Rolls-Royce Concludes Bribery Settlements in U.S., U.K., Brazil

  • U.S. unseals accord after U.K. judge approved British deal
  • Engine maker agreed to pay $800 million total to end probe

Rolls-Royce Holdings Plc won approval from a U.K. judge for its settlement with British prosecutors as the U.S. Justice Department unsealed a parallel agreement with the company in Ohio the day after the company announced it would pay $800 million in total to resolve bribery probes in both countries as well as Brazil.

In London, Judge Brian Leveson granted the so-called deferred prosecution agreement on Tuesday. The British DPA covers actions dating as far back as 1989, while the U.S. one covers a period beginning in 2000. Under both, the company avoids prosecution as long as it abides by the terms of the settlement, which includes the fine and assisting in the prosecution of any individuals.

“The global nature of this crime requires a global response,” Andrew Weissmann, chief of the U.S. Justice Department’s Fraud Section, said in a statement Tuesday. Rolls-Royce admitted to paying bribes to secure contracts in countries including Thailand, Kazakhstan, Azerbaijan, Angola and Iraq, as well as Brazil.

Warren East

Photographer: Simon Dawson/Bloomberg

The settlement is a boost for Chief Executive Officer Warren East, who can concentrate on turning around the ailing engine-maker, and the company’s shares had their biggest jump since July. When announcing the agreements Monday, Rolls said 2016 profit and cash would be ahead of expectations when it releases results next month.

In the U.K., the accord was heralded as cementing a style of resolution that’s relatively new to the country. The DPAs were introduced in the U.K. in 2014, and the Serious Fraud Office has secured pleas under them twice since then.

“This is the SFO’s third DPA, and clearly the most ambitious. In scale, it rivals the sort of penalty we are used to seeing extracted by the U.S. authorities," said Neil Swift, a London lawyer at Peters & Peters. "There will be a great deal of interest in seeing whether former Rolls-Royce executives are going to be prosecuted.”

Car and Cash

The 12-count British indictment, which has been suspended for the term of the DPA, contains details of how Rolls employees paid bribes to intermediaries and foreign officials to win tenders from 1989 to 2013 in seven countries, including Russia, India and Nigeria. In one example, the SFO said an individual in Indonesia received $2.25 million and a Rolls-Royce Silver Spirit car from the company.

The investigation started in 2012 after allegations of bribery at Rolls emerged in various internet postings, provoking the company to tell the SFO about them. Rolls started an internal inquiry and in 2013 the SFO opened a formal probe. Rolls’s cooperation with the SFO was key in the decision to offer the company a DPA, lawyers for the agency told the court. The SFO has reviewed more than 30 million documents throughout the case.

"A cynic (or irresponsible company) might look at the costs which Rolls-Royce have incurred in their own investigation and wonder whether it be more sensible to keep quiet," said Leveson in his judgment. But whatever the costs a "conviction would almost inevitably spell a far greater disaster than has befallen Rolls-Royce."

New Management

East took over in 2015, and none of the current board members were in place at the time the conduct occurred, according to Rolls.

The U.K. indictment alleges Rolls paid bribes to employees at companies including Thai Airways International Pcl, Gazprom PAO and China Eastern Airlines Corp Ltd. In the case of China Eastern Airlines some of the money was given to allow employees of the airline to attend a two-week business course at Columbia University, stay in a four-star hotel and enjoy "lavish" extracurricular activities.

The shares rose 4.4 percent to close at 694.5 pence. They rose 16 percent last year, after losing a third of their value in 2015.

“The past practices that have been uncovered do not reflect the manner in which Rolls-Royce does business today,” East said in a statement. “We now conduct ourselves in a fundamentally different way. We have zero tolerance of business misconduct of any sort.”

— With assistance by Jeremy Hodges

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