Serious Fraud Office vs Rolls Royce, Counts 2, 3 & 4 – Civil Thailand

COUNT 2

Conspiracy to corrupt between 1 June 1991 and 30 June 1992 Thai Airways Trent 800 engines (1st Order)

Thai PMs
311 days Anand Panyarachun 1 June 1991 - 7 April 1992
64 days Suchinda Kraprayoon 7 April 1992 - 10 June 1992
17 days Meechai Ruchuphan 24 May 1992 - 10 June 1992
20 days Anand Panyarachun 10 June 1992 - 30 June 1992

In Summary

  1. RR agreed to pay millions of dollars (c. US $18.8 million) to the Regional Intermediary and another intermediary (“Intermediary 3”). A proportion of these monies was intended for individuals who were agents of the State of Thailand and employees of Thai Airways. In particular, the agents of both principals were expected to act in RR's favour with respect to a purchase by Thai Airways of T800 engines.

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Facts

  1. In June 1991 Thai Airways (“Thai”) placed an order of six Boeing 777 (“B777”) aircraft which was later raised to eight. RR in turn sold Trent 800 (“T800”) engines to Thai for those aeroplanes. At the same time as the sale was made RR arranged for increasing sums of money to be provided to its intermediaries. It is inferred that a proportion of those monies was then passed on by the intermediaries to influence the purchasing decision.

  2. The Regional Intermediary was told by RR that up to US $1 million per aircraft was “available for dispersal” in connection with the Thai order.

  3. In July 1991 an RR internal memorandum recorded that a total figure of US $8 million was said by the Regional Intermediary to be “the extent of the ‘demands’”. RR arranged for this money, amounting to US $1.33 million per aircraft, to be paid to Intermediary 3.

  4. The employee who drafted the memorandum commented that a single copy of the memorandum would be retained and recommended that other copies should be destroyed.

  5. In relation to the contracts described in Counts 2 to 4, when monies were promised or paid to Intermediary 3 a Side Letter amended Intermediary 3’s agreement with RR.

  6. This Side Letter described the sums of US $1.33 million per aircraft as a “Success Fee”. The document made no reference to any third parties who were to be paid.

  7. In August 1991 a further memorandum recorded that “Additional requests from the territory”, which included an amount sought of

    “US$1M payable within seven working days of the execution of an irrevocable contract to purchase Trent engines.”

    A manuscript amendment to a document indicates that this was to be paid to Intermediary 3. An RR senior employee approved the commission arrangements.

  8. By October 1991 there were discussions between RR and the Regional Intermediary as to when payments would be made.

  9. Alongside the large fixed sums being paid to Intermediary 3, that intermediary also stood to receive a separate percentage commission. A payment structure for that portion of the commission was approved by an RR employee whereby Intermediary 3 received 50% of the commission as a first payment – rather than 25%, as was first anticipated – in order to “maintain local enthusiasm for further business”.

  10. On 14 November 1991 RR won the contract to supply engines for the six aircraft. The commission payments were made during early December 1991 and into February 1992.

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  1. By the end of February 1992 a total of US $4.75 million had been paid to Intermediary 3. Two of the sums making up that total figure (US $1.9 million and US $2.4 million) were authorised at the point of payment by an RR senior employee.

  2. The Government of Thailand’s approval of the order was delayed as the number of aircraft sought by Thai rose from six to eight aircraft. Eventually, in March 1992, the expanded order for eight aircraft was approved by the Government.

  3. In March 1992 an internal memo sent to two RR senior employees noted that US $4.75 million remained to be paid to Intermediary 3. Approval of the payment was sought from the senior employees. The memo commented that:

    “We are urged to release the money as soon as the Cabinet endorsement is given, as a prompt payment could have an influence on the thinking of [a senior officer of Thai].”

  4. The next day a further memo was sent to the same two RR senior employees. It had been noted that the promise of payment to Intermediary 3 was per aircraft. It was necessary therefore to authorise the payment of a further US $2.66 million to reflect the expanded order by Thai.

  5. The final two payments of US $4.75 million and US $2.66 million were made shortly after in March 1992.

  6. During April 1992 RR authorised the payment of a further US $100,000 to Intermediary 3. This was done so that Intermediary 3 could pay “disappointed recipients” who had received some payment but had expected more from Intermediary 3’s percentage commission.

