SFO demands prosecution of BAE

The Prime Minister and the Attorney General are expected to clear the way for a full scale criminal prosecution against BAE Systems in one of the biggest corruption cases to ever reach the British courts.

Negotiations between the Serious Fraud Office (SFO) and the UK-based defence company over the settlement of an alleged bribes scandal broke down this week.

The case, which includes allegations of sweeteners involving military contracts with Tanzania, South Africa, Romania and the Czech Republic, will now go before the Attorney General, Baroness Scotland, who must give her consent before criminal charges can be brought.

Tonight legal experts said that it was unlikely that Gordon Brown would follow the lead of Tony Blair who blocked a similar fraud prosecution against BAE two years ago in relation to an arms deal with Saudi Arabia.

In this second case it is understood that BAE had been willing to pay a fine of up to £500m if the SFO allowed the company to avoid a criminal conviction.

But it is now clear that the SFO’s director, Richard Alderman, was not prepared to agree to such terms. For BAE the stakes could not be higher – a criminal conviction for corruption would result in the company being banned from many international arms deals worth billions of pounds.

Lawyers said that BAE had, in effect, called the SFO’s bluff and now hoped to kill the case in a long, drawn out litigation which could take up to six years to reach a jury.

John Benstead, a former assistant director of the SFO, said: “BAE were seeking to avoid a criminal conviction and instead to settle the case by paying a civil fine and without admitting guilt. The announcement by the SFO that it has sought the Attorney General’s consent to prosecute BAE signifies that the negotiations have broken down. That is not good for BAE or, indeed, the SFO.”

Once the prosecution is underway the SFO will be under a duty to show its hand and disclose the strength of its case against the company. If the evidence reveals a weak case then the SFO may be forced to reopen negotiations to withdraw its criminal prosecution and allow BAE to accept a civil fine.

Sources close the company say it would only consider payments in the tens of millions of pounds, far from the £550m to £1bn that the SFO is reportedly demanding.

“This has been a reputational monkey on BAE's back for six years,” one source said. “The company might be able to acknowledge that it hasn’t been as good as it should have been in some areas, and be willing to take some kind of hit to bring a conclusion about But it is simply not prepared to simply reach a settlement at any price, because there is a duty to the shareholders and employees as well.”

Tom Stocker, a regulatory investigations and commercial fraud lawyer at leading law firm McGrigors, said: “The difficulty for BAE is that a criminal conviction would lead to automatic debarment from government contracts throughout the EU and possibly the US. That could risk the viability of BAE’s business. BAE has always maintained that any payments were lawful commissions, rather than surreptitious bribes and, as such, that it would only entertain a civil settlement. Unless the SFO is prepared to accept a civil settlement, a massive criminal trial is on the cards.”

Baroness Scotland's office said she would decide whether there was enough evidence and if it was in the “public interest” to mount a prosecution.

BAE denies any wrongdoing, but the SFO’s decision was welcomed by campaign groups and politicians with one describing the case as a “political scandal”.

Lobbying organisations Campaign Against Arms Trade (CAAT) and The Corner House have long argued for transparency in the BAE case.

Kaye Stearman, from CAAT, said: “We welcome the SFO decision to go ahead. It would be scandalous if the Attorney General did not take this forward.”