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Entries in BAE Systems (98)

Thursday
Mar272008

Roll Call

It was just two weeks ago that we were waxing about the quiet times for FCPA watchers, due to the temporary bottleneck in the appointment of corporate monitors. But come to think of it, the Justice Department's Fraud Section, the group in charge of FCPA enforcement, has a lot on its mind right now.

In addition to the monitor controversy, there are sensitive investigations of BAE and Saudi Prince Bandar, along with Siemens, Panalpina and most of the oil and gas services industry. Giant insurance brokerage Aon announced an FCPA investigation. Medtronic is under the microscope with the rest of the leading orthopedic device makers (whose deferred prosecution agreements in their domestic bribery cases helped ignite the aforementioned controversy about corporate monitors).

Last week, even stolid Alcoa joined the FCPA line up, courtesy of an inexplicable federal civil suit filed against it by Bahrain's Alba (in Pittsburgh, of all places) -- which the DOJ promptly stayed while it plays investigative catch-up. And let's not forget that at least three dozen other companies have disclosed yet-unresolved FCPA investigations over the past few years -- Shell recently became one of them (see also Panalpina, above); Halliburton and DaimlerChrysler are two others. And there's Total, ABB, Bristol Myers Squibb, Tyco and . . . . well, it's a long list.

So it's not a quiet time over at the DOJ after all. That means the hardworking people there can be forgiven for little things, like gremlins making mischief on their FCPA Opinion Procedure Release website. Sometimes Releases disappear. This time, it's Release 08-01. When it was published earlier this year, we posted about it here, and it should be accessible as a pdf file here. As a reminder, Release 08-01 is the wordiest on record. It's about a proposed investment in an overseas privatization, and describes in detail the due diligence for the deal, protracted negotiations over the parties' compliance rights and obligations, and some final, remedial due diligence. In other words, it's packed with issues, action and guidance -- so it might come in handy.

Quiet times for the FCPA? Not nearly. In fact, when the dam breaks for the appointment of new corporate monitors, which should be any day now, we're expecting the busiest FCPA enforcement season ever.

Thursday
Mar062008

Europe Discovers The FCPA

John Russell, the managing editor of London-based Ethical Corporation magazine, has a nice article here about enforcement of the Foreign Corrupt Practices Act against European companies. This "new" FCPA compliance risk, the article says, is catching a lot of people by surprise. But it's today's reality, so get used to it.

Here's a sample from the article:

-- Lax enforcement of bribery laws to date could explain why European companies are ill-prepared to deal with FCPA liability. Energy companies and others at high-risk of bribery are starting to embed internal anti-corruption policies. But on the question of whether European companies are prepared for increased FCPA activity, [Simmons & Simmons solicitor-advocate Eoin] O’Shea, like his peers, is clear. “In general, they are not,” he says.

And this:

-- “It is fair to assume there will be a continued flow of new cases filed in 2008,” says Gibson, Dunn & Crutcher partner and FCPA lawyer Lee Dunst. US law enforcers see anti-graft as a particularly “target-rich environment for investigations”, he says, adding that recent corruption cases are just the tip of the iceberg of corporate wrongdoing. Assessing the readiness of European companies to deal with enhanced US regulatory zeal, Dunst says: “US companies are a little ahead of the game here compared to their European counterparts.”

And we add our two cents as well:

-- As long as Europe does not police its own companies, US regulators have a right to step in, argues Cassin Law founder Dick Cassin. He says: “They have to. Otherwise, US companies have a very legitimate complaint about being seriously disadvantaged by the FCPA – despite decades of assurance by the government to level the playing field.”

The article also sets out the growing list of European companies currently under FCPA investigation by U.S. authorities:

ABB (Switzerland, energy)
Alcatel Lucent (France, communications)
AstraZeneca (UK-Sweden, pharmaceuticals)
BAE Systems (UK, defence)
Daimler (Germany, automotive)
Innospec (UK, chemicals)
Magyar Telekom (Hungary, telecoms)
Norsk Hydro (Norway, energy)
Novo Nordisk (Denmark, health, pharmaceuticals)
Panalpina (Switzerland, transport)
Siemens (Germany, engineering, electronics)
Smith & Nephew (UK, medical devices)
Total (France, energy)

If you're not familiar with it, Ethical Corporation is an independent publisher and conference organizer launched in 2001 to "encourage debate and discussion on responsible business." With 20,000 subscribers to the magazine and 350,000 visitors a month to the website, they're making an impact.