  7. The formal amendment of the contract between RR and Thai, raising the order for the number of aircraft and associated engines, was on 15 May 1992.

  8. On 18 June 1992 a letter to Intermediary 3, also marked as hand delivered to the Regional Intermediary, documented the large “success fee” payments which had now been made.

  9. However, between 22 June 1992 and 26 June 1992, complaints were received from the Regional Intermediary that his contacts felt “short changed” on the spare engines sold to Thai alongside the installed engines:

    “[The Regional Intermediary] is anxious as [a senior military officer in the Royal Thai Air Force] has threatened to resign and RR can ill afford to lose his support in Thailand.”

  10. The response by RR was to create a further Side Letter to Intermediary 3’s agreement which stated that:

    “[...] in view of the special efforts made on the sale of Rolls-Royce Trent engines to power eight {8) Boeing 777 aircraft and the associated spare engines to Thai lnternational, we are prepared to pay further commission”

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  1. This Side Letter provided for immediate payment of US $1.33 million and a further US $1.33 million payment contingent on a second sale to Thai of engines for an additional seven B777 aircraft. The day after the Side Letter was agreed, an RR senior employee authorised and paid US $1.33 million to Intermediary 3.

COUNT 3

Conspiracy to Corrupt between 1 March 1992 and 31 March 1997: Thai Airways Trent 800 engines (2nd Order)

Thai PMs
37 days Anand Panyarachun 1 March 1992 - 7 April 1992
64 days Suchinda Kraprayoon 7 April 1992 - 10 June 1992
17 days Meechai Ruchuphan 24 May 1992 - 10 June 1992
105 days Anand Panyarachun 10 June 1992 - 23 September 1992
1023 daya Chuan Leekpai 23 September 1992 - 13 July 1995
501 days Banharn Silpa-archa 13 July 1995 - 25 November 1996
126 days Chavalit Yongchaiyudh 25 November 1996 - 31 March 1997

In Summary

  1. RR agreed to pay US $10.38 million to their intermediaries. A proportion of these monies was intended for individuals who were employees of Thai. In particular, those individuals were expected to act in RR's favour with respect to a second purchase by Thai of T800 engines.

Facts

  1. Thai made a second purchase of six B777 aircraft. RR wanted to ensure that its T800 engines were selected by Thai. RR again paid Intermediary 3 and the Regional Intermediary and it is inferred that they passed on a proportion of these monies so as to influence the purchasing decision.

  2. In March 1992, when a second order by Thai was first anticipated by RR, an RR employee agreed with Intermediary 3 a “success fee” of 135 million Thai Baht (then approximately US $5.29 million), should Thai order further B777s with T800 engines. This was formalised via a Side Letter to Intermediary 3’s agreement.

  3. The order did not proceed at that time. Two years later, on 20 May 1994, RR paid US $500,000 to Intermediary 3, despite the deal not yet being concluded. In April 1995, with the order still not finalised, a further Side Letter was sent by RR to Intermediary 3. This increased the 1992 offer to a payment of US $1 million per aircraft (six aircraft were envisaged). There were also changes proposed to Intermediary 3’s percentage commission.

  4. The Side Letter specified that the US $500,000 payment was an advance on Intermediary 3’s percentage commission. Intermediary 3 wrote to RR later in April 1995 to explain that this was incorrect:

    “the expense of RR only for lobbying [a senior officer of Thai]. It is not an advance money at all.”

  5. In July 1995 a further Side Letter was drawn up confirming that the US $500,000 payment would be treated as ex gratia and would not be deducted from Intermediary 3’s commission.

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  1. Intermediary 3 also complained about the level of commission. An internal memo noted that the payment terms for Intermediary 3’s percentage commission “would not meet his commitments” and the Regional Intermediary needed to manage his “nominees” better.

  2. A letter was sent by an RR employee to Intermediary 3 which stressed that:

    “It is also important that we know where such funds are being placed, albeit that such information is best handled verbally.”

  3. A letter was also sent to the Regional Intermediary commenting that if Intermediary 3 had committed beyond his 1% commission then:

    “[...] all I can offer to do is to review the level again but I have to know how he intends to allocate these monies such that I have some evidence on which I can make a case for such review.”

