| BAE Systems: Has Justice Been Done? |
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After eight years of investigation into allegations of corruption, BAE Systems has reached settlements with UK and US regulators totalling almost US$500 million. Is this outcome an encouraging move towards corporate accountability, or an affront to justice? Corruption Is the Killer That We All Ignore - Richard Dowden, Times Online 8th February 2010 BAE to Settle Bribery Cases For More Than $400 Million 6th February 2010 - Daniel Michaels and Cassell Bryan-Low, The Wall Street Journal Britain's BAE Systems PLC reached settlements totaling almost $500 million with the U.S. Justice Department and the U.K. Serious Fraud Office to resolve longstanding corruption allegations that have dogged one of the world's biggest defense contractors. Under the agreements, London-based BAE will plead guilty to charges in both countries, relating to transactions that took place before 2002. The investigations examined whether BAE had made illegal payments to officials in various countries to secure lucrative contracts. The accusations have cast a shadow over BAE's business, even as it has expanded world-wide. "It allows us to draw a very heavy line under the legacy of very historical issues," said BAE Chairman Dick Olver. "We're pleased to see the uncertainty removed." The U.S. plea deal, under which BAE will pay $400 million to settle one charge of conspiring to make false statements to the government, demonstrates the Justice Department's ability to impose tight U.S. ethical standards for its defense contractors, even ones based overseas. BAE is pledging new commitments to ensure its compliance with U.S. laws. The settlement could send a message to other foreign military contractors who are trying to expand in the U.S., which has the world's biggest defense market. Gary G. Grindler, acting deputy attorney general, said: "Any company conducting business with the United States that profits through false statements will be held accountable." The settlement also allows BAE to continue bidding for government contracts. Investors had feared that a guilty plea might have resulted in BAE's debarment in the U.S. or the European Union. In a sign of investors' relief, BAE shares in London closed up 1.6% on Friday. For Britain's fraud office, the deal is a much-needed victory, although it secured a far smaller portion of the settlement than the U.S. BAE will pay a penalty of £30 million ($47 million) and plead guilty to one charge stemming from payment to a former consultant in Tanzania. The SFO in November 2004 launched an investigation regarding BAE's alleged illegal payments in Saudi Arabia, a case that soon expanded to cover the Czech Republic, Romania, South Africa and Tanzania. BAE's then-chief executive, Mike Turner denied the company had acted improperly. In 2006, the SFO halted the investigation into allegations about BAE's Saudi operations under pressure from then-Prime Minister Tony Blair, who had been lobbied by Saudi officials. Mr. Blair cited national-security grounds as the reason, but the move sparked a political uproar that drew even more attention to BAE. "The SFO has being totally vindicated," said SFO director Richard Alderman in an interview. He added that the global settlement was a first for the SFO and DOJ and that he hoped it would send a warning signal to other firms. "It is a wake-up call to companies," Mr. Alderman said. The Justice Department in June 2007 launched its probe, which included briefly detaining Mr. Turner and other top BAE executives upon arrival in Houston in May 2008. In part to calm controversy about the company's past business practices, Mr. Olver in 2007 pressed Mr. Turner to retire early, people close to the decision said. The company around the same time conducted a thorough analysis of its current ethical practices and began extensive training of its staff regarding ethical compliance. Mr. Olver on Friday stressed that the transactions in relation to which the company pleaded guilty all occurred nearly a decade ago and outside the U.S. U.S. court documents detailed what prosecutors allege was BAE's use of secretive offshore entities and shell companies, and its efforts to conceal where payments were going, in 1999 deals to lease fighter jets to Hungary and the Czech Republic. According to prosecutors, BAE avoided communicating with so-called "marketing advisers" in writing and maintained scant information about its payments. After 2001, prosecutors allege, BAE made payments totalling more than £135 million and an additional $14 million-plus to marketing advisers through one offshore entity, according to the court documents. The U.S. filing also alleges that BAE paid tens of millions of dollars to a Saudi government official and other associates, as well as to intermediaries, as recently as 2002. The payments were made as part of its management of a long-term agreement begun in the 1980s between the U.K. and Saudi Arabia to supply military hardware to the Saudis, U.S. prosecutors say. In the court documents, prosecutors allege that BAE promised to institute antibribery programs and filed false documents to the U.S. Defense Department stating it had implemented such programs when none existed. "Beginning in 1993, BAE [Systems] knowingly and willfully failed to identify commissions paid to third parties for assistance in the solicitation or promotion or otherwise to secure the conclusion of the sale of defense articles, in violation