All Rolls-Royce dealings in Asia under scanner of U.K. fraud office

Company admitted to HAL illegal use of an ‘adviser’ while selling gas turbines

Defence Ministry sources said as procurement rules in India prohibit use of middlemen or commission agents in military deals, all deals with Rolls-Royce in future too would remain on hold till the pendency of the CBI probe into contracts worth nearly Rs.10,000 crore.

The CBI probe into allegations of kickbacks and unauthorised use of an outside “commercial adviser” by Rolls-Royce in contracts with Hindustan Aeronautics Limited (HAL) came within weeks of the arrest of two arms commission agents in Britain by the Serious Fraud Office. Under the scanner of the SFO are Rolls-Royce’s dealings in Asia.

It was in the last week of December 2013 that Rolls-Royce admitted to HAL of the unauthorised usage of the service of an outside “adviser” while selling gas turbines to India.

After HAL’s internal discussions, the matter was referred to the Defence Ministry last month as it involved alleged violation of integrity protocol, which is laid down in India’s procurement rules.

The gas turbines are for the use of Gas Authority of India Limited and HAL is entrusted with their procurement and maintenance, repair and overhaul programme. Official sources clarified that Rolls-Royce’s disclosure in its letter to HAL was “voluntary” and not concerned with military programme but with gas turbines that the British firm supplies for civilian use.

Madhumathi D.S. reports from Bangalore:

According to information pieced together from different sources, HAL’s tie-up with Transparency International in August last year and its strict insistence on signing Integrity Pacts (IPs) with its suppliers seemed to have brought the arrangement to the fore.

Although there was an old clause about fair practices, all its partners doing business worth over Rs.20 crore with it were told to comply with the IP. They also must come clean on their business dealings for the last three years. The motive was to make all sourcing and business transactions transparent.

Rolls-Royce revealed to HAL on December 27, 2013 that it had used an “adviser” for its gas turbine engines business. The HAL board discussed the issue in the third week of January and referred it to its vigilance department, which decided that it must be looked into on a wider scale by the CBI. The company alerted the Ministry of Defence.