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UK investigates KPMG for Rolls-Royce audits

The United Kingdom accounting regulator said Thursday it has opened an investigation into KPMG for audits the firm did for long-time client Rolls-Royce Holdings plc.

The Financial Reporting Council or FRC said its decision to investigate KPMG “follows the SFO announcement on 17 January 2017 of a Deferred Prosecution Agreement between the SFO and Rolls-Royce which relates to offenses including conspiracy to corrupt and a failure to prevent bribery.”

The investigation covers KPMG’s audits of Rolls-Royce’s financial statements for 2010 through 2013.

In December last year, Rolls-Royce replaced KPMG with PricewaterhouseCoopers starting from 2018. KPMG had audited Rolls-Royce for 26 years.

The UK Deferred Prosecution Agreement was part of an $800 million global resolution Rolls-Royce reached with prosecutors in the UK, the United States, and Brazil.

Under its deal with the UK Serious Fraud Office, Rolls-Royce paid penalties of £497 million (about $640 million).

In the U.S., Rolls-Royce paid a criminal penalty of $170 million after being charged with a long-running global conspiracy to violate the Foreign Corrupt Practices Act.

In Brazil, Rolls-Royce agreed to pay the Ministério Público Federal a $25.5 million criminal penalty under a leniency agreement.

The company makes engines and generators for the aerospace, defense, marine, and energy sectors.

Rolls-Royce admitted in the U.S. enforcement action that between 2000 and 2013 it paid more than $35 million in bribes to officials in Thailand, Brazil, Kazakhstan, Azerbaijan, Angola, and Iraq.

As part of its resolution with the SFO, Rolls-Royce admitted paying other bribes or failing to prevent bribery in China, India, Indonesia, Malaysia, Nigeria, Russia, and Thailand from 1989 to 2013.

KPMG said in a statement Thursday:

It is important that regulators acting in the public interest should review high profile issues. We will co-operate fully with the FRC’s investigation, which follows the SFO’s investigations into Rolls-Royce. We are confident in the quality of all the audit work we have completed for Rolls-Royce, including the 2010-2013 period the FRC is considering.

The Financial Reporting Council is an independent regulator. It sets UK practice standards for accounting and actuarial work and monitors and enforces audit quality.

KPMG has about 188,000 professionals in 155 countries. In the UK it operates from 22 offices with about 650 partners and more than 12,000 staff. Last year the UK unit reported revenues of about £2 billion ($2.58).

In late 2013, KPMG reached a €7 million ($7.65 million) settlement with Dutch authorities for allegedly helping a client disguise suspicious overseas payments.

Prosecutors alleged that KPMG helped Dutch construction company Ballast Nedam conceal corrupt payments to an agent in Saudi Arabia.

Ballast Nedam itself settled overseas corruption charges with Dutch prosecutors in 2012 for €17.5 million ($19 million).


Richard L. Cassin is the publisher and editor of the FCPA Blog.

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