IMI, the world's biggest maker of pneumatic controls, has suspended more than 20 staff and contacted the US department of justice after an initial investigation into whether illegal payments have been made by one of its subsidiaries.
The Birmingham group said last night it had called in forensic accountants from Ernst & Young to go through the books of its Severe Service business in California which provides valves for power stations. Shares in IMI fell 9% to 517p with the latest problem coming less than 12 months after IMI was one of 30 European engineering firms fined millions of euros for price fixing.
In a statement to the stock exchange yesterday, IMI said it had "initiated an investigation into possible irregular payments associated with certain trading contracts entered into by its Severe Service business, which may be in breach of the law and the company's policies and practices".
The indications were that these irregular payments involved a number of commission agents, said IMI, pointing out that commissions paid across this Californian side of the business had been worth £4m a year. Ernst & Young is checking payments made over the last seven years.
IMI said it had contacted relevant regulatory bodies - including the US department of justice and the Financial Services Authority in London, accepting that if its suspicions were correct it could be heading for further fines. "We moved very quickly after our suspicions were aroused but the investigation is at an early stage. We still need to understand what payments were made and under what circumstances," said a spokesman. There could be more suspensions above the current number of about 20 staff but anyone found not guilty would be reinstated.
Analysts said the sharp share fall reflected the way the latest setback came out of the blue as much as its potential financial impact. "I do not think this is hugely serious in terms of [group financial] numbers, but it is clearly bad news for sentiment coming in the middle of a turbulent market," said Nick Webster, analyst at Numis Securities.
IMI recently forecast it would report first-half profits of between £90m and £93m before tax, restructuring costs and amortisation of intangibles. The company, which also makes drink dispensers and display units for retailers, said at the time that organic sales growth in the first half could be expected to rise 7%.
IMI traces its origins to 1862 when Scottish entrepreneur George Kynoch opened a percussion cap factory at Witton in Birmingham. By 1881 it had grown to be Britain's largest ammunition manufacturing company but had also diversified with a brass rolling mill, a patent lamp business and a printing works.
Previously called Imperial Metal Industries, the group was once a subsidiary of Imperial Chemical Industries, which is the subject of a takeover bid by Holland's Akzo Nobel. IMI floated on the London stock exchange in 1966 and had a £2bn market capitalisation before the share sell-off.