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Former Garuda president named in Rolls Royce bribery scandal

Engine procurement scandal shakes Indonesian and Thai flag-carriers

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Garuda Indonesia airplanes are seen at Soekarno-Hatta airport in Jakarta. British engine maker Rolls Royce has agreed to pay a penalty of $824 million to head off further prosecution for bribes it paid through intermediaries to airline and government officials in China, India, Indonesia, Nigeria, Russia, and Thailand.   © Reuters

JAKARTA -- A former president and chief executive of national flag-carrier Garuda Indonesia has been named in a multinational bribery scandal involving Rolls Royce, the British aircraft engine maker.

Emirsyah Satar, who led Garuda's restructuring from 2005 to 2014, is alleged to have received more than $3 million in kickbacks for engine procurement contracts for Airbus aircraft.

"The suspect allegedly received bribes ... comprising 1.2 million euro and $180,000 in cash, as well as $2 million worth of assets in Singapore and Indonesia," Laode M. Syarief, deputy chairman of Indonesia's Corruption Eradication Commission (KPK) told reporters on Thursday.

Garuda's stock price fell 2% on Thursday.

Satar resigned from Garuda in December 2014, and is now chairman of Mataharimall.com, an e-commerce platform that is being aggressively expanded by Lippo Group, an Indonesian conglomerate.

KPK said an alleged middleman, identified only as S.S., the beneficial owner of a company called Connaught International, has also been named. Local media identified him as Soetikno Soedarjo, co-founder of Indonesia's MRA Group, publisher of local lifestyle magazines.

KPK made the announcement following a hearing at a London court on Tuesday, during which Rolls Royce extended an apology. It admitted to having paid bribes to middlemen to secure orders in China, India, Indonesia, Nigeria, Russia, and Thailand.

Rolls Royce has agreed to pay 671 million pounds ($824 million) in penalties to settle long-running corruption allegations, The Guardian newspaper of London reported.

A statement of facts from the British Serious Fraud Office said Rolls Royce made two commission payments in Indonesia totaling in excess of $1 million in March 2012 to its intermediary with Garuda, despite evidence that the intermediary was "acting corruptly" on Rolls Royce's behalf.

"There is an inference that RR failed to prevent its intermediary from bribing employees of Garuda," the document said. The allegations relate to contracts for Rolls Royce's TotalCare service and Trent 700 engines for Airbus 330 aircraft. The bribes were allegedly paid between July 2011 and March 2012.

The document also cited earlier bribes between 1989 and 1998 during President Suharto's New Order era for similar procurements of Trent 700 engines for six A330 aircraft. Acting as an intermediary, "an agent of the office of the president of Indonesia" received $2.25 million and a Rolls Royce Silver Spirit car in respect of the contract.

Benny Butarbutar, Garuda's vice president for corporate communications, said on Thursday that the case "concerns an individual" not the company. "The management of Garuda will be fully supportive and cooperative to the KPK so that it can immediately conclude the investigations," he said.

Rolls Royce last year won another contract from Garuda, worth $1.2 billion, for Trent 700 engines and TotalCare support. The engines will power Garuda's 14 A330neo aircraft. The signing ceremony in London last April was witnessed by Indonesia's President Joko Widodo and the U.K.'s then prime minister, David Cameron.

Thai Airways International, which was also cited in the bribery allegations, has set up an investigation committee to identify the individuals involved.

Transport Minister Arkhom Termpittayapaisiht told the Nikkei Asian Review on Thursday that the state-owned carrier will reassess its procurement procedures to "make sure everything is transparent enough".

 "Whether Rolls Royce, GE, or Pratt and Whitney -- any company to come to the bidding for the engine would have to sign an agreement that everybody plays the same fair game," said Arkhom. He said intermediaries representing such companies would also have to sign similar undertakings.

According to the British investigation, bribes paid by Rolls Royce in Thailand between 1991 and 2005 totaled $36.38 million. Some of that money was paid to individuals who were "agents of the state of Thailand and employees of Thai Airways".

Nikkei staff writer Wataru Suzuki in Jakarta and Yukako Ono in Bangkok contributed to this story.

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