of its legal obligations," the court documents filed by Justice Department prosecutors said. The U.S. has markedly increased its cooperation with foreign regulators in recent years. The Securities and Exchange Commission, which works closely with the Justice Department, made 774 requests for assistance from foreign regulators in fiscal 2009, which ended September 30, up from 594 a year earlier, according to public data gathered by law firm Freshfields Bruckhaus Deringer LLP. Corruption Is the Killer That We All Ignore 8th February 2010 - Richard Dowden, Times Online So now we know a little more. We always knew that in 2001 the British company BAE Systems sold Tanzania a £28 million air traffic control system. The World Bank and the International Civil Aviation Organisation said it was unnecessarily sophisticated and overpriced. At the time Clare Short, then Minister for International Development, claimed that bribery was involved. Some calculated that the BAE system that Tanzania bought cost four times more than the system that Tanzania needed. It was a military system but Tanzania barely has an air force. Nevertheless, Tony Blair pushed the deal. Last week BAE paid £288 million to the courts in America and Britain for, in its own words, “conspiring to make false statements ... in connection with certain regulatory filings and undertakings”. The British settlement admits to “payments made to a former marketing adviser in Tanzania” in connection with that air traffic control system. The US settlement refers explicitly to paying bribes. As part of the settlement further investigation into the Tanzanian air traffic control system will stop and the facts so far established will be kept secret. So — astoundingly — will the investigation into other corruption allegations, including the South African £5.5 billion arms deal in which BAE was a partner. Mr Blair also supported that deal. BAE was not on the original shortlist but was put on it at a late stage by Joe Modise, then South African Defence Minister. Its bid included sophisticated fighter jets that the South African Air Force had never asked for. Some of them have never left their hangars — there are no pilots to fly them. The South Africans have established that Mr Modise and one of his advisers received £15 million in bribes, part of more than £100 million paid in bribes to secure the deal. Has justice been done? Transparency International, the anti-corruption lobby group, has welcomed the deal, saying that the Serious Fraud Office and the Department of Justice “should be congratulated for achieving an outcome”. But there is no transparency here. It may be fine for the UK — a major British company has been allowed to “draw a line under its past”. But what about Britain’s international reputation? And what about the people of Tanzania and South Africa whose politicians and officials have been bribed? Are they not the biggest losers in these crimes? For justice to be done the facts must be exposed, which a court case would have done. Tanzanians will now never know which of their ministers and officials were bribed by “marketing advisers” and with how much. Instead they are given a “charitable payment” by BAE of £15 million. That’s an insulting bung that smells like yet another bribe. Tanzania has wasted perhaps £21 million that should have gone on building schools, roads, clinics and reducing poverty. Instead members of its Government have been induced to waste that money. Corrupt and powerful Tanzanians are now more powerful and much richer. Corruption breeds corruption and I believe it is one of the most potent factors holding Africa back and preventing development. In Britain the Security Services now watch intensely for movements of money for terrorism, drugs and corruption. But corruption money comes a poor third to the other two. I would argue that corruption kills more people than terrorism and the drugs trade combined. The more public funds — some of them our taxes — that are stolen and go into the offshore bank accounts of corrupt officials and politicians, the less goes on health, education and development. That loss kills people. In 2001 Tanzania was the third poorest country in the world with an infant mortality rate of 91 deaths per thousand births. South Africa provides an even better example. As that £5.5 billion arms deal was going through President Mbeki was arguing that his country could not afford the £25 a month anti-retroviral drugs for the estimated 5.5 million South Africans who were infected with HIV. Work it out for yourself. Another irony in all of this is that when it was realised that there had never been a single successful prosecution in the UK for overseas bribery, the Government decided to beef up the police unit that should be dealing with it. But there was no money. It had to come from the Department for International Development, which now diverts aid money to subsidise the policing of Britain’s international obligations. BAE on the other hand is exceptionally close to the military and security departments of the British Government. Some say it is a commercial extension of the MoD and the Security Services. Mr Blair called Africa “a scar on the conscience of the world”. Perhaps Tanzania and South Africa are the scars on his conscience. The next time a British minister stands up to denounce corruption in Africa, there will be hollow laughter from the continent. And rightly so. Richard Dowden is Director of the Royal African Society. BAE Guilty But Escapes