Credit: Arlis Reference

Rolls-Royce hit by Petrobras corruption allegations

Days after announcing its first profit fall in a decade, the aerospace firm is accused of bribing Brazilian oil executives and officials. Talk about bad news coming all at once.

by Adam Gale
Last Updated: 11 Mar 2015

Oil companies’ disasters aren’t always ecological, but they do tend to stick. The ongoing corruption scandal at Brazil’s state-owned oil giant Petrobras has tarred politicians, executives and now British aerospace giant Rolls-Royce.

Former Petrobras executive Pedro Barusco has alleged that Rolls-Royce paid him a $200,000 (£132,000) bribe to secure a $100m contract to supply the company with gas turbines, according to the FT. The accusation came as part of a plea bargain with Brazilian investigators.

Rolls-Royce's response was guarded. ‘We want to make it crystal clear that we will not tolerate improper business conduct of any sort and will take all necessary action to ensure compliance’, it said.

This is not the kind of scandal you want to go anywhere near. There’s real fury in Brazil over its reach (the governing Workers’ Party has been heavily implicated) and its scale.

Deliberately inflated prices for supplier contracts allegedly cost the state-owned oil firm no less than $20bn in the decade after 2004. Petrobras boss Graca Foster and five other executives resigned earlier this month, and over 80 people have been arrested as part of the oddly named ‘Operation Carwash’ into the scandal.

This is something Rolls-Royce could do without. A few days ago, it announced its sales fell last year for the first time in a decade, down 6% to £14.6bn. Underlying profits meanwhile dropped 8% to £1.62bn.

More importantly, the firm has already been involved in its own corruption scandal over here, with a Serious Fraud Office (SFO) criminal investigation into alleged bribery in China and Indonesia beginning in 2013.

Heaping the Petrobras scandal on top of these woes won’t help Rolls-Royce’s reputation any, but at present investors seem to see the danger as remote. Shares fell this morning, but only by 1%, to 935p. How they will react if and when the Brazilian authorities act on the allegations remains to be seen.

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