David Prosser: BAE Systems has a gun put to its head

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The Independent Online

Outlook So who will blink first? BAE Systems has a month or so to get the Serious Fraud Office off its back, the time it will take the agency to prepare papers for the consideration of the Attorney General. The SFO has let it be known it will continue talking to BAE right up to the moment it formally asks Baroness Scotland to sanction a prosecution against the defence company over corruption charges. So a deal in this process of brinksmanship – for that is what it is – remains possible.

The difficulty is that the two sides are poles apart. The SFO wants BAE to put its hands up to some serious charges and cop a fine of £500m or more. BAE is prepared only to cough to some minor transgressions (reporting failures, say) and wants a penalty in the tens of millions.

For those of us who do not know the truth of the allegations against the company – and the SFO's evidence against BAE has not been made public – it's impossible to judge which side should move first, or by how much. What is clear, however, is that BAE has been surprised by the SFO's boldness – it clearly did not expect this day to come so soon, or ever in fact.

The defence group's arrogance is understandable. BAE Systems is one of Britain's largest companies, has deep pockets and friends in high places. Some of Britain's most expensive solicitors have spent months negotiating with the SFO on the company's behalf. And BAE knows it has already beaten one rap, in 2006 when Tony Blair, then prime minister, told the SFO to curtail an investigation into corruption allegations involving the company's dealings with Saudi Arabia more than 20 years ago.

BAE's public pronouncements over the past month or so also suggest it has not really been taking the SFO seriously. It has repeatedly denied all knowledge of the widely reported 30 September deadline given to it by the agency to settle the case or face the threat of prosecution. Maybe those denials stem from its reluctance to deal directly with the SFO at the highest level, preferring to leave its solicitors to conduct negotiations (in itself a tactical mistake) but those close to the agency insist BAE was left in absolutely no doubt that time was pressing.

It is more so now. Richard Alderman, appointed director-general of the SFO last year, is taking a gamble by raising the stakes. He knows that should this case ever reach court, securing a conviction will be challenging given the complexity of the issues at stake, however much evidence he has. But having gone public with its intention to prosecute, there can be no backing down now.

Nor will a minor concession from BAE do. The legalities of this affair are that the SFO cannot sign off on a deal with the defence company; it can only recommend that a court does so. That would require a judge to be given sight of the SFO's evidence – and if the case is as strong as the agency claims, the court would not feel able to sanction a mere slap on the wrist.

Mr Alderman is no doubt emboldened by the successful conclusion last week of the SFO's investigation into Mabey & Johnson, which was the first successful prosecution of a British company for overseas bribery and corruption. Even that did not seem to ring alarm bells at BAE, which as recently as the weekend was expecting talks with the SFO to continue.

Maybe executives in the business expected, in the end, that the cynical view expressed by several commentators yesterday would prevail. BAE's supporters lined up to praise the company as one of Britain's export superstars – and to argue that no other country in the world would treat one of its best assets in this way.

It may well be the case that other countries turn a blind eye to the activities of their companies overseas – and even that there are some places of the world where it is difficult to do business without greasing the odd palm. But here in Britain, we can only operate on the basis of our own laws. And the rule of law must be enforced.

That is not to prejudge this case in any way. Moreover, our government has a responsibility to press the international community to be just as tough on corruption: the OECD's treaties on overseas corruption, for example, include sanctions for those judged not to be doing the right thing. But such demands will only be credible if we can show we are prepared to take seriously allegations made against British firms, however large and successful they may be.