Court: Denial of Justice, Say Groups 5th February 2010 - Campaign Against Arms Trade (CAAT) and The Corner House Campaign Against Arms Trade (CAAT) and The Corner House are disappointed and angered by today's settlement between the UK's Serious Fraud Office (SFO) and BAE Systems of its long-running investigations into bribery allegations. BAE has pleaded guilty in the UK only to minor accounting record offences in its sales to Tanzania of an air radar system and has agreed to pay a penalty of £30 million. The SFO has been investigating bribery and corruption allegations in BAE's deals in several other countries besides Tanzania (including Austria, Chile, Czech Republic Romania, South Africa, Sweden and Switzerland), some of which were continuing right up until today. On 29 January 2010, the SFO charged a former BAE agent with corruption in relation to deals with several European countries.* Today's settlement involves a lesser offence that took place in an economically weak country, but ignores allegations of much greater wrongdoing (in terms of both activities and monies involved) in the UK and other countries, all of whom are politically stronger or are close allies with the UK. The two groups say that questions must be asked about why, how and when the decision to settle was made and whether undue influence was placed on the Serious Fraud Office. The SFO had indicated in October last year that it wanted to impose penalties of hundreds of millions of pounds, but BAE was reportedly prepared to pay only a fraction of that. Kaye Stearman, spokesperson for CAAT, says: "We are extremely disappointed that the allegations about BAE will not be aired in a criminal court and that the Serious Fraud Office has accepted a plea bargain relating only to the smallest deal. After the UK Government stopped the SFO's inquiry into the company's Saudi deals back in December 2006, it was even more important that the truth about its dealings in central and eastern Europe and Africa was made public. One day a former BAE agent appears in court charged with corruption, the next BAE is let off for an accounting misdemeanour." Nicholas Hildyard of The Corner House says: "This settlement means that the truth about these serious allegations against BAE may never be known. The UK fine may well be unprecedented, but will easily create the perception that alleged bribers can simply pay their way out of trouble. It is barely one-third of the money Tanzanians forked out for something they didn't need, money that could have gone on roads, hospitals and schools." BAE also pleaded guilty in the United States to conspiring to make false statements to the US government in relation to payments and support services provided as part of the £40 billion Al-Yamamah contract to supply military equipment to Saudi Arabia. It will pay a fine of $400 million. Back in December 2006, then SFO Director Robert Wardle believed he, too, had enough evidence to prosecute BAE on lesser false accounting charges in its Saudi Arabian deals, but was still not given permission by the Attorney General to do so. Nicholas Hildyard for The Corner House commented: "Given BAE's admission of guilt today in the US concerning the Al-Yamamah contract, the UK should re-open its own Saudi Arabian investigation immediately. The company's admission obviously calls into question its repeated denials of any wrong-doing. Far from ending the long-running and wide-ranging investigations, today's announcement simply raises many more questions about the UK's kow-towing to alleged bribers and creates yet further demands for justice." Postscript Late on 5 February 2010, the Serious Fraud Office announced that it was withdrawing proceedings against Count Alfons Mensdorff-Pouilly. He had been granted bail of £1 million on Thursday 4 February 2010. Notes 1. Campaign Against Arms Trade (CAAT) works for the reduction and ultimate abolition of the international arms trade. The Corner House aims to support democratic and community movements for environmental and social justice through analysis, research and advocacy. 2. In December 2006, the UK's Serious Fraud Office (SFO) dropped its investigations into alleged bribery and false accounting in BAE's arms sales to Saudi Arabia, following pressure from BAE and Saudi Arabia and a direct intervention from then Prime Minister Tony Blair. The decision was subject to severe criticism and prompted CAAT and The Corner House to launch a Judicial Review of the decision. In April 2008, the High Court ruled that the SFO Director had acted unlawfully in stopping the investigation, a decision that was subsequently overturned by the House of Lords. 3. In October 2009, the SFO stated that it would begin to draw up legal papers to prosecute BAE following its six-year investigation into alleged bribery in BAE arms deals with several countries (Chile, Czech Republic, Qatar, Romania, South Africa and Tanzania). BAE is alleged to have paid bribes, often in the form of commissions to "advisers" on the deals, to clinch the sales. This announcement came after BAE reportedly rejected the SFO's "plea bargain" offer under which BAE would plead guilty to some charges and pay a fine, reportedly in the region of £300-500 million. 4. On 29 January 2010, the SFO charged Count Alfons Mensdorff-Pouilly with conspiracy to corrupt in connection with BAE's deals with eastern and central European governments including the Czech Republic, Hungary and Austria. |
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