Rolls Royce’s Indian jet engine bribes

Introduction

The multi-jurisdiction investigation into Rolls-Royce’s extensive history of paying bribes, prompted by a whistleblower’s allegations in 2012, included one major defense deal. According to investigations in India and the United Kingdom, the British engine-manufacturing company used a series of agents to secure a contract in India for trainer-aircraft jet engines. The GBP 200 million (USD 310 million) contract, finalized in 2010, was backed by more than USD 17 million in bribes paid through arms broker Sudhir Choudhrie and a consultancy, Aashmore Private Ltd. Likely due to India’s long history of cooperation with Rolls-Royce on jet engines, Prime Minister Narendra Modi’s government has not blacklisted the firm.

Key facts

Buyer: India

Seller: Rolls Royce (UK), Turbomeca (France), Hindustan Aeronautics Limited (HAL, India)

Year of order: 2010

Equipment sold: 57 Adour Mk871 Jet Aircraft Engines

Value of deal: GBP 200 million (USD 310 million)

Sum involved in corruption allegations: INR 50 million (USD 1.1 million) and GBP 10 million (USD 16 million)

Dramatis Personae

Sudhir Choudhrie: London-based arms broker. Suspected of involvement in defense-sector corruption in India since the late 1990s; identified as likely conduit for bribes.

Ashok Patni: director of Singapore-based firm Aashmore Private Ltd. Admitted agent of Rolls-Royce for civil business deals; implicated by Indian investigators in the Hawk engines bribery scandal.

The deal

In 2010, BAe agreed to supply the Indian Navy and Air Force with 57 Hawk Advanced Jet Trainer aircraft. This contract followed in the footsteps of an earlier 2003 deal for 66 similar trainers, and in both cases Rolls-Royce was awarded an accompanying contract for the jets’ engines. The Mk 871 Adour engine which would power the Hawk trainer was jointly developed with France’s Turbomeca but would be assembled, along with the Hawk trainer itself, in India by Hindustan Aeronautics Limited. India agreed to pay GBP 200 million for the Adour engines, and around GBP 500 million to BAe for the trainers.

The investigations

Rolls-Royce was already under investigation by the UK Serious Fraud Office for its business deals in China and Indonesia when allegations involving India emerged in 2014. In March of that year, the Indian Minister of Defence, A.K. Anthony, asked the country’s Central Bureau of Investigation (CBI) to investigate whether the firm had paid bribes to secure any contracts with the Indian military. The investigation was originally prompted by a whistleblower, but Rolls-Royce was quick to admit that it had employed a middleman, Ashok Patni, and his firm Aashmore Private Ltd. as a “commercial advisor.” In fact, Rolls-Royce claimed to have informed its Indian client, the government-controlled Hindustan Aeronautics, of the relationship in December 2013. Rolls-Royce suggested at the time that Aashmore had only been involved in contracts for marine gas turbines that Hindustan Aeronautics maintained for the oil and gas sector. As the use of middlemen to secure contracts is illegal in India, Rolls-Royce may have admitted to wrongful acts even if no proof of bribe-paying were to subsequently emerge.

At the time of the initial allegations, Rolls-Royce claimed it had paid INR 1.8 million in fees to Aashmore, but sources involved in the investigation told media that the agent was due much more—between 10% and 11.3% of successful contract proceeds. The CBI suspected initially that Rolls-Royce had paid around INR 50 million in total bribes. Rolls-Royce claimed that the Aashmore relationship did not touch on defence contracts; it made this claim to shield the 2010 Hawk engines deal. After referring allegations to the CBI, the Ministry of Defence opted not to support the blacklisting of Rolls-Royce, arguing that the Indian Air Force needed to sign support contracts with the firm to maintain engines in six types of aircraft in service. Despite initial reports that contracts with Rolls-Royce were to be frozen, the Modi government supported the military and declined to blacklist the firm.

In November 2016, a second series of revelations undermined Rolls-Royce’s claim that its use of middlemen had not extended to defense deals. A BBC Panorama report released that month brought to light new evidence that Rolls-Royce had employed Sudhir Choudhrie, an arms broker resident in the United Kingdom and implicated in many investigations stretching back decades, to secure the Hawk trainer deals. Choudhrie and his family had allegedly transferred GBP 10 million, beginning in 2007, to help Rolls-Royce win the 2010 contract with Hindustan Aeronautics. Shortly thereafter, Indian media reported that an internal Ministry of Defence inquiry into the 2014 allegations, submitted to minister Manohar Parrikar a few months before, had reached the separate conclusion Rolls-Royce’s previously disclosed payments to Aashmore had also been used to secure the Hawk deal. Thus, both Rolls-Royce’s original claim, that it had not used middlemen to secure the trainer deal, as well as its more specific assertion that the Aashmore payments were related to marine gas turbines only were both incorrect.

Outcomes

Rolls-Royce’s actions in India were covered under the deferred prosecution agreement the firm agreed with the UK Serious Fraud Office in January 2017. Under the terms of that agreement, the firm agreed to pay a total of nearly GBP 500 million in returned profits and penalties, stemming from illegal activity in seven countries. The agreement also included Rolls-Royce’s bribes paid to an Indian tax official in 2006-2007 to recover a list of the firm’s agents.

In 2015, BAE Systems and Hindustan Aeronautics signed an agreement to develop an updated, combat-capable version of the Hawk trainer. The new plane, designated the Advanced Hawk, first appeared in public in February 2017. Later that month, the Indian Air Force announced that it would not buy any units because of the ongoing investigations into Rolls-Royce. Nonetheless, the company has not yet been blacklisted.