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BAE: How Good a Plea Deal Was It?

Anti-bribery chief says settlement sent strange message, showed stark legal deficiencies

February 9, 2010BY Siri Schubert
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Last week, BAE Systems, Britain's largest defense contractor agreed to pay $450 million to settle long-running corruption allegations in the United States and Britain. Mark Pieth, chairman of the OECD anti-bribery convention, talks with reporter Siri Schubert about what message the settlement has sent across both sides of the Atlantic.

This case casts a shadow on Britain's ability to react to corruption. I don't share the opinion that this is a triumph for the British justice system as SFO-director Richard Alderman has stated.

In the British agreement, Britain's Serious Fraud Office settled with BAE for £30 million in a Tanzania bribery case for accounting irregularities. Were you surprised by the outcome of that investigation and the settlement amount?
Indeed. The settlement sent a strange message. Nobody talks about corruption and bribery and that is, of course, the nature of any deal where both parties agree to not talk about what really happened. But the amount that Britain settled for is very small compared to the sums that are reportedly involved in each of the seven to eight cases [the SFO was also investigating the company for in several other countries. The SFO decided to settle the Tanzania case and close the other cases.] I have seen evidence in one of the cases alone where the illicit payments reached £60 million, and that clearly exceeds the amount they settled for.

Why did the SFO agree to such a small amount?
The figures reflect deficiencies in Britain's existing anti-bribery legislation. A better, stronger law is in Parliament right now. This case is one more example of why it is so important that the UK finally adopts a credible anti-corruption statute.

The SFO also dropped the charges against the former BAE consultant Count Alfons Mensdorff Pouilly, who was charged with corruption just days before the settlement.
Why the SFO halted the prosecution remains unclear. It is especially peculiar since there are reports by the SFO detailing flows of money going through Mensdorff to the Czech Republic and Hungary. I have seen parts of the report. I don't remember the exact amount of money but it was in the millions of dollars.

[Editor's Note: In late January, Mensdorff, an Austrian national, was charged by the SFO with conspiracy to corrupt in connection with defense contracts between BAE and the Czech Republic and Hungary. He was released on £1 million bail on February 4. His lawyer did not comment on the latest proceedings but has said previously that his client acted as a marketing adviser for BAE and was innocent of any charges. Mensdorff was also under investigation in his native Austria but the proceedings were delayed because prosecutors were waiting for information about bank accounts reportedly held by Mensdorff in Liechtenstein.]

The SFO also stopped its investigations of BAE relating to arms contracts in the Czech Republic, Hungary, Romania and South Africa. What does that mean for efforts to combat bribery in those countries?
I will quote former South African president Thabo Mbeki's reaction to the SFO's dropping of the BAE case regarding the Al-Yamamah deal with Saudi Arabia in 2006. Thabo Mbeki said: "This is a blatant expression of a double standard." I think his words apply in this case, too. We expect South Africa, Hungary, the Czech Republic and other countries to investigate and prosecute the bribe takers, but it is hard to make that case when those who led them into temptation will not be brought to justice.

Britain has been criticized before by the OECD for inadequate anti-bribery laws and for closing down the Al-Yamamah investigation. What does the OECD plan to do in reaction to the recent settlement?
The OECD has not had time to react to the most recent developments, therefore, I am speaking as a private person. But I expect the OECD at its meeting in March to seek extensive briefings by all countries involved -- the UK, the U.S., Switzerland, Austria, Hungary, the Czech Republic, and South Africa. All of these countries are members of our group.

What does the settlement mean for the OECD anti-bribery convention?
The OECD has been pushing very hard for Britain to adopt more effective anti-bribery laws. I threatened to blacklist British companies if Britain didn't change the laws. This case casts a shadow on Britain's ability to react to corruption. I don't share the opinion at all that this is a triumph for the British justice system as SFO-director Richard Alderman has stated.

The other part of the plea deal was a settlement with the U.S. Department of Justice for $400 million. The settlement related to a wider range of corruption cases but BAE was not charged with corruption but with conspiring to make false statements to the U.S. government. Will there be any consequences for BAE after this settlement?
It is the nature of a plea bargain that nobody calls a spade a spade. If BAE had pleaded guilty to corruption charges, the company would have been banned from public procurement, and BAE makes about half of its revenue from sales to the Pentagon. The company would probably have paid an extra half a billion dollars just to prevent it from being debarred. [Because the U.S. Foreign Corrupt Practices Act is far stronger than existing antibribery laws in Britain, the U.S. fine in the joint settlement was higher and BAE settled on terms that would not harm its ability to continue to do business in the U.S.]

To be fair, the U.S. settlement was adequate, and $400 million is a lot of money for the American taxpayer. The U.S. came in to help bring BAE to court, but it is essentially a UK case and the UK should have dealt with it.

Did BAE get off too easily?
This is my personal opinion but I have the feeling that BAE got too good a deal.

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