It was a humbling moment for the most blue-chip of British engineering companies. One by one, a crowded London courtroom listened to a list of offences committed by Rolls-Royce, which spanned more than 20 years and revealed a policy of active or laissez-faire corruption at the jet engine maker.
The roll call of charges — which Rolls-Royce has admitted as part of a deferred prosecution agreement with UK, US and Brazilian authorities — include falsifying accounts to hide the illegal use of local middlemen, attempting to thwart investigations into corruption, and paying tens of millions in bribes to win engine and other deals in Indonesia, Thailand, China and Russia.
Senior judge Sir Brian Leveson — approving the UK Serious Fraud Office’s proposal for a fine and compliance measures on Rolls-Royce, rather than prosecute after a long investigation — described the list on Tuesday in the High Court as “devastating and of the very greatest gravity” for a “company of central importance” to the UK.
In total, Rolls-Royce is estimated to have reaped gross profits of more than £250m from the offences outlined, while other illegal actions were expected to be detailed afterwards by Brazilian and US agencies. As part of the agreement to suspend prosecution, Rolls-Royce will pay £671m in fines to the authorities in the UK, the US and Brazil.
The UK allegations stretch back as far as 1989 and run to 2013. The picture of a company systematically and repeatedly willing to break the rules in its civil aerospace, defence and energy businesses will tarnish the reputations of some of Britain’s most admired industrialists: Sir Ralph Robins, who as managing director, chief executive and chairman over 18 years led Rolls-Royce’s revival after privatisation in 1987; and Sir John Rose, who presided over its rapid growth in international markets from 1996 to 2011 as chief executive. Neither man was available for comment.
Sir Brian said in his ruling that the investigations had shown Rolls-Royce’s leadership was aware of questionable conduct since 2010 and decided not to notify the authorities.
The revelations will undermine the view that the group’s heady growth since privatisation has been mainly based on its engineering excellence. Since 1987 the company’s order book has risen from £2.8bn to £76bn last year. By the end of the decade the group will be the world’s leading supplier of engines for wide-body passenger jets, and second overall to its much bigger rival General Electric of the US.
But it now appears that some of that success has been lubricated by the payment of bribes to local officials and airline executives in a host of countries around the world.
For example, the $100m order to supply Trent 700 jet engines to Indonesia’s Garuda airline in 1991 was a landmark deal for Rolls-Royce, bringing its new turbine a substantial presence in the fast-growing Asia-Pacific market. Garuda had been expected to choose engines by US rival Pratt & Whitney, but was overruled by the government in favour of Rolls-Royce.
First in the list of SFO charges was the Indonesian deal. The SFO investigation — the largest it has ever conducted against a UK company — uncovered evidence of corruption between 1989 and 1998.
Senior employees of Rolls-Royce were found to have agreed to pay $2.25m and a Rolls-Royce Silver Spirit car to an agent as reward for the sale of the Trent 700 engines to Garuda. It has been widely reported that the agent was Tommy Suharto, son of the country’s former ruler. Mr Suharto has denied any wrongdoing.
Rolls-Royce employees were also charged with failing to prevent the payment of $2.2m to AirAsia executives between 2011 and 2013 to win orders for Rolls-Royce products and services.
In all, Rolls-Royce has admitted seven counts of conspiracy to corrupt and five for failing to prevent bribery as part of the UK agreement to suspend prosecution. It has also admitted offences relating to Brazil’s investigation into bribery and kickbacks at Petrobras, the state-controlled oil company.
The UK inquiry found that in three separate instances between 1991 and 2005, payments totalling $36.3m were made by Rolls-Royce to agents working with Thai Airways, a substantial portion of which was destined for airline representatives and local officials to secure orders.
The group has also admitted covering up the use of intermediaries in India to secure a defence contract, when such agents were banned by the government.
At Rolls-Royce’s energy business, sold to Germany’s Siemens in 2014, evidence of corruption was uncovered in Nigeria, Brazil and Russia.
For example, Rolls-Royce was found to have made illegal payments between 2008 and 2009 to Gazprom, Russia’s state-controlled energy company, to win an order for gas compression equipment.
Senior executives across all three Rolls-Royce divisions turned a blind eye to bribery and corruption, even following a scandal at BAE Systems in 2006, and after it was clear that UK anti-bribery laws would be toughened in 2011.
Managers in Rolls-Royce’s civil aerospace division, for example, had failed to prevent the extension of $5m in credit to China Eastern Airlines, requested by a board member of the carrier in return for an engine order. China Eastern Airlines, Garuda, AirAsia and Thai Airways did not respond to requests for comment on Tuesday. Gazprom declined to comment.
But Rolls-Royce apologised profusely for the offences. Warren East, chief executive since 2015, said the behaviour uncovered in the investigations was “completely unacceptable . . . This was unworthy of everything which Rolls-Royce stands for”.
In its favour, Sir Edward Garnier, lawyer for the SFO, said it was important to note that Rolls-Royce was now a “different animal” and that there had been a “high level of co-operation” after the agency began its inquiries in 2012. “Once the co-operation began it was on the highest level,” he added.
But the damage has been done. After five profit warnings in two years, Rolls-Royce is already fighting against the headwinds of slowing aerospace and energy markets. Now it has to prove that its recovery will be justly earned.
*** Based On FT
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