The group's reach is evident from the list of 42 speakers (so far) who'll be part of its 2008 Anticorruption Summit USA in Chicago on April 16 and 17, 2008. The FCPA is sure to attract plenty of attention -- with speakers from BAE Systems, the FBI, Lockheed Martin, Trace International, Transparency International, the U.S. Department of Justice, the Securities and Exchange Commission, and lots more.

Sunday
Feb242008

BAE And Prince Bandar Stay In The News

In mid-February the British High Court heard how Saudi Arabia threatened to end all anti-terrorism cooperation with the U.K. unless the Blair government quashed an investigation into alleged corruption. A social justice advocacy group called the Campaign Against Arms Trade and the Corner House has alleged that the government acted unlawfully in December 2006 when it told the Serious Fraud Office to stand down. After two days of hearings, the court is now considering whether to order the SFO to re-open its examination into BAE System's alleged illegal payments to Saudi Arabian officials in exchange for the sale of jet fighters.

The U.K. Guardian reported that the two-judge High Court panel "heard unchallenged allegations that it was Prince Bandar, the alleged beneficiary of £1bn in secret payments from the arms giant BAE, who threatened to cut off intelligence on terrorists if the investigation into him and his family was not stopped. Investigators said they were given to understand there would be 'another 7/7' and the loss of 'British lives on British streets' if they carried on delving into the payments. The government argued . . . that these threats were so 'grave' and put Britain's security in such 'imminent' threat that the head of the Serious Fraud Office had no option but to shut down his investigation immediately."

The U.K. government's decision to end the investigation drew criticism from the OECD and apparently spurred Swiss authorities to look into possible breaches of anti-money laundering laws and American prosecutors to examine whether there were violations of the Foreign Corrupt Practices Act. Both BAE and Prince Bandar have denied breaking any laws.

Meanwhile, the Associated Press reported on February 9 that a United States federal district court has temporarily blocked Prince Bandar -- the former Saudi ambassador to the United States and now head of Saudi Arabia's National Security Council -- from removing real estate sales proceeds from the U.S. pending resolution of a class-action lawsuit. "The suit filed last September by a tiny Michigan city retirement system accuses current and former directors of BAE Systems PLC, a giant British defense company, of breaches of fiduciary duties in connection with $2 billion or more in alleged illegal bribes paid to Bandar in connection with an $86 billion BAE arms sale to Saudi Arabia in 1985. Bandar also is named as a defendant in the suit, along with the former Riggs Bank of Washington and its successor, PNC Financial Group. BAE and Bandar have strongly denied that illegal payments were made to Bandar."

The AP story said U.S. District Judge Rosemary M. Collyer issued "a temporary restraining order, signed Feb. 5, that the suit by the City of Harper Woods Employees' Retirement System raises serious questions of law that warrant a temporary order keeping Bandar from taking the proceeds of real estate sales out of U.S.-based accounts. . . . The retirement system suit maintains that Bandar used funds illicitly obtained from BAE Systems to acquire U.S. real estate, including a Colorado ranch and mansion once placed on the market at $135 million and the former William Randolph Hearst mansion in California, offered for sale last summer at $165 million."

The same AP story reported developments in the U.K. this way: "In London, lawmakers disclosed last month that Britain's head of overseas intelligence had warned that Saudi Arabia probably would stop sharing vital information on terrorism if prosecutors pursued an investigation into alleged corruption in the arms deal. MI6, Britain's overseas intelligence service, believed Saudi Arabia would probably end information-sharing with Britain if investigators continued the inquiry, former Attorney General Peter Goldsmith told the committee. MI6 raised objections to the prosecution before Britain's Serious Fraud Office decided to end the case, he said."

View the February 16, 2008 report from the Guardian here.

View the February 9, 2008 report from the Associated Press here.

View prior posts about BAE Systems here.

