The Serious Fraud Office has launched a formal investigation into bribery, corruption and money-laundering concerns at defence company Chemring.
The SFO said the investigation relates to the use of “middlemen” by Chemring, and that the company voluntarily reported the concerns to it.
Use of intermediaries has become a focus for the SFO recently. It secured a record £671m settlement from Rolls-Royce last year over its use of middlemen to win contracts.
Rolls paid the settlement after an international investigation into the use of bribery and corruption to land deals. The judge who agreed the settlement said that, had Rolls not launched efforts to clean itself up, it could have been prosecuted. A conviction would have almost certainly resulted in the company losing many of its multi-billion-pound customers, who would be banned from working with it.
Airbus is also under investigation by the SFO and foreign regulators over similar concerns, with the aircraft manufacturer having self-reported to authorities after unearthing issues during internal audits.
Chemring – whose products include grenades and flares used by military aircraft – announced the investigation in the notes to its annual results, saying the two “historic” contracts involved the use of middlemen who represented Chemring subsidiary CTSL.
The first took place before Chemring acquired the business and the second in 2011.
Michael Flowers, chief executive of Chemring, said: “We do not consider them to be material to the group’s overall performance. We self-reported and this is something we take extremely seriously: we are fully co-operating with the investigation.”
He added Chemring only discovered the incidents that led it to contact the SFO “a little while back” during a routine audit.
“We contacted the SFO and at their behest we did some more work looking in to this,” Mr Flowers added, saying the company was “was only very recently told by the SFO it was launching a formal investigation”.
The revelation came as Chemring posted annual numbers that showed revenue rose 11pc at £547.5m but pre-tax profit halved to £4m, pushed down by factors including £14m of restructurings in the US and £10m of writedowns on technology. On an underlying basis, pre-tax profit was up 30pc at £44.1m.
Mr Flowers said the company was making good progress with its three major US programmes, the IED-detecting HDMS system and two chemical and biological weapons sensor systems.
HDMS is close to entering production with revenue from it expected to kick in from 2018, while the other two other programmes have finished R&D with engineering and manufacturing development starting. They should contribute to revenues from 2021.
Concerns have grown that Ministry of Defence will cut back spending on suppliers, but Mr Flowers noted that the UK military accounts for only 5pc of Chemring’s sales.
“We are seeing the MoD being more deliberate in its decisions,” he said. “They are looking carefully at what they buy, when they buy it, and how much they buy – which is exactly what taxpayers should expect them to do.”
However, at the moment he said the MoD was “not buying less” from Chemring.
Cheming shares rose 3pc to 183.6p
The Telegraph | 18 January 2018