Judge approves $630M Rolls-Royce settlement over bribery probe

A United Kingdom judge has approved a $630 million settlement between Rolls-Royce Holdings Plc and UK prosecutors, resolving a bribery probe spanning three decades of misconduct at the jet-engine maker.

Judge Brian Leveson granted the so-called deferred prosecution agreement in a London court Tuesday. The DPA means 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 U.S. Justice Department and Brazilian authorities also fined the company this week, taking the total penalty to $831 million.

While based overseas, Rolls-Royce has a signifiacnt presence in central Indiana, with more than 4,000 employees at plants and offices in Indianapolis and Plainfield.

Joel Reuter, a spokesman for Rolls-Royce, told IBJ that none of the conduct alleged in the indictment pertained to markets outside of the United States and United Kingsdom and did not involve U.S. government contracts.

"This does not change our announced investments in the region such as in our revitalization of manufacturing operations in Indianapolis," Reuter said in an email to IBJ. "We have budgeted for these long-term investments and they are part of our long-term commitment to improve the performance of our business and a key priority for us to complete in the years ahead."

The settlement is a boost for CEO 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.

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