Rhys Jones London

UK Aerospace and defence group Rolls-Royce was in talks with Britain’s Serious Fraud Office (SFO) over potential corruption involving its intermediaries overseas, it said yesterday.

Rolls-Royce said it was too early to predict the outcome of the SFO investigation, but this could include prosecution of the company and of certain individuals, adding that it would co-operate fully with the probe.

The second-largest maker of aircraft engines behind US group General Electric said it had passed information to the SFO relating to concerns about bribery and corruption involving intermediaries in China, Indonesia and other overseas markets, which it did not name.

“I want to make it crystal clear that neither I nor the board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance,” chief executive John Rishton said. “This is a company with exceptional prospects and I will not accept any behaviour that undermines its future success.”

Rolls-Royce shares, which have risen 25 percent this year, opened 5.3 percent down in London yesterday, valuing the group at around £16.2 billion (R229bn).

A source with knowledge of the events said the SFO had asked Rolls-Royce to investigate allegations of corruption in China and Indonesia earlier this year. Rolls-Royce hired an independent body to do this and passed the results, which identified matters of concern, to the SFO, the source added.

Aerospace and defence companies use intermediaries, which can be individuals or companies, in countries where they do not have large-scale infrastructure to support their operations. Intermediaries cover tasks from sales to co-ordinating maintenance and support contracts.

Allegations of corruption are not new to the defence and aerospace industry.

British defence company BAE Systems was fined $450 million (R4bn) by the US and UK in 2010, following long-running corruption investigations at home and abroad into defence deals in Saudi Arabia, Tanzania, Sweden, the Czech Republic and Hungary.

“BAE ended up with fines that were not exactly huge so you would imagine that Rolls-Royce could end up with a fine that won’t trouble investors much,” Espirito Santo analyst Ed Stacey said.

“China is involved and you can’t sell anything defence-related there, so it [the probe] has to concern its civil aerospace or energy businesses.”

The SFO was not available to comment.

Rolls-Royce has almost 2 000 employees across greater China, including joint ventures, and the operations contributed £934m in revenue in 2011, making it the group’s fourth-biggest market.

Indonesia is a relatively small market for Rolls-Royce, which caters to civil, defence, marine and energy customers in the country. – Reuters