Monday
Feb042008

Jurisdiction Untangled

So much of the buzz about the Foreign Corrupt Practices Act right now concerns investigations of name-brand foreign companies -- Siemens, BAE and Panalpina among them. Which makes it natural to ask, how do foreign companies come under the jurisdiction of the FCPA? The best explanation, we still think, comes from the United States Attorneys' Manual. We've posted the following language before, but it's worth repeating. The lesson here is that the jurisdictional trip wires are everywhere, and foreign companies with global businesses are likely to have a tough time slipping the grip of the FCPA. Here's how the Department of Justice instructs its prosecutors to look at it:

Under the FCPA, U.S. jurisdiction over corrupt payments to foreign officials depends upon whether the violator is an "issuer," a "domestic concern," or a foreign national or business. An "issuer" is a corporation that has issued securities that have been registered in the United States or who is required to file periodic reports with the SEC. See 15 U.S.C. §§ 78c(a)(8), 78dd-1(a). A "domestic concern" is any individual who is a citizen, national, or resident of the United States, or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States, or a territory, possession, or commonwealth of the United States. See § 78dd-2(h)(1).

Issuers and domestic concerns may be held liable under the FCPA under either territorial or nationality jurisdiction principles. For acts taken within the territory of the United States, issuers and domestic concerns are liable if they take an act in furtherance of a corrupt payment to a foreign official using the U.S. mails or other means or instrumentalities of interstate commerce. See §§ 78dd-1(a), 78dd-2(a). For acts taken outside the United States, U.S. issuers and domestic concerns are liable if they take any act in furtherance of a corrupt payment, even if the offer, promise, or payment is accomplished without any conduct within U.S. territory. See §§ 78dd-1(g), 78dd-2(i). In addition, U.S. parent corporations may be held liable for the acts of their foreign subsidiaries where they authorized, directed, or controlled the activity in question, as can U.S. citizens or residents, themselves "domestic concerns," who were employed by or acting on behalf of such foreign-incorporated subsidiaries.

Prior to 1998, foreign companies, with the exception of those who qualified as "issuers," and most foreign nationals were not covered by the FCPA. The 1998 amendments expanded the FCPA to assert territorial jurisdiction over foreign companies and nationals. A foreign company or person is now subject to the FCPA if it takes any act in furtherance of the corrupt payment while within the territory of the United States. There is, however, no requirement that such act make use of the U.S. mails or other means or instrumentalities of interstate commerce. See § 78dd-3(a), (f)(1). Although this section has not yet been interpreted by any court, the Department interprets it as conferring jurisdiction whenever a foreign company or national causes an act to be done within the territory of the United States by any person acting as that company's or national's agent.

(emphasis in original)


From the United States Attorneys' Manual, Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” (November 2000).

View CRM §1018 Here.

Sunday
Dec092007

Enforcement Sans Frontières

By most counts, U.S. authorities are now investigating between 50 and 60 companies for possible violations of the Foreign Corrupt Practices Act. That's a record number. How many of them will face enforcement actions is anyone's guess. But three investigations worth watching have this in common: the targets are industry-leading multinationals headquartered outside the United States. The U.S. government hasn't said much about the cases, but the message seems clear: if other countries won't police their corporate citizens, American authorities will do it for them -- at least when it comes to international public corruption.

Panalpina (Switzerland) -- In February 2007, the Department of Justice said in connection with the Vetco case that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then, about a dozen leading oil and gas services companies have announced FCPA investigations resulting from their relationship with logistics leader Panalpina. By mid year, the DOJ and the Securities and Exchange Commission had extended the investigation into Panalpina's activities in Nigeria, Kazakhstan and Saudi Arabia, and had sent letters to its customers, “asking them to detail their relationship with Panalpina . . . ." Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Global Industries are among those involved. In September, Panalpina said it is cooperating with U.S. prosecutors and exiting the Nigeria logistics and freight forwarding market for all oil and gas services customers. With crude prices near triple digits, can the U.S. government afford to cripple output anywhere in the name of FCPA enforcement? Probably not. But the DOJ may have made special arrangements directly with the Nigerian government for customs clearance and permitting on behalf of the oil services companies. That will allow them to keep working but still comply with the FCPA. Meanwhile, the investigation of Panalpina continues. Prior posts about Panalpina are here.

Siemens (Germany) -- In early October 2007, the German engineering and industrial giant settled global corruption charges with Munich prosecutors. Siemens paid a fine of €201 million and at the time admitted to questionable payments around the globe of approximately €420 million. But the settlement didn't resolve the FCPA investigation by U.S. authorities, and Siemens later disclosed that its internal review, run by a U.S. law firm, has identified questionable payments of up to €1.3 billion. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia and Norway. When Siemens finally reaches a deal with U.S. prosecutors, it will likely pay the highest penalties ever for FCPA offenses. The current record of $44.1 million is held by Baker Hughes. Prior posts about Siemens are here.

