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« Tenaris Gets First-Ever SEC Deferred Prosecution Agreement | Main | Alleged Mastermind In Mexico Bribes Case Still Missing »
Tuesday
May172011

BAE Fined $79 Million By State Dept, Not Debarred

The State Department yesterday entered into what it called a civil settlement with BAE for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR) (22 C.F.R. Parts 120-130). No court action was involved.

BAE agreed to pay the biggest penalty in State Department history -- $79 million, with $10 million likely to be suspended.

Because of BAE's guilty plea in a criminal enforcement action last year for conspiracy to violate the FCPA and export laws, the State Department said it "determined to impose a statutory debarment" on the company but "concurrently" rescinded it.

Last month in a guest post here, Nick Wagoner talked about BAE being too big to debar. "Although BAE Systems was sanctioned with a $400 million criminal fine for its foreign corrupt practices last year, in the 365 days that followed, BAE was awarded roughly $58 billion in government contracts," he said. His full post is here.

In March last year, BAE pleaded guilty to 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. At the same time, in the U.K. it was fined £30 million in a settlement with the Serious Fraud Office.

BAE's FCPA-related conspiracy offenses were also offenses under the export rules. The State Department yesterday said it identified an estimated 2,591 violations of ITAR, including "failure to report the payment of fees or commissions associated with defense transactions, and failure to maintain records involving ITAR-controlled transactions."

When BAE entered its guilty plea last year, the DOJ said the company 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.

In the proposed charging letter, the State Department explained why it imposed its biggest fine ever:

The Department considered other aggravating factors, including the frequency and type of Respondent’s violations; the fact that certain violations were authorized by its former most senior management of Respondent; that violations were systemic, wide-spread, and sustained for more than ten (10) years; only three (3) of the violations by the Respondent were disclosed at the request of the Department, not voluntarily, after Respondent’s criminal plea with the U.S. Department of Justice; and all other remaining violations were never disclosed, but rather identified by the Department during its investigation.

Although the State Department declined to impose ongoing debarment, it said it is imposing "a policy of denial" on three BAE subsidiaries -- BAE Systems CS&S International, Red Diamond Trading Ltd., and Poseidon Trading Investments Ltd. That means "there will be an initial presumption of denial for all [export] applications involving these entities, unless upon case-by-case review the [State] Department determines that it is in the foreign policy or national security interests of the United States to provide an approval."

It's not clear what impact the policy of denial on the three subsidiaries will have on BAE's operations, if any.

The State Department's administrative documents in the BAE matter -- a proposed charging letter, consent agreement, and order -- can be downloaded here.

View the State Department's May 16, 2011 release here.

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