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Sunday, January 22, 2017

AirAsia & AAX named in UK's bribery case against Rolls-Royce (Mkini)

Author: valuegrowth   |   Publish date: Sun, 22 Jan 2017, 09:08 AM 

UK's Serious Fraud Office (SFO) has named AirAsia Group as one of several foreign parties involved in bribery cases with jet engine manufacturer Rolls-Royce PLC.

AirAsia Group, in an immediate response, told Malaysiakini that it had complied with procedures in its dealing with Rolls-Royce.

The bribery in the AirAsia deal was one of 12 charges brought against Rolls-Royce after a four-year investigation into its dealings with clients in Indonesia, Thailand, India, Russia, China and Malaysia.

Rolls-Royce, in a Deferred Prosecution Agreement with the SFO on Tuesday, agreed to a disgorgement of 258.17 million pounds (RM1.42 billion) in illegal profits and an additional 239.08 million pounds (RM1.32 bilion) in financial penalty.

The profit disgorged from Rolls Royce's deal with AirAsia amounted to 17.08 million pounds (RM94.03 million).

In his judgment over the matter, Queen's Bench Division president Brian Leveson said that Rolls-Royce employees "took steps to pressure both junior sales and internal compliance personnel to create and approve corrupt arrangements" in the Malaysia case.

According to the Statement of Facts filed with the Crown Court at Southwark, Rolls-Royce failed to prevent its employees from providing an AirAsia Group executive with credits worth US$3.2 million (RM14.2 million) for the maintenance of a private jet.

This was despite Rolls-Royce employees believing that the credits would lead the AirAsia Group executive to perform his function "improperly".

"This financial advantage was given at the request of the AirAsia group executive, in return for showing favour towards Rolls-Royce in the purchase of products and services provided by Rolls-Royce and its subsidiaries, including Total Care Agreement services to be supplied to AirAsia X, a subsidiary of AirAsia Group," it said.

The document said the credits for the private jet used by the AirAsia group executive was solicited through an AirAsia X senior employee in 2011.

It also alleged that there was an attempt to conceal the fact that the credits, given to AirAsia X in 2013, would be used for the the private jet, which was unrelated to the AirAsia Group.

The document did not name who the AirAsia Group executive was.

AirAsia denies deal was concealed

AirAsia Group head of communications Audrey Progastama Petriny, in a statement to Malaysiakini, said AirAsia and AirAsia X board of directors and management were kept informed at all times of the transactions relating to the jet.

"The upkeep for which was also clearly spelt out in the annual reports for both companies and AirAsia X initial public offering prospectus," she said.

Petriny said the credits were obtained according to procedure and used to offset the operational costs of the corporate jet which was used by senior AirAsia X executives for business travel.

"The cost of maintaining and operating the aircraft has been fully borne by AirAsia and AirAsia X.

"AirAsia Berhad has acquired the aircraft in 2016 as announced on the Malaysian bourse," she said.

June last year, AirAsia Berhad reportedly purchased a Bombardier BD-700-1A10 Global Express which had been used by AirAsia Berhad executive chairperson Kamarudin Meranun and group chief executive officer Tony Fernandes since 2012.

The private jet (picture) was purchased from Caterhamjet Global Ltd (CJG), a company in which Kamaruddin and Fernandes held a 18.56 percent indirect stake and is also a member of the Tune group.

According to the details of the case, an AirAsia X senior employee had approached a Rolls-Royce employee in August 2011 about the maintenance of a new private jet which the AirAsia Group executive was planning to purchase.

In November 2011, a Rolls Royce senior employee who met with the AirAsia Group executive reported that the latter was "very offended" due to the high Corporate Care rate that was offered for his new Global jet.

The Corporate Care programme is a service provided by Rolls Royce for the maintenance of corporate jets. The programme required a US$3 million entry fee and could only offer a 15 percent discount.

