Rolls-Royce in the dock

After decades of “egregious criminality”, Rolls-Royce has been fined £671m. Now the focus is on its former top brass, says Ben Judge

If it’s not profit warnings with Rolls-Royce, it’s bribery and corruption. Last week, the High Court decided the engine-maker was guilty of “devastating, egregious criminality”, making “truly vast, corrupt payments” in 11 countries around the world, including Nigeria, Indonesia, Russia, Thailand, India, China and Malaysia. The corruption involved, “on the face of it, very senior” Rolls-Royce employees. The subsequent investigation led to 38 staff being disciplined, with 11 leaving and six being dismissed. Rolls-Royce has apologised unreservedly for its conduct.

The case involved Rolls-Royce’s civil and military aerospace businesses and its offshore power business. According to the High Court’s judgment, in 2012 “internet postings” alerted the Serious Fraud Office (SFO) to “concerns” about Rolls-Royce’s business in China and Indonesia. Rolls-Royce’s board immediately launched an investigation, co-operating fully with the SFO – a decision that saved it millions in heavier fines. In the event, Rolls-Royce has been required to pay £671m in penalties, including a “disgorgement” of profit of £258m, a financial penalty of £239m and the costs incurred by the SFO of just under £13m. In addition, it was ordered to pay $169.9m to the US Department of Justice, and $25.5m to the Brazilian authorities, who were also involved in the investigation.

But “two questions still loom large”, says Nils Pratley in The Guardian. “Who, at the top at Rolls-Royce, knew what was going on and when?” Rolls-Royce, once regarded as one of the country’s finest companies, has been disgraced. “Now we need to know who let it happen.” According to the court documents, “no current member of the board was involved”. However, notes Robert Lea in bThe Times, “perhaps as many as dozens of former Rolls executives, employees and agents face criminal investigation”. Among them may be John Rose, chief executive from 1996 to 2011. It was on his watch that “the vast majority of this corruption and false accounting took place”, says Lea. Rose, deputy chairman of Rothschild and director of Hakluyt, a corporate intelligence company founded by former MI6 officers, has now hired leading white-collar crime lawyer Stephen Pollard, who defended Barings rogue trader Nick Leeson, to advise him, reports Christopher Williams in The Daily Telegraph.

Current Rolls-Royce chief executive Warren East took over 18 months ago, having taken over a “company in confusion”, says Lea. Rose’s legacy was already a “dysfunctional management class” that was “stultifying the company”. The firm has now suffered a grievous blow. Regaining investors’ confidence will be an uphill struggle.

Merryn

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