  4. RR subsequently raised Intermediary 3’s percentage commission from 1% to 2%.

  5. On 30 October 1995 an internal memo asked whether the fixed sums of US $1 million per aircraft should be made payable within seven days of the order by Thai rather than within 30 days, as agreed. The memo commented:

    “[the senior officer of Thai] is waiting to issue the ‘Order’ to Boeing but before doing so wants evidence from Rolls-Royce that he is going to, through [Intermediary 3], receive funds within 7 days.”

  6. On 6 November 1995 a Side Letter was issued agreeing payment to Intermediary 3 within seven days of the order’s confirmation.

  7. Internal correspondence from 8 February 1996 records the agreement to make payment of US $1 million in advance, despite the order not yet being confirmed. Payment was authorised that day.

  8. Following payment of the US $1 million advance, the Board of Thai approved the T800 engine for six B777 aircraft. At this stage Government of Thailand approval was still yet to be secured.

  9. In April 1996 an RR senior employee and two RR employees were made aware of the need to pay the additional US $1.33 million promised to Intermediary 3 in June 1992 at the conclusion of the first order of engines.

  10. This sum was later reduced to US $1.14 million as the number of aircraft and engines being purchased by Thai had itself reduced.

  11. An internal memo in May 1996 referred to the US $1.14 million payment being made to an employee of Thai:

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“[...] who has allocated it to the political helpers he has used. I can understand why it is euphemistically referred to as the Power(plant) Group.”
  1. In November 1996 an internal RR memo noted that the same employee of Thai had asked an RR senior employee to “release” US $1 million of the US $5 million which remained to be paid to Intermediary 3. The memo recommended that payment be made now:

    “so that Thai can use it to 'manage the political process.' ”

  2. Three RR senior employees agreed to this. The second advance of US $1 million was again paid to Intermediary 3.

  3. In January 1997 an internal memo sent to two RR senior employees noted that the order by Thai awaited ratification by the Government of Thailand and that:

    “Part of the concession package associated with this contract involves the payment of US$7.14M contingent upon Government approval of the purchase. These funds would be passed through our Commercial Adviser who would take responsibility for the ‘in-country' distribution.”

  4. The purpose of the memo was to advise of press reports which had suggested that the Thai Government might prefer leased aircraft to a purchase and that RR were therefore exposed to a risk of having paid out US $2 million without having secured the order, albeit repayment of those monies had been guaranteed by the two intermediaries.

  5. In February 1997 a meeting of RR’s CRSC was held at which were present three RR senior employees who had been involved in agreeing the second advance of US $1 million. The CRSC approved a report which asserted that no payments to agents across RR’s business divisions during the previous 12 months were “non-compliant with (relevant) laws and regulations”. Included as a significant part of that report were the first and second orders of T800 engines by Thai, and details of the sums paid to Intermediary 3 and the Regional Intermediary. The report was sent on to RR's external auditors.

  6. Finally, in March 1997, an internal memo to two RR senior employees confirmed that the Government of Thailand had approved the second order placed by Thai. This would release payments from RR of US $5.14 million to Intermediary 3. There were also smaller payments to Intermediary 3 and the Regional Intermediary described as their percentage based commissions. These payments were collectively referred to as “marketing expenses”.

  7. The figure of US $5.14 million paid at this stage to Intermediary 3 reflected the initial offer of US $1 million per aircraft, for six aircraft, or US $6 million. Subtracted from this were the two advances of US $1 million. The balance of US $4 million was then supplemented by the ‘rediscovered’ payment of US $1.33 million which had been reduced to US $1.14 million. The payments were subsequently made.

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  1. Payments of percentage commissions continued to be made to both Intermediary 3 and the Regional Intermediary, with the timing of those payments linked to aircraft deliveries. Intermediary 3 and the Regional Intermediary were paid around US $1.37 million each.

