Rolls to Pay $807 Million to End U.K., U.S. Bribery Probes

(Bloomberg) -- Rolls-Royce Holdings Plc agreed to pay about 670 million pounds ($807 million) to resolve long-running U.S. and U.K. investigations into allegations its representatives bribed foreign officials to win business.

Europe’s largest maker of commercial jet engines will pay the U.K. Serious Fraud Office 497.25 million pounds plus interest, and the U.S. Department of Justice about $170 million, the company said Monday in a statement. The British penalty is the biggest-ever sanction issued against a company by the U.K.

"It’s a very large fine which we didn’t see coming: it’s something of a bolt from the blue," said Nick Cunningham, an aerospace and defense equity analyst at Agency Partners in London. "Usually these settlements are relatively moderate compared to the size of the company."

The settlement still offers a slight reprieve for Chief Executive Officer Warren East, who has been working to turn around the ailing engine-maker since taking over in 2015. Allegations that Rolls illegally used middlemen to conduct deals in about a dozen countries has weighed on the company even as East tries to recover from a slew of profit warnings.

The company also said profit and cash performance for 2016 was better than expected ahead of its full-year results next month. The shares rose 3.5 pence to close at 665 pence Monday shortly before the settlement was announced.

A spokesman for the Justice Department declined to comment. The global pact also includes a pledge to pay $25.5 million to Brazilian authorities.

SFO Probe

In December 2012, Rolls-Royce disclosed it had handed over documents to the SFO relating to allegations of corruption at some of its overseas businesses, including China and Indonesia, following a request from the prosecutor. A year later the SFO opened an investigation and in 2014 the company revealed it was also being probed by the Justice Department.

Since then, the U.K. investigation expanded to include about a dozen countries, among them places like Nigeria, and the SFO was granted extra government funding for the case. Only two arrests from the probe have become public: high-profile Indian businessmen Sudhir and Bhanu Choudhrie. The father and son were arrested in London in February 2014 and haven’t been charged.

A lawyer for the pair said his clients hadn’t been accused of anything and have always conducted their business lawfully. Sudhir Choudhrie has been a major donor to U.K. political party the Liberal Democrats.

DPA Cost

The SFO said in a separate statement that it will seek court approval for the U.K. settlement -- known as a deferred prosecution agreement -- at a hearing Tuesday.

The financial implications of the payments, which will add up to about 293 million pounds in the first year, will be provided when the company reports annual results Feb. 14. The DPA is only the third such agreement the SFO has entered into since the enforcement tool, which is commonly used by U.S. prosecutors, was introduced in the U.K.

"The total penalty dwarfs the first few DPAs struck a year ago under new U.K. legal powers," said Lisa Osofsky, European chair of Exiger, a financial crime and risk adviser. It "sends a clear signal that the U.K. means business in cracking down on global bribery and corruption."

To contact the reporters on this story: Suzi Ring in London at sring5@bloomberg.net, Benjamin Katz in London at bkatz38@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser, Tom Lavell