Rolls-Royce has been plunged into fresh crisis after India became the latest country to launch a formal investigation into allegations of bribery and corruption at the British defence and engineering firm.
The FTSE 100 company, which is already the subject of a Serious Fraud Office (SFO) criminal investigation into claims it paid multimillion-pound bribes in Indonesia and China, was on Monday frantically investigating reports that the Indian government may have blacklisted it from all defence contracts.
India's defence ministry on Monday ordered the Central Bureau of Investigations (CBI), the country's fraud squad, to investigate claims that Rolls paid bribes to secure government contracts.
Local media said all of Rolls' contracts in India had been put on hold pending the outcome of the inquiry. The Hindu suggested ministers had considered blacklisting Rolls from any further deals with the armed forces.
"We await clarification from the authorities in India," a Rolls spokesman said. "We have made clear that we will co-operate with the regulators and have been explicit that we will not tolerate misconduct of any sort."
Rolls has supplied engines for six types of aircraft in India – AJT Hawk, Jaguar, Avro, Kiran MK-II and Sea Harrier and Sea King Helicopters – and the Indian air force is in the process of agreeing maintenance contracts.
The Indian CBI investigation was prompted by a whistleblower who claimed Rolls paid bribes to staff at Hindustan Aeronautics Limited (HAL), a state-owned company, to help secure government contracts. Rolls, which appointed Lord Gold, a former City lawyer and Tory party peer, to review its anti-bribery and compliance procedures, is understood to have written to HAL admitting it used a middleman to secure a deal to provide marine gas turbines for power generation.
The middleman is accused of having paid bribes in the region of 5bn rupees (£48m), according to Indian media. Indian law bans the use of middlemen or advisers to obtain government deals.
Reports suggested the CBI investigation may be extended to Rolls' contract to supply engines to air force Hawk training jets. The CBI did not respond to requests for comment from the Guardian.
The CBI investigation comes weeks after the UK's SFO arrested a prominent Indian businessman and Liberal Democrat donor in London in connection with allegations that Rolls paid bribes in Indonesia and China.
Sudhir Choudhrie and his son Bhanu were arrested and questioned for several hours by the SFO investigating whistleblower claims of corruption at Rolls . Both men were released without charge and deny any wrongdoing. A spokesman for the Choudhries said they were not connected to the Indian CBI investigation.
Sudhir Choudhrie had previously been placed on the CBI's blacklist of "undesirables … suspected to be resorting to corruption or irregular practices in their dealing with official agencies".
The CBI has investigated Choudhrie over allegations of fraud in relation to arms deals, though they have all been formally closed.
Rolls is battling with an SFO criminal investigation into claims the company used middlemen to bribe the son of Indonesia's former president Suharto with $20m (£13m) and a blue Rolls-Royce car.
The allegations were made by former Rolls-Royce employee Dick Taylor in a series of online comments. The Derby-based company is accused of paying bribes in the 1980s and 1990s in order to persuade the national airline, Garuda, to order Rolls-Royce Trent 700 engines.
Lawyers for Tommy Suharto – real name Hutomo Mandala Putra, who was convicted in 2002 of ordering the murder of a judge who tried him on separate corruption charges in 2000 – said: "He [Suharto] did not, and has never, received monies or a car from Rolls-Royce and nor did he recommend their engines to Garuda, as alleged."
After taking early retirement, Taylor decided to "tell the truth", and since 2006 has been posting comments below Rolls-Royce articles on newspaper websites around the world, including theguardian.com.
Taylor, who worked for Rolls for more than 30 years, including a stint in Indonesia, turned whistleblower after the company ignored concerns he raised internally.
John Rishton, Rolls-Royce's chief executive, has stressed that the company will not tolerate illegal conduct. "I want to make it crystal clear that neither I nor the board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance," he said.
The fresh escalation of the bribery investigation into Rolls could prove embarrassing for David Cameron and the royal family, who have spoken of their pride in one of Britain's best-known companies. The prime minister has praised Rolls-Royce as an enterprise "of which the whole country can be proud", and the Duke of Cambridge has described it as "one of the United Kingdom's great global companies".
India is attempting to crack down on alleged corruption in defence procurement, and last month terminated a £466m helicopter order with the British-Italian company AgustaWestland following accusations that the firm bribed officials.
The Indian defence ministry said it was axing its order for 12 helicopters, a variant of the company's anti-submarine warfare model, the AW101 or Merlin, that has been designed to transport high-ranking officials. "The government of India has terminated with immediate effect the agreement that was signed with AgustaWestland International Ltd (AWIL) on 8 February 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the pre-contract integrity pact and the agreement by AWIL."
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