COUNT 4

Conspiracy to Corrupt between 1 April 2004 and 28 February 2005: Thai Airways Trent 800 engines (3rd Order)

Thai PMs
333 days Thaksin Shinawatra 1 April 2004 - 28 February 2005

In Summary

  1. RR agreed to pay almost US $7.2 million to its intermediaries. A proportion of these monies was intended for individuals who were agents of the State of Thailand or employees of Thai and those individuals were expected to act in RR's favour with respect to a third purchase by Thai of T800 engines.

Facts

  1. A third order of B777 aircraft by Thai had been under discussion as early as 1996. The order did not materialise until late 2004. RR again ensured that significant sums of money were available to Intermediary 3 and the Regional Intermediary. It is inferred that, to persuade Thai to purchase further aircraft with T800 engines, a proportion of these monies was passed on, in this instance to contacts connected to the Government of Thailand.

  2. An internal RR email from April 2004 notes that the Regional Intermediary had rejected commission terms proposed by RR on the B777 order and had indicated that he would talk to an RR senior employee.

  3. The Regional Intermediary was requesting an additional 4% commission, or approximately US $500,000 per aircraft. This would raise overall commissions on this contract to 8%, breaching a recently imposed internal limit as to the levels of intermediary commission.

  4. A briefing note addressed to an RR senior employee noted that:

    “Additional commissions on previous Thai Airways business were paid, and these were approximately twice what we are now being asked to pay. However, more recent Corporate Governance guidelines prevent this, and the commercial deal has less margin with which to fund such payments.”

  5. In May 2004 the Regional Intermediary was written to with a proposal for a new commission structure. The proposal provided for less commission than the Regional Intermediary had sought and made a proportion of the commission conditional on RR securing a Total Care Agreement (“TCA”) with Thai. TCA was RR's maintenance product providing for engine repair costs to be spread across a long-term service contract based on the number of hours flown. Selling such agreements was a priority for RR.

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  1. The same letter noted that the Regional Intermediary might wish for some commitments to be made with Intermediary 3.

  2. In June 2004 after a meeting with the Regional Intermediary an internal RR email noted that:

    “[The Regional Intermediary] stated RR has an impasse with Thai on add'I 6 x 777s - he informed [an RR senior employee] today that airline will not accept engine concessions linked to TCA, and [Regional Intermediary Company B][Intermediary 3 Company A] engine commissions cannot be linked to TCA, but [the RR senior employee] informed him that RR cannot change its present position.”

  3. Around this time a briefing note to the RR senior employee referred to in paragraph 100 commented that commissions for the Regional Intermediary and Intermediary 3 had not been approved as:

    “[The Regional Intermediary] advised Airlines that there was a significant risk the PW/A330's would be selected over the RR/777's if total commissions on Engines were less than 8% of net Engine revenue (excluding TCA). Airlines did not accept this position and [the Regional Intermediary] rejected the Airlines final offer [...] The latest information indicates that the airline will choose either RR/777s or RR/A340s”.

  4. In mid-July 2004 the Regional Intermediary was written to following a meeting with him. It was recorded that RR’s offer on commissions was final.

  5. On 28 July 2004 Thai’s Board decided to purchase the six B777s and two further Airbus A340 (“A340”) aircraft. They selected RR engines for the B777s, while the A340 was a ‘sole-source’ aircraft which only took RR’s Trent 500 (“T500”) engines.

  6. However, a letter from August 2004 records that discussion as to commission levels between the Regional Intermediary, employees of RR and a RR senior employee were ongoing.

  7. At the end of September 2004 the Board of Thai confirmed further details of its order: five spare engines for its A340/T500 fleet, and two spare engines for the B777/T800 fleet.

  8. On 13 October 2004 a memo to the same RR senior employee proposed paying 4% to Intermediary 3 and 2% to the Regional Intermediary in respect of T800 engine sales.

  9. On 15 October 2004 a further memo was sent to the senior employee and dealt with concerns raised by the senior employee as to the Regional Intermediary's expectations. The memo clarified that the proposal represented 6% in total on T800 engine sales for the two intermediaries to share, as well as additional commissions were a TCA to be secured. The senior employee asked that a different RR senior employee communicate with the Regional Intermediary.

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  1. A Side Letter of 22 October 2004 agreed to make payments to Intermediary 3 of 2% commission on seven spare T500 engines. These commissions were, at this point in time, described as payable in two parts.

