Consider the Serious Fraud Office's (SFO) open cases. One of its probes, into Rolls-Royce (RR.), is back in the headlines. An investigation by the BBC and The Guardian newspaper has focused on the activities of a network of agents that it has used to land contracts in 12 countries. The company has been under investigation by the SFO since 2013 over allegations of bribery and corruption.
"We are fully co-operating with the authorities and we cannot comment on ongoing investigations," the company has said. "Our decision not to comment… is not an admission or confirmation." In the meantime, Rolls-Royce has been working on its governance. It has beefed up its anti-bribery policies, including those regarding the use of intermediaries, with external advice from senior City lawyer Lord Gold. As a result, the group's adviser numbers have "reduced dramatically" for all divisions, it told investors in its latest annual report, apart from the distributor-reliant power systems segment.
Jet seller Airbus (fr:AIR) is also under investigation by the SFO in regard to allegations concerning its third-party consultants. The company had failed to tell the government about the use of these agents when it was applying for export credit financing, which caused the UK government to freeze such applications earlier this year. In August, the company noted the investigation in a statement, and said that it continued to co-operate with the authority.
For GlaxoSmithKline (GSK), it was an emerging markets subsidiary rather than a third-party that was found to be lacking. In September 2014, GSK had to pay a fine of £297m to the Chinese government after a ruling that GSK China Investment Co. had offered bribes to prescribers. After the verdict the company publicly apologised to "Chinese patients, doctors and hospitals, and to the Chinese government and the Chinese people" for practices that it said were a "clear breach" of its governance and compliance rules.
The reverberations of what the US Securities and Exchange Commission called 'pay-to-prescribe' are still being felt: without admitting or denying the findings, GSK agreed in September to pay a $20m civil penalty to draw a line under the matter as far as US regulators were concerned, while the SFO investigation continues. And its recent travails have not been contained to emerging markets: readers will remember its $3bn settlement in 2012 regarding sales, marketing and other practices in the US.
Does these businesses' economic importance afford them some protection? In 2006, the SFO discontinued its investigation into bribery allegations regarding BAE Systems' (BA.) involvement in the Al Yamamah arms deal between Britain and its ally Saudi Arabia. This arms-for-oil framework, signed by Margaret Thatcher two decades earlier, required the UK to supply and maintain fighter jets for the House of Saud.
The SFO's decision not to continue its investigation turned on security rather than economic concerns: the investigators were convinced by government and its agencies that the investigation would destabilise the Saudi-UK relationship and thus seriously damage counter-terrorism efforts. A few years later, BAE did agree to pay $400m to the US Department of Justice after admitting one charge of conspiring to make false statements to the country's government, plus a further payment of £30m in the UK after an accounting breach concerning a former marketing adviser in Tanzania.
International bribery rules are clear that the "national economic interest" should not influence the decision to investigate, making government less likely to intervene on behalf of businesses that do not affect public safety. It is up to investors to judge whether such scandals, when they are uncovered, are an acceptable risk of business development, and whether managers are doing enough to manage that risk.
As we went to press, Rio Tinto (RIO) confirmed that it had contacted the relevant authorities in the UK and US after discovering contractual payments of $11m made to an adviser on the Simandou project in Guinea. When scandals are uncovered, 'getting out in front' of events is equally crucial.
