Fraud Probe Into Rolls-Royce Asia Dealings Announced

Rolls-Royce Holding PLC (OTCMKTS:RYCEY) (LON:RR) announced earlier today that the U.K. Serious Fraud Office has initiated a formal investigation into allegations of fraud and/or bribery related to business operations in Asia.
Today’s announcement is not breaking news to shareholders. The company first mentioned “matters of concern” in China and Indonesia in early 2012, resulting from a review undertaken after an inquiry from the SFO. Rolls-Royce Holding PLC (OTCMKTS:RYCEY) (LON:RR) then appointed David Gold, a legal expert and member of the House of Lords, to review their anti-corruption policies.

Rolls-Royce statement

The company released the news in a statement. “Further to our announcement of Dec. 6 2012, relating to concerns about bribery and corruption in overseas markets, we have been informed by the Serious Fraud Office that it has now commenced a formal investigation into these matters.”

At Rolls-Royce Holding PLC (OTCMKTS:RYCEY) (LON:RR) annual general meeting in May, CEO John Rishton told investors that the company would not tolerate “improper business conduct of any sort.” The company revised and strengthened its corruption and bribery policies at the end of 2012.

Online posts original source for allegations

Rumors have swirled for months that the allegations are related to Tommy Suharto, the youngest son of the former Indonesian president. An attorney for Suharto, legally known as Hutomo Mandala Putra, released a statement in November claiming, “These accusations are false and have arisen, it appears, via Internet comments posted by an ex-employee, not through any formal source.”

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No material impact on financial performance

The general assessment, however, is that while the unfolding scandal may cost some Rolls-Royce Holding PLC (OTCMKTS:RYCEY) (LON:RR) execs their jobs, the situation or any possible fines will not seriously impact the financial situation of the company in the future.

“These things can be very serious for individuals involved and they tend to result in cultural change in companies. If you look at the financial cost of the fines, they are rarely very large,” said Nick Cunningham, an analyst at Agency Partners. “And even if found guilty, this would have very little impact [on financial performance].”

Shares of Rolls-Royce Holding PLC (OTCMKTS:RYCEY) (LON:RR) were up £7.00 to £1250 on the London Exchange, at 3:44 GMT.