The Rolls-Royce senior employee asked for the issue to be dealt with as AirAsia X and other companies connected to the AirAsia Group executive were sources of potential business.

The Statement of Facts, citing an internal Rolls-Royce email, stated that the jet was owned by the AirAsia executive, a second AirAsia executive and other private individual
Based on this fact, Rolls-Royce's Compliance Department had noted: "Rolls-Royce cannot give preferential rates on Corporate Care for the (AirAsia Group executive's) personal aircraft just because of the business done with Rolls-Royce by the airline of which he is (an executive).

"The two should not be linked as there are both legal and ethical implications to do so," it added.

This view was raised with the Rolls-Royce senior employee, who did not agree with it.

'AirAsia X used as intermediary for private jet credit'

According to the court filing, Rolls Royce employees in April 2012 began discussing a solution by directly transferring the involved credits to AirAsia X.

On Oct 17, 2012, a Rolls-Royce employee reported to the Rolls-Royce senior employee that the AirAsia Group executive was seeking to "make the corporate jet deal 'invisible' with its 'value covered within additional A330 Total Care Agreement charges" for AirAsia X".

AirAsia X was at that time in a commercial discussion for Rolls-Royce to provide maintenance to the aircraft that the budget airliner was purchasing, a service known as Total Care.

"In parallel, Rolls-Royce employees developed a proposal to provide US$2 million of credits to AirAsia X which AirAsia X could decide to spend how it wished.

"It would be for AirAsia X to declare to its shareholders if those funds were used to maintain the private jet," said the document.

However, it said the shape of the commercial deal with AirAsia X changed - with the prospect of a larger aircraft purchase - and so did the parallel discussion on the private jet.

On March 15, 2013, a Rolls-Royce employee reported to his senior that the AirAsia X senior employee, who had been negotiating for the Air Asia Group executive's private jet, wanted a "cash settlement that is off the record and not visible to the AirAsia X group".

The Rolls-Royce employee raised concern that it was "unethical and likely illegal" and would rather not handle the case.

The Rolls-Royce employee complained that the AirAsia X senior employee had avoided discussing the private jet in front of other AirAsia X or Rolls-Royce employees and refused to communicate via email about the matter unless it was verbally or on Blackberry Messenger, a secured chat application.

The Rolls-Royce employee was removed from the case for around two months after the AirAsia X senior employee complained about him.

In an interview during the SFO's investigation, the Rolls-Royce employee said the AirAsia X senior employee went as far as suggesting that the Corporate Care entry fee for the private jet be secretly spread across other AirAsia X payments to Rolls-Royce.

By May 2013, AirAsia X was about to finalise the commercial deal with Rolls-Royce where AirAsia X would lease six Airbus A330 aircraft with Rolls-Royce engines and would purchase Rolls-Royce's Total Care Agreement for the maintenance of the aircraft.

At this point, in parallel, Rolls-Royce employees offered to the AirAsia X senior employee US$3.252 million in credits for the private jet entering Rolls-Royce's Corporate Care programme.

It would be credited to AirAsia X, which would then be up to the company to apply the credits to the AirAsia Group executive's private jet.

"Rolls-Royce employees believe the relevance of the jet to the issuing of those credits was most likely to be concealed from AirAsia X executives by the AirAsia X senior employee.

"Even the contractual document (a Supplemental Financial Assistance Agreement) which would formalise the grant of credits by Rolls-Royce to AirAisa X, was initially not discussed by the AirAsia X senior employee in front of other AirAsia X senior employees," it said.

On July 8, 2013, three contractual documents were signed between Rolls-Royce and AirAsia X, including the Supplemental Financial Assistance Agreement which made reference to the US$3.2 million of credits.

However, none of the documents mentioned that the credits would be used for the private jet.

It said by late November 2013, the credits was transferred by the AirAsia X senior employee to the company which was the vehicle through which the AirAsia Group executive and other private individuals owned the jet.

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