BAE Will Pay $450 Million to Settle Long-Running Bribery Case

February 5, 2010BY Jackie Bennion
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In a corruption case that has spanned multiple countries and more than two decades, BAE Systems, Britain's largest defense contractor, has pleaded guilty to two criminal charges and agreed to pay several hundred million dollars in penalties.

In settlements announced simultaneously in Washington and London, the defense giant and a major contractor to the Pentagon, agreed to pay $400 million in the U.S. and nearly $50 million in Britain.

BAE will plead guilty to conspiring to make false statements in its failure to comply with tough U.S. antibribery laws.

In charges brought by the U.S. Department of Justice, BAE will plead guilty to one count of conspiring to make false statements in its failure to comply with tough U.S. antibribery laws. The charge relates to a multibillion-dollar arms deal with Saudi Arabia, and smaller deals with the Czech Republic and Hungary.

The Justice Department delivered its most stinging criticism of BAE's efforts to undermine U.S. laws in criminal court documents released Friday. It accused the British manufacturer of "intentionally failing to put appropriate anti-bribery preventative measures in place," even though the company had assured the government it was taking significant new steps to meet the highest ethical standards.

While making those assurances, court documents said, the company proceeded to make "hundreds of millions of dollars in payments to third parties," despite knowing there was "high probability" the money would be passed on to influential foreign officials who would "favor BAE" in awarding defense contracts. The DOJ said some of those payments were made through intermediaries using offshore shell companies set up by BAE.

In a much smaller UK settlement involving a 1999 contract to supply Tanzania with a radar system, BAE denied there was corruption but admitted it failed to keep accurate accounts of the contract. The British case ends a long and politically charged inquiry into the company's business dealings.

BAE's stock jumped on the news as many observers had expected the penalty to be much closer to $1 billion in fines. But the plea bargain dismayed some advocates who have long fought to bring BAE to court.

The social justice group Cornerhouse and the Campaign Against Arms Trade both said they were extremely disappointment that BAE would not face a criminal trial and was charged with only one violation in Tanzania under the UK deal.

In 2003, Britain's Guardian newspaper was the first to expose allegations of systematic bribery at BAE to win worldwide contracts.

"This settlement means that the truth about these serious allegations against BAE may never be known," said Cornerhouse spokesperson, Nicholas Hildyard. "The UK fine may well be unprecedented, but will easily create the perception that alleged bribers can simply pay their way out of trouble."

In 2003, Britain's Guardian newspaper was the first to expose allegations of systematic bribery at BAE to win worldwide defense contracts. During the 1980s, under a Thatcher government, the company signed the biggest arms deal in British history to supply fighter jets and other military equipment to Saudi Arabia.

Known as the Al-Yamamah deal and worth an estimated $80 billion, the Guardian began pursuing the legitimacy of the deal, negotiated over 20 years, and the role played by the British government and justice system.

The paper reported growing evidence of bribery involving billions of dollars in alleged payments to members of the Saudi royal family to sweeten the deal, including Prince Bandar bin Sultan, the kingdom's former ambassador to the U.S.

Prince Bandar bin Sultan

Prince Bandar bin Sultan was a key negotiator in the Al-Yamamah arms deal.

The controversy and secrecy around Al-Yamamah also became the subject of a major FRONTLINE investigation "Black Money" broadcast last year in the U.S. and Britain.

No Saudi officials were named Friday in information released by the DOJ.

As allegations mounted against BAE, Britain's Serious Fraud Office began investigating the arms deal in September 2003 but dropped the case in late 2006 after then prime minster Tony Blair directly intervened.

Blair defended his decision to shut down the inquiry for national security reasons on the grounds that the Saudis could stop cooperating with Britain on vital terrorism intelligence. The decision came a year after Britain suffered its worst coordinated terrorist attack on London's transit system that killed 56 people. Robert Wardle, who was leading the SFO's investigation, left his position feeling stymied by the government's action.

His successor Richard Alderman said he was pleased with Friday's outcome and the work between British and U.S. prosecutors to reach a settlement: "This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation," he said.

Sources close to the U.S. investigation became frustrated by the Blair government's decision to discontinue the probe of the Saudi payments, and the decision not to allow U.K. investigators to share their files with the Justice Department. Normally the relationship between U.K. law enforcement and their counterparts in the U.S. is seamless. But from the beginning, the investigation of BAE touched a raw nerve in Britain.

The SFO announced it was also dropping proceedings against Austrian Count Alfons Mensdorff-Pouilly, the only individual facing prosecution in the BAE probe.

The SFO announced it was also dropping proceedings against Austrian Count Alfons Mensdorff-Pouilly, a long-time consultant with BAE, and the only individual facing prosecution in the probe. "This decision brings to an end the SFO's investigations into BAE's defence contracts," the fraud office said in a statement.

Cornerhouse's Hildyard challenged the decision saying that "given BAE's admission of guilt today in the U.S. concerning the Al-Yamamah contract, the UK should re-open its own Saudi Arabian investigation immediately."

Responding for BAE, Chairman Dick Oliver said the company very much regretted and accepted its "past shortcomings," but added that since those illegal activities took place, BAE has undergone major internal ethical reforms of how it does business.

The terms of the settlement leave the company free to continue bidding for contracts in the U.S. and the EU because it has not admitted to any bribery charges, only to false accounting and making misleading statements.

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Michaek Kemp - Oakland, CA
So This is where all our bailout money is going to! Unbelievable.


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