  2. The agreement covered seven spare engines, however there was no contemporaneous sale of seven such engines. There had been, a year earlier, a sale of two spare engines of the T500 model. There was then a decision by Thai to purchase five further spare engines, which decision had already been taken a month prior to this agreement to pay commission. The commission was nonetheless expressed as relating to seven spare engines.

  3. Intermediary 3’s commissions for the T800 engines were initially to be spread over 7 to 10 months, with payment made in three stages. Two of those stages were around one to two months after the expected date of Government of Thailand approval of the engine order, with the balance to follow around six months later.

  4. Following a meeting on or before 11 November 2004 the Regional Intermediary was described as being frustrated at the time taken to approve the commission arrangements. He commented that he had had to use his friendship with an RR senior employee to ensure the arrangements were approved.

  5. Both the Regional Intermediary and Intermediary 3 requested that the T800 and T500 spare engines commission be paid “up front”. To do so required internal approval from an RR senior employee.

  6. A letter was subsequently issued to Intermediary 3 with a proposal to pay three quarters of his commission on 7 January 2005, contingent on Government approval, and the remaining quarter on the delivery of the aircraft. A similar letter made the whole of the 2% T500 spare engine commission also payable by the same date.

  7. An internal RR email dated 19 November 2004 recorded that a meeting had taken place between Intermediary 3 and the Regional Intermediary and a member of the Thai Government. It was reported that there had been a:

    “Very good meeting, very positive feedback on new A340 and 777 business, on track for Cabinet 23rd Nov”.

  8. The email went on to discuss commission payments. Intermediary 3 and the Regional Intermediary had rejected RR’s proposed phasing of payments and insisted that they needed all of Intermediary 3’s:

    “4% on Government approval, i.e. Dec 04”.

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  1. The Regional Intermediary was recorded as having threatened to raise this issue of the timing of payments with the RR senior employee. Later that day an internal RR email records:

    “Do we think all of the 4% [Intermediary 3 Company A] flows through to....? I assume not all of it does.”

  2. On 22 November 2004 a further letter was sent to Intermediary 3 offering to pay all but 12.5% of the commission on 7 January 2005, assuming Government of Thailand approval had been given.

  3. The next day, when the Cabinet of the Government of Thailand was scheduled to meet, a final letter was sent to Intermediary 3, stating that the full T800 commission would be paid on 7 January 2005, again assuming Government approval had been given.

  4. On 4 December 2004 an internal RR email stated that the order by Thai was approved:

    “Calls between [certain Thai Government ministers and a Thai Airways employee] yada, all positive. Airline still not heard the good word yet and not clear if POs signed. [Intermediary 3 and the Regional Intermediary] have commitment from [the Thai Government deputy minister whom they had met] that it will be sorted by tomorrow.”

  5. However, Intermediary 3 was seeking payment of half of the T800 commission by 17 December 2004. The 4 December 2004 email concluded:

    “WARNING:-[the Regional Intermediary and Intermediary 3] have dinner with [the Thai Government deputy minister whom they had met] on 18th Dec and hence [the Regional Intermediary] may suddenly decide to support [Intermediary 3]'s request.” [...] ”we should be firm in my view. Comments?”

  6. Two RR employees replied, agreeing that there should be no further movement by RR.

  7. On 20 December 2004, an updated CAA was signed by Intermediary 3. Intermediary 3 sent back pro-forma invoices for the payments RR were due to make.

  8. On 4 January 2005 RR made payment of US $3,797,718 to Intermediary 3, authorised by an RR senior employee. The payment was described as being for the contract signature for T800 engines to be installed into six B777 aircraft, and two spare T800 engines. On the same date RR also paid US $1,497,339 described internally as an

    “Additional 2% for sale of seven (sic) spare T500s to Thai”.

  9. A corresponding payment of US $474,715, described as relating to the sale of installed and spare T800 engines, was made to the Regional Intermediary one month later, with subsequent payments bringing the total to US $1,898,860. Between Intermediary 3 and the Regional Intermediary a total of US $7,193,917 was paid in connection with the T800 engines and T500 spare engines order.

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  1. The formal contract for the five T500 spare engines was concluded on 17 January 2005 with Thai. The T800 engine contract was concluded the following year on 15 June 2006.