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« Where The Money Is | Main | Pressure Points Of Enforcement »
Monday
Mar012010

BAE Pleads Guilty

BAE Systems plc (BAE or BAES) pleaded guilty today in U.S. federal court in the District of Columbia to one count of conspiracy.

It admitted conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. It was sentenced to pay a $400 million criminal fine.

BAE had announced the settlement with the DOJ and the U.K.'s Serious Fraud Office on February 5. The U.S. settlement was subject to today's court approval. See our post here.

In its release, the Justice Department said from 2000 to 2002, BAE "represented to various U.S. government agencies, including the Departments of Defense and Justice, that it would create and implement policies and procedures to ensure its compliance with the anti-bribery provisions of the FCPA, as well as similar, foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-bribery Convention. According to court documents, BAES knowingly and willfully failed to create mechanisms to ensure compliance with these legal prohibitions on foreign bribery. According to court documents, the gain to BAE from the various false statements and failures to make required disclosures to the U.S. government was more than $200 million."

See our post here for a copy of the criminal information against BAE. Exhibit A is a letter John Weston, BAE's chief executive, wrote on November 16, 2000 to U.S. Secretary of Defense William Cohen promising that BAE was not knowingly violating the  Foreign Corrupt Practices Act and other antibribery laws. 

Despite its assurances, BAE "made a series of substantial payments to shell companies and third party intermediaries" without due diligence or proper corporate controls. Some of the payments were to "marketing advisors" whose identity BAE actively concealed from the U.S. government. It also did not disclose some of the payments.

The DOJ said,

For example, after May 2001, BAES contracted with and paid certain advisors through various offshore shell companies beneficially owned by BAES. BAES also encouraged certain advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES admitted that it established one company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships, including who the advisor was and how much it was paid; to create obstacles for investigating authorities to penetrate the arrangements; to circumvent laws in countries that did not allow such relationships; and to assist advisors in avoiding tax liability for payments from BAES.

Unlike the SFO's early February release and charging documents, the DOJ referred to BAE's bribery of Saudi Arabian officials for the al-Yamamah contract -- an $80 billion deal signed in the mid-1980s for the sale of jet fighters.

In today's release, the DOJ thanked the SFO for "the significant assistance provided by the U.K.’s Serious Fraud Office, and further expresses its gratitude to that office for its ongoing partnership in the fight against overseas corruption."

A copy of the U.S. criminal information and the government's sentencing memorandum in U.S. v. BAE Systems plc can be downloaded here and here.

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