Rolls-Royce Says Serious Fraud Office Begins Formal Probe

Rolls-Royce Holdings Plc, Europe’s largest maker of commercial aircraft engines, said the U.K. Serious Fraud Office has begun a formal investigation related to potential wrongdoing in business dealings in Asia.

“Further to our announcement of Dec. 6 2012, relating to concerns about bribery and corruption in overseas markets, we have been informed by the Serious Fraud Office that it has now commenced a formal investigation into these matters,” the London based company said in a statement today. Nilima Fox, an SFO spokeswoman, didn’t immediately comment on the probe.

Rolls-Royce last year identified “matters of concern” in China and Indonesia in a review spurred by an inquiry from the SFO. The company named David Gold, a member of the House of Lords and previously a partner at the Herbert Smith LLP law firm, on Jan. 10 to review anti-corruption procedures.

Chief Executive Officer John Rishton told investors at this year’s annual general meeting in May that neither he nor the company board would tolerate “improper business conduct of any sort.” In addition to tightening how it works with advisers and consultants, the engine maker introduced additional training on anti-bribery and corruption policies worldwide this year, according to its annual report.

Stock Slides

The stock reversed its gain after the announcement, falling as much as 15 pence, or 1.2 percent, to 1,228 pence in London. The shares have gained 42 percent this year.

“These things can be very serious for individuals involved and they tend to result in cultural change in companies. If you look at the financial cost of the fines, they are rarely very large,” Nick Cunningham, a London-based analyst at Agency Partners said today. Even if Rolls-Royce were to be found guilty, this would “have very little impact” on the enginemakers financial performance, he said.

Tommy Suharto, youngest son of the former Indonesian president and formally called Hutomo Mandala Putra, in a letter to Serious Fraud Office Chairman David Green last month denied allegations he received cash and a luxury car from Rolls-Royce.

“These accusations are false and have arisen, it appears, via Internet comments posted by an ex-employee, not through any formal source,” his lawyer Elza Syarief said in the statement.

Before it's here, it's on the Bloomberg Terminal.