BAE Systems (United Kingdom) -- The defense contractor is accused of paying £1 billion to Prince Bandar (who allegedly passed money to other officials) in return for help selling Typhoon jet fighters to the Saudi government. The Serious Fraud Office started an investigation but Prime Minister Tony Blair shut it down last year, citing national security. That darkened the OECD's tenth anniversary celebration of its Anti-Corruption Treaty, to which the United Kingdom is a signatory. Meanwhile, the U.S. Department of Justice picked up the investigation and started gathering evidence about possible FCPA violations directly from British witnesses. The U.K. government has already complained about U.S. investigative tactics. And Prince Bandar has lawyered up big time -- retaining Freeh Group International, whose partners include former FBI director Louis Freeh, former head of enforcement at the SEC Stanley Sporkin, and a retired British high court judge, Sir Stephen Mitchell. Prior posts about BAE are here.

Sunday
Dec022007

The Empty Chair

It's official. Britain's absence from the global war on public corruption is now a full-fledged scandal. Nearly ten years after the U.K. ratified the Anti-Bribery Convention of the Organisation for Economic Co-operation and Development (OECD), there hasn't been a single British prosecution. And as England shirks, its friends are both baffled and alarmed.

The only investigation of overseas graft launched by the Serious Fraud Office involved BAE's alleged billion-pound bribe to Saudi royals. But Prime Minister Tony Blair quashed the inquiry last year, spooking the international community. As the Wall Street Journal said, "The OECD, which isn't prone to naming and shaming uncooperative member states took the unusual step of voicing 'serious concerns.' But that didn't move Mr. Blair, who warned the probe could harm relations with Saudi Arabia." The New York Times reported that during the OECD's recent tenth anniversary celebration of the Anti-Bribery Convention in Rome, its head, Angel Gurria, said "national security concerns — the reason Mr. Blair gave for terminating the BAE investigation in Britain — 'should not be used' as a reason for quashing bribery investigations. He also voiced concern that anti-corruption efforts were in danger of weakening. "

Meanwhile, the U.S. Department of Justice is finding creative ways to work around recalcitrant U.K. prosecutors. The Americans have opened their own investigation of BAE, collecting evidence by flying at least one British witness to Washington, routing him through Paris to avoid attention. When that maneuver came to light, how did Whitehall react? It protested to U.S. authorities and warned the witness to mind his manners.

What's behind Britain's bizarre behavior? We remember the Middle East in the 1980s, where the partnership between the British Foreign Office and big U.K. companies was unspoken but evident. To the envy of Americans and others, Her Majesty's Government went door-to-door with British salesmen, helping them hawk their goods and services to the region's oil-rich regimes. We thought the arrangement was a useful remnant from the days of the East India Company and the Raj. But was it less benign than we assumed?

The question has to be asked: Does the U.K. government fight overseas bribery or promote it? The answer is crucial. After all, if Britain is thumbing its nose from the sidelines, why should new recruits like South Korea and Germany stick around for the battle? What moral authority will the OECD have to lecture Nigeria or Kazakhstan about the importance of the rule of law? Why should Australia, France or China worry what their citizens do abroad, if the British government is already doing worse? And what about that level playing field American business people -- who are bound by the U.S. Foreign Corrupt Practices Act -- were promised decades ago?

In April 2005, the smart folks at the White Collar Crime Prof Blog reported the OECD's unusual criticism of the U.K.: "[The OECD's progress] report notes that 'given the size of the UK economy and its level of exports and outward FDI, along with its involvement in international business transactions in sectors and countries that are at high risk for corruption, it is surprising that no company or individual has been indicted or tried for the offence of bribing a foreign public official since the ratification of the Convention by the UK.'" [emphasis added]

Nothing has changed since those words were written. So today we're also asking: Where is Britain in the global battle against public corruption?

View the November 21, 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions Here.

View (by subscription) the November 28, 2007 Wall Street Journal Article Here.

View the November 25, 2007 New York Times Article Here.

