BAE Systems pays $400m to settle bribery charges

Shares rise after BAE says settlement 'draws a solid line' under past legal issues

James Thompson
Saturday 06 February 2010 01:00 GMT

BAE Systems is to pay up to $450m (£288m) in fines after it pleaded guilty to false statements and accounting practices, notably over deals with Saudi Arabia and Tanzania, in a landmark settlement between the defence giant and the US and UK authorities.

The Serious Fraud Office also dropped proceedings last night against Count Alfons Mensdorff-Pouilly, who was charged with making illegal payments to government officials to win jet deals for BAE just last week.

BAE's settlement with the SFO will see it pay £30m – a record criminal fine for a company – specifically relating to "failing to keep reasonably accurate accounting records relating to its activities in Tanzania". The defence giant sold a radar system to the African country in 1999, and its chairman Dick Olver yesterday admitted it made "commission payments to a marketing adviser and failed to accurately record such payments in its accounting records".

He added that the company "failed to scrutinise these records adequately to ensure that they were reasonably accurate and permitted them to remain uncorrected".

The $400m settlement with the DoJ saw BAE admit to a charge of conspiring to make false statements to US authorities in relation to the sale of arms to Saudi Arabia in the 1980s and 1990s. This is understood to be connected to payments that were made to an unnamed Saudi official as part of the £40bn al-Yamamah arms deal between the UK and Saudi Arabia. The US DoJ said BAE had admitted "intentionally failing to put appropriate, anti-bribery preventative measures in place, despite telling the US government that these steps had been taken".

A separate investigation by the SFO into bribery allegations involving BAE and al-Yamamah was controversially dropped in 2006 after the Government insisted the inquiry could upset UK relations with the Arab kingdom and posed a threat to national security.

Shares in BAE firmed 5.4p, or 1.6 per cent, to 345.9p last night as the company said the settlement drew a line under any further action by the DoJ and SFO against the defence company. Mr Olver also stressed that all the activities BAE was investigated for related to activities that happened before 2002 and that none of the activity related to its actual US business.

The SFO confirmed that no further prosecutions would be brought against BAE, given the measures it has taken to implement ethical and compliance reforms and as a result of its agreement with the DoJ.

Richard Alderman, the SFO's director, said: "This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation." He added: "I'd also like to acknowledge the efforts made by BAE to conclude this matter and I welcome its declared commitment to high ethical standards."

Yesterday Mr Olver said: "The company very much regrets and accepts full responsibility for these past shortcomings. These settlements enable the company to deal finally with significant legacy issues."

"While it's a substantial figure, it's less than the worse case scenario," said Tina Cook, an analyst at Charles Stanley. "It also removes an overhang on the share price caused by uncertainty about the investigations."

Commentators also said the settlement was significant as it sets a precedent for co-ordinated, cross-jurisdiction action in other corportate corruption cases. Gavin Cunningham, the head of corruption investigations at accountancy firm BDO Stoy Hayward, said the SFO penalty "sends out a powerful message to UK business that corruption is going to be investigated and prosecuted".

In the line of fire: Corruption inquiries into BAE

*1985: The Government under Margaret Thatcher, right, signs Britain's biggest ever export contract: the Al Yamamah arms deal with Saudi Arabia, for Tornado jet fighters (far right) and other aircraft.

*2004: The Serious Fraud Office (SFO) starts an inquiry into BAE Systems over Al Yamamah.

*November 2006: BAE confirms that both the SFO and the Ministry of Defence are investigating a Tanzanian military air traffic control deal.

*December 2006: The SFO drops the Al Yamamah case on pressure from the Government. Reports allege Saudi threats to cut diplomatic ties and negotiations for 72 Eurofighters.

*February 2007: The SFO confirms six concurrent corruption inquiries into BAE, covering deals in South Africa, Tanzania, Czech Republic, Qatar, Romania, and Chile.

*June 2007: The US Department of Justice launches its own inquiry into BAE, including Al Yamamah.

*October 2009: The SFO applies to the Attorney General to bring criminal charges over alleged sweeteners in dealings with Tanzania, South Africa, Romania and Czech Republic.

*January 2010: Count Alfrons Mensdorff-Pouilly was the first individual to have been charged (since withdrawn) in relation to claims of bribery by BAE.

*February 2010: BAE settles the UK the US cases for $450m.

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