Posts Tagged ‘Serious Fraud Office’
Friday, February 19th, 2010

BAE armored vehicles in Iraq, (Wikimedia Commons)

The fallout from British defense industry titan BAE Systems’ settlement over bribery allegations continued this week, as a group of lawyers wrote the director of the United Kingdom’s Serious Fraud Office (SFO) asking him to revoke BAE’s plea bargain.

The U.K.-based firm Leigh Day & Co announced Monday it had written SFO Director Richard Alderman on behalf of clients Corner House and Campaign Against Arms Trade to tell Alderman his office had acted unlawfully because BAE’s plea agreement did not reflect the seriousness of the allegations against the company.

On Feb. 5, the SFO announced that BAE had agreed to plead guilty to failing to keep reasonably accurate accounting records in relation to its activities in Tanzania. The U.S. Justice Department simultaneously announced that BAE would pay $400 million in fines for making false statements to the U.S. government about its anti-corruption efforts.

Under the U.K. agreement, BAE is set to pay £30 million to Tanzania. In turn, the SFO decided to end its investigation into widespread allegations of BAE bribery and corruption around the world.

The SFO settlement was immediately criticized as a slap on the wrist for a company that has allegedly paid millions, if not more, in bribes.

Allegations of corruption have swirled around BAE for years. In a series of articles starting in 2003, The Guardian reported that over 15 years the defense firm allegedly provided Saudi royals with cash, cars, prostitutes and houses, among other things, in exchange for lucrative defense contracts.

Lawyers at Leigh Day want BAE’s alleged corrupt conduct around the world investigated.

“Crucially, by striking this deal, BAE has managed to avoid the possibility of a conviction for bribery which would probably have led to far more wide ranging sanctions (including debarment from public contracts) and the possibility of individual directors facing charges,” the firm’s release said. “In fact, BAE’s share price actually rose after the announcement.”

Indeed, the Financial Times reported Friday that BAE had announced a £500 million share buy-back program, causing yet another share price rise as investors welcomed the news. According to the Telegraph, BAE expects profits on sales of fighter jets and cyber-security systems to grow in 2010.

But despite mounting criticism, the SFO quickly denied Leigh Day’s request. The firm is likely to ask the U.K.’s High Court to hold a judicial review of the settlement, according to the British magazine the Tribune.

Serious Fraud Office Director Richard Alderman, (United Kingdom's Serious Fraud Office)

On Wednesday, two days after the announcement of the letter, Alderman defended the SFO’s handling of the case in an interview with the Financial Times.

“The Americans tease me about my understated approach,” he said. “Companies underestimate that [approach] at their peril.”

In the interview, Alderman denied that BAE got off easy and said he doesn’t think there is widespread criticism of the plea. He also argued that the SFO was integral in securing BAE’s much larger settlement with the U.S.

Though it seems likely to go through, BAE’s agreement is pending judicial review. In the United States, the matter has been assigned to U.S. District Court Judge John Bates in Washington, D.C. A hearing is tentatively scheduled for March 1.

Meanwhile, Tanzania may be considering its own investigation of BAE, despite the £30 million payout.

Monday, February 8th, 2010

Editor’s note: The following guest commentary from Mike Koehler, an Assistant Professor of Business Law at Butler University and an active writer and speaker on Foreign Corrupt Practices Act topics, first appeared on the FCPA Professor Blog. It has been reprinted below with permission.

Koehler disagrees with news reports that last week’s BAE settlement was another example of the “get tough” approach on corporate bribery, and his own thoughts on the news. To read the original post, click here. To see our story on BAE’s settlement, click here.

BAE

By Mike Koehler

In a joint enforcement action that is sure to generate much discussion and controversy, the U.K. Serious Fraud Office (SFO) and the U.S. DOJ announced today resolution of an enforcement action against BAE Systems.

A BAE ship being launched.

The SFO announced (here) that it has “reached an agreement with BAE systems that the company will plead guilty” to the offense of “failing to keep reasonably accurate accounting records in relation to its activities in Tanzania.”

BAE’s press release (here) notes that “[i]n connection with the sale of a radar system by the Company to Tanzania in 1999, the Company made commission payments to a marketing adviser and failed to accurately record such payments in its accounting records. The Company failed to scrutinise these records adequately to ensure that they were reasonably accurate and permitted them to remain uncorrected. The Company very much regrets and accepts full responsibility for these past shortcomings.”

The SFO and company release note that BAE will pay a £30 million penalty “comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania.”

In a strange turn of events, the SFO also announced (here) that it has withdrawn charges filed last week (see here) against a former agent charged with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.”

The SFO release notes that “[t]his decision brings to an end the SFO’s investigations into BAE’s defence contracts.”

So what happened to the charges and allegations involving certain Eastern and Central European governments, including the Czech Republic, Hungary, and Austria?

Good question.

Much like the wave of magician’s wand, they have simply disappeared.

Closer to home, the DOJ announced that it:

“filed a criminal charge (here) in the U.S. District Court for the District of Columbia against BAE Systems plc charging that the multinational defense contractor conspired to impede the lawful functions of the Departments of Defense and State, made false statements to the Departments of Defense and Justice about establishing an effective anti-corruption compliance program to ensure conformance with the Foreign Corrupt Practices Act and paid hundreds of millions of dollars in undisclosed commission payments in violation of U.S. export control laws.”

The DOJ and BAE release note that the company “will pay a fine of $400 million and make additional commitments concerning its ongoing compliance.”

According to the DOJ release (which is available through the DOJ Office of Public Affairs, but not yet publicly posted on DOJ’s website) “BAE Systems is charged with intentionally failing to put appropriate, anti-bribery preventative measures in place, contrary to the representations it made to the United States government, and then making hundreds of millions of dollars in payments to third parties, while knowing of a high probability that money would be passed on to foreign government decision makers to favor BAE in the award of defense contracts. BAE Systems allegedly failed to disclose these payments to the State Department, as it was required to do so under U.S. laws and regulations in order to get necessary export licenses.”

The bold language above would expose most companies to an FCPA enforcement action, but BAE is no ordinary company. It is a major defense contractor on both sides of the Atlantic (as noted in the criminal information “in 2008, BAE was the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales”).

You can bet that these charges were the subject of much negotiation so as to not upset current or future government contracts as well as foreign policy issues and concerns.

The BAE charges and thus similar to those against Siemens in December 2008. In that case, despite the company engaging in bribery “unprecedented in scale and geographic scope” and despite the company being one in which “bribery was nothing less than standard operating procedure” (both direct DOJ quotes), the company avoided FCPA antibribery charges. (See here for prior posts about Siemens).

These two cases seriously raise the issue of whether certain companies in certain industries are simply “above” the FCPA.

Can the enforcement agencies on both sides of the Atlantic say with a straight face that this case was merely about improper record keeping, making false statements to the government, and export licenses?

Transparency, corporate accountability, and indeed a criminal justice system all suffered setbacks today.

The FCPA suffered a black-eye as well and one would be right to ask, “what the heck is going on here!”