View the April 4, 2005 White Collar Crime Prof Blog Post Here.

View the March 17, 2005 OECD Country Report on the U.K. Here.

Monday
Nov262007

Will The Local Law Defense Help BAE?

BAE Systems is being investigated by the U.S. Department of Justice for possible violations of the Foreign Corrupt Practices Act. It allegedly paid £1 billion to Saudi Prince Bandar in return for his helping BAE sell 72 Typhoon jet fighters to Saudi Arabia. Prince Bandar may have moved a lot of the money through U.S. bank accounts and -- with BAE's knowledge -- to other members of the Saudi royal family. Those relatives -- along with the prince himself -- presumably are "foreign officials" for purposes of the FCPA. That could make the payments illegal. So if BAE is prosecuted, what defenses can it raise?

One might be the rarely-spotted local law defense. The FCPA allows otherwise prohibited payments if the "payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s" country. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1) and 78dd-3(c)(1). This affirmative defense -- one of only two -- was added to the FCPA in 1988. But it only works if the payment is legal under the written laws of the country in question -- a hurdle that has rendered the defense practically useless except in industry-specific scenarios, such as drug trials paid for by foreign pharmaceuticals but managed by government-employed doctors.

The Notes to the 1988 House and Senate Conference Agreement say in relation to the local law defense: "The House receded to the Senate, with an amendment to make it an affirmative defense that a payment to a foreign official is 'lawful under the written laws and regulations of the foreign official's country.' [emphasis in original] The Conferees wish to make clear that the absence of written laws in a foreign official's country would not by itself be sufficient to satisfy this defense. In interpreting what is 'lawful under the written laws and regulations,' the Conferees intend that the normal rules of legal construction would apply."

We doubt there are any laws or regulations now on the books in Saudi Arabia that would expressly permit members of the royal family to earn a commission on arms sales to the government. But would the King issue a decree -- the country is a true monarchy, after all -- that retroactively authorizes and approves the BAE payments? We don't know the answer. But the question is sure to raise issues for Saudi Arabia and its royal family that are well above our pay grade. Meanwhile, we imagine BAE is giving this some serious attention as it plots its potential defense strategy.

View the Notes to the 1988 House and Senate Conference Agreement Here.

Sunday
Nov252007

The U.S. Is Gathering Evidence Against BAE

The U.K. and Saudi governments deny that any laws -- including the U.S. Foreign Corrupt Practices Act -- were broken. But questions persist about the £1 billion payment earlier this year by U.K. defense giant BAE Systems to Prince Bandar, the former Saudi ambassador to the U.S., for brokering his country's purchase of 72 Typhoon jet fighters.

The November 26, 2007 online edition of the Guardian newspaper now says the U.S. Department of Justice obtained documents from Swiss banking sources and more evidence from a U.K. businessman who was part of the deal. "According to US sources," the Guardian says, "businessman Peter Gardiner, who possesses boxes of invoices allegedly detailing payments made by BAE to members of the Saudi royal family, was flown by FBI agents to Washington on August 20 to give testimony there. It was arranged for him to travel via Paris to avoid British attention. Department of [J]ustice investigators are also seeking out the location of other potential witnesses from the UK. When Washington's moves came to light, US sources say that protests were made by the British, and Gardiner was warned his testimony was 'contrary to international protocols'. Gardiner refuses to comment."

The Guardian and other sources also report that Prince Bandar has retained Louis Freeh, a former head of the FBI, to represent him. “There have been no charges filed,” Freeh said in an interview with a U.S. newspaper. “The prince denies any impropriety and violating any statutes in the United Kingdom or the United States.” Some of the payments being investigated reportedly involve deposits to U.S. bank accounts controlled by Prince Bandar directly or through the Saudi embassy.

BAE Systems describes itself on its website as "the premier global defence and aerospace company . . . . With 96,000 employees worldwide, BAE Systems' sales exceeded £15 billion (US $27 billion) in 2006." It says it's the 3rd largest global defense company and that its U.S. operations make it the 6th largest defense company in the United States.

If BAE or Prince Bandar or both are charged or threatened to be charged with violating the FCPA, will they assert as an affirmative defense that "the payment . . . that was made, was lawful under the written laws and regulations" of Saudi Arabia? If they can prove that, then they're off the hook.

View the Guardian's November 26, 2007 Story Here.

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