anti-corruption investigators in the three countries, although individual executives may still be charged.
The terms of the deferred prosecution agreement will be approved later on Tuesday by Sir Brian Leveson QC, the president of the Queen’s bench division of the high court.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 £497m to the SFO. It will also pay $169m in penalties to the US Department of Justice and $25m to the Brazilian authorities.
The anti-bribery investigations have been embarrassing for the multinational, which sells turbines and engines for passenger jets and military aircraft around the globe.
In a statement, Rolls-Royce said: “These agreements relate to bribery and corruption involving intermediaries in a number of overseas markets, concerns about which the company passed to the SFO from 2012 onwards. These are voluntary agreements which result in the suspension of a prosecution provided that the company fulfils certain requirements, including the payment of a financial penalty.”
Leveson raised questions about the size of the fine paid by Rolls-Royce, saying it was vital that it was a sufficient deterrent to other companies. “There is no mechanism to impose a custodial sentence on a company. It can only be visited by a financial penalty,” he said.
He concluded the proposed fine was “broadly equivalent as if the company had pleaded guilty”.
Shares in Rolls-Royce jumped 6% on Tuesday after news of the settlement broke. News of the bigger-than-expected settlement was “negative but benign” as the authorities had agreed to allow Rolls-Royce to spread out payments over five years, said the Jefferies analyst Sandy Morris.
“This is by no means a great moment in Rolls-Royce’s history but in terms of a healing process, getting the SFO settled and having trading, particularly on cashflow, improving, well maybe, just maybe, Rolls is on the mend,” Morris said.
Last year an investigation by the Guardian and the BBC identified 12 countries in which Rolls-Royce had hired “commercial agents” or advisers to help it secure high-value contracts.