The Rolls Royce scandal: Putting ASEAN corruption in the spotlight

Photo: Cory W. Watts/CC BY-SA 2.0

As the extent of Rolls Royce’s wrongdoing is revealed, their crimes shine the spotlight on the corrupt business practices which have become commonplace in Southeast Asia and lead right to the top.

By Oliver Ward, edited by John Pennington

A sobering moment for Rolls Royce executives played out in a London courtroom as their offences were read out one by one. The respected engine maker falsified documents, obstructed corruption investigations and bribed officials to win contracts across the world, including in Indonesia, Thailand, China and Russia.

Judge Sir Brian Leveson called the toxic culture of bribery within the company “truly vast” and “endemic” following revelations that corruption was commonplace within the company over the last 20 years. Profits made from illegal activity and bribery are estimated to be in the region of £250 million (US$307 million) and details of more offences in the US, UK and Brazil are still to be released.

The deep-rooted and systematic corruption goes right to the top

The scale of the corruption and the extent in which senior management were involved is staggering. Lord Justice Leveson announced that the results of the Serious Fraud Office (SFO) inquiry hinted heavily that senior leaders within the company were involved in creating a culture of normalised bribery and corruption by “controlling minds of the company”. This could lead to criminal proceedings against former management as the case moves forward.

This is a crushing blow to the UK’s aviation industry, which has held Rolls Royce up as a champion of the success of privatisation and product excellence within the industry; a representation of British industrial merit. These far-reaching allegations have shaken those foundations as it now appears the greasing of palms may have had a larger impact on the company’s growth than their engineering excellence.

The company’s involvement in Indonesia can be traced back to 1991

In 1991 Rolls Royce won a milestone contract with the sale of the Trent 700 jet engines to Indonesian airline Garuda. The deal, worth more than US$100 million, was set to open the Asian-Pacific market for the company. Garuda was expected to award the contract to American manufacturers Pritt and Whitney, but the Indonesian government insisted the contract be awarded to Rolls Royce.

The SFO investigation unearthed information behind the deal, revealing that US$2.2 million and a Rolls Royce Spirit car was given to an anonymous government agent in return for securing the deal. The agent in question is reported to be the son of the former ruler, Tommy Suharto, although he denies any involvement. Similar situations played out in Thailand where between 1991 and 2005 Rolls Royce paid Thai airways employees a total of US$18.8 million to secure orders.

Does the punishment fit the crime?

The company has admitted wrongdoing and complied with the investigation. Chief Executive Warren East said their behaviour had been “completely unacceptable” and that it “was unworthy of everything which Rolls Royce stands for.”

A Deferred Prosecution Agreement has been reached, including the payment of settlements worth £671 million (US$825 million). Despite the record-breaking settlement imposed on the company, it still begs the question: does the punishment go far enough? Current Rolls Royce executives, although not involved in the corruption, were aware of their predecessors’ conduct in 2010, yet deliberately chose not to report their findings to the Fraud Office. Does the new leadership really represent a new dawn for the company that is free from corruption?

Given the size of the company, on any given day their shares can go up or down by four or five points, adding or subtracting almost the same market value as the penalty. This seriously diminishes the impact of the financial penalties. On the other hand, criminal proceedings brought against the implicated former leaders, whose names are known to investigators, would send a much stronger message to companies involved in corruption. Fines can be recuperated or minimised through cooperation so the scandal needs the scalps of some high-profile individuals to show that there is absolutely no place for corruption in business.

ASEAN needs to tackle corruption in Southeast Asia

The Rolls Royce case is not an isolated incident. The 2016 ASEAN Business Outlook Survey found that pressure to bribe public sector clients hindered 89% of cases in Cambodia, 85% in Laos, and 71% in the Philippines. These figures indicate just how commonplace bribery is during the procurement of business contracts in Southeast Asia. Even Singapore, which leads the region in anti-bribery figures, found that 22% of respondents felt under pressure to pay bribes.

As the Philippines plays host to the 2017 ASEAN summit in Davoa, President Rodrigo Duterte has been calling for a “strong and resilient ASEAN community…steadfast in upholding the ideals and values we hold dear”. Tackling widespread corruption is essential in building this strong integrated ASEAN community to ensure such business practices do not disrupt plans for economic integration and stability across the region. Duterte’s keynote speech called for better opportunities for ASEAN citizens and increasing self-improvement. Addressing the issue of corruption in the region and ensuring that what happened in the case of Rolls Royce is not repeated is an essential step towards this aspiration.

There is a lack of transparency throughout the region

It is not only strict punishments which help eliminate corruption. A more transparent governmental body and a free press are necessary to help curb bribery and corruption. More public access to information increases the feeling of responsibility among government businesses and allows for more public participation in the decision-making process. Only Malaysia and Singapore score above 50 out of 100 on the global corruption perceptions index. The region lacks serious anti-corruption laws and in countries where anti-corruption units are present, like Indonesia’s KPK (Komisi Pemberantasan Korupsi), their resources are severely limited.

Organisations like Transparency.org are calling on ASEAN leaders to establish a regional body dedicated to stamping out corruption and bribery in the region. Given the lack of appetite from nation states to introduce anti-corruption legislature, a body working at a national and regional level could provide the stimulus needed to tackle the problem.

Natalia Soebagjo, Chair of Transparency International, believes this is exactly what is required, saying, “regional cooperation coupled with civil society and business community involvement in the development of an ASEAN Integrity Community are essential elements to ensure an economic community has a positive impact on the daily lives of Southeast Asians.”

However, the scandal could yet lead to positive changes

The Rolls Royce scandal has shone a light on business practices in Southeast Asia and while the financial punishment levied on the company will not go far enough, if the revelations stimulate a change in corruption legislation and business habits the affair could leave a positive legacy. Stamping out corruption and bribery from Southeast Asian business culture will prompt economic growth through the creation of a favourable business environment which will bring further prosperity to the region.

If the Rolls Royce scandal has shown us anything, it is that multinational corporations cannot be trusted to end corruption because the arteries leading to the top are too toxic. Change needs to come from national and regional government to inject new life blood into the veins of ASEAN industry and show there is no place among ASEAN nations where corruption can thrive.