A formal investigation by the Serious Fraud Office into allegations of bribery and corruption sounds serious - and it is. So why were Rolls-Royce's shares completely untroubled? There are at least three reasons. First, these investigations tend to take ages. It was December last year that Rolls-Royce first told shareholders about "matters of concern" in Indonesia , China and other markets and the possibility of prosecution by the SFO. If it takes a year to get from that position to the launch of a formal investigation, a final result could be years away. Second, the allegations relate to the 1980s and 1990s, well before the introduction of the Bribery Act in 2011. That does not detract from the seriousness of the allegations, but it might lessen any penalty if wrongdoing is proved. Third, any eventual reputational hit to Rolls-Royce might be lessened by the fact that the company appears to have overhauled its compliance operations. Even under a "bad" outcome resulting in a large fine, the board would be able to argue that it acted early, especially on the relevant point of monitoring the behaviour of intermediaries. All the above, of course, is subject to the actual outcome of the SFO's investigation - from the outside, it is hard to judge the precise scale of allegations. But, as matters stand, you can understand why shareholders remain relaxed. British politicians, on the other hand, may wish to suspend their praise for Rolls-Royce while the SFO does its work.
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