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Entries in United Kingdom (111)

Wednesday
Nov192008

The Briefing Book

The President Elect and his transition team aren't spending hours each day pondering the Foreign Corrupt Practices Act. But there is one FCPA matter that should be on their radar -- the investigation of BAE Systems. Why? Because that case -- whatever the outcome -- is a chance for the United States to demonstrate its commitment to the rule of law and the fight against global public corruption. The new administration can also show its in situ allies in the war on terror that, unlike the British, the U.S. won't give in to political blackmail.

Some allegations in the case are these: U.K. military-equipment-maker BAE secretly paid $2 billion to Saudi Prince Bandar bin Sultan bin Abdul Aziz Al Saud in return for inside help selling Typhoon jet fighters to the Saudi government; the money moved irregularly from American banks to accounts in Switzerland; and the prince, who was Saudi Arabia's ambassador to Washington from 1983 to 2005, shared the largess he received during those years with other Saudi officials.

According to reports, Prince Bandar has never denied what happened, only that neither he nor BAE broke any laws -- notwithstanding British prohibitions on international public bribery, Swiss money laundering concerns, and the application of the Foreign Corrupt Practices Act. BAE denies all allegations of corruption.

The U.K.'s Serious Fraud Office launched an investigation. But in December 2006 -- just as the SFO was getting close to evidence it needed about the money transfers through Switzerland -- the Blair government told it to stand down. In High Court hearings in London this year to determine if the SFO broke any laws by dropping the investigation, witnesses said Saudi Arabia had threatened to end all anti-terrorism cooperation with the U.K. unless the Blair government pulled the plug. According to one report on the hearings,

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.
On April 10, 2008, the High Court's Lord Justice Moses and Mr. Justice Sullivan tried to reclaim for Britain the simple idea that no man or woman is above the law, an idea that shapes and preserves every great and not-so-great democracy on the planet. "No one," their scathing 46-page ruling against the government said, "within this country or outside, is entitled to interfere with the course of our justice."

The victory for the rule of law was short lived. In July, the House of Lords (to which the government had appealed) ruled that the Serious Fraud Office didn't do anything illegal. All five law lords hearing the case agreed that although the SFO "was confronted by an ugly and obviously unwelcome threat," its decision to stop investigating BAE was justified because it reasonably believed the Saudi threats were putting British lives at risk.

In Washington, meanwhile, the Justice Department had started its own investigation. It wanted to know whether BAE and Prince Bandar had violated the Foreign Corrupt Practices Act and anti-money laundering laws. In November 2007, the DOJ reportedly obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The U.K. press said Peter Gardiner had boxes of invoices allegedly detailing payments from BAE to members of the Saudi royal family. Gardiner, the reports said, was flown by FBI agents to Washington in August 2007 to give testimony there, traveling via Paris to avoid British attention. And in May this year, U.S. authorities detained BAE's chief executive Mike Turner and director Nigel Rudd at U.S. airports. Before letting them leave, investigators copied information from their laptops, PDAs, cell phones and papers.

BAE's reaction? "A severe lack of cooperation," according Joshua Hochberg, the former head of the DOJ's group responsible for Foreign Corrupt Practices Act prosecutions. As we said some months ago, instead of making peace with the DOJ, BAE is flipping the feds an awfully rude gesture. (A report out today in law.com says BAE is now trying to repair the damage with the DOJ and the two parties are talking.)

And the reaction from the rest of the world? Last month the OECD said it is "disappointed and seriously concerned with the unsatisfactory implementation of the [OECD Anti-bribery] Convention by the UK. . . . The Working Group also strongly regrets the uncertainty about the UK's commitment to establish an effective corporate liability regime in accordance with the Convention . . . ."

On the U.K. government's decision to stop the investigation of BAE, the editors of the Wall Street Journal said this: "[Former Prime Minister] Blair has eloquently argued on other occasions that bringing democratic institutions to the Middle East is a vital part of fighting Islamic terrorism. In stopping the BAE case, his administration missed a perfect opportunity to show the Saudis that one of the foremost of these institutions is the rule of law -- and that neither justice nor human lives should be toyed with for expediency's sake."

The lawyers who have retaken the White House have another "perfect opportunity" to show the majesty and importance of the rule of law. We can't think of a better reason for the FCPA to be in the President Elect's Briefing Book than that.

View our prior posts about BAE here.

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Thursday
May222008

The Highest Roller In Town

Does it ever pay to stonewall the Department of Justice in an FCPA investigation? We're asking because of an item that ran in the May 21st edition of the U.K. Times Online (available here). It described the DOJ's detention of BAE's ceo and a director as they travelled separately through the Houston and Newark airports last week. The DOJ, investigating alleged corrupt payments to Saudi officials, reportedly searched and copied information from their laptops, phones and briefcases, then let the men continue traveling. In the Times piece, Joshua Hochberg, the former head of the DOJ's group responsible for Foreign Corrupt Practices Act prosecutions, explained "that the recent heavy-handed behaviour of investigators indicated 'a severe lack of cooperation by BAE'."

Is a "severe lack of cooperation" a viable legal strategy -- for BAE and its personnel, or for any company facing an FCPA investigation? Does being non-cooperative and recalcitrant ever serve the best interests of a corporation? When dealing with the FCPA, does ordering company employees and agents to keep quiet and stay away from the DOJ ever enhance a company's defensive position?

The questions aren't merely academic. In most criminal investigations, corporate targets have some options to consider. They can decide to force the government to do the hard work of uncovering evidence. That's their right. Defendant's don't have to testify against themselves, and the government's burden to prove guilt beyond a reasonable doubt is a safeguard for corporations too. At its criminal trial, an accused company can sit mute and force the government to make its case.

But the FCPA doesn't work like a typical criminal statute. Companies facing FCPA charges don't go to trial. They can't withstand the withering publicity -- the front page stories around the world of their alleged international public bribery. They usually can't risk being banned from U.S. government contracts, or losing their export licenses -- which can happen based on mere allegations of FCPA offenses. And anyway, their chances at trial are exremely bleak. With the application of respondeat superior, once a company employee admits to violating the FCPA, the company is guilty as a matter of law. That's the rule in most U.S. circuits that have considered the question. It doesn't matter if the guilty employee held a low rank or was violating company policy. The employee's guilt is still imputed to the company. So one bad apple really does spoil the barrel.

Companies are sitting ducks in FCPA cases, and their people are vulnerable too. Let's face it, what director, officer or executive responsible for compliance wants to risk his or her hide because an assistant sales manager in Mongolia decided sui generis to grease some government palms? In other words, it's all downside risk to fight the DOJ in an FCPA case. So instead, companies cooperate, knowing a "good" outcome -- usually involving a deferred prosecution agreement -- is only possible when the DOJ is on their side.

If fighting isn't an option, if cooperating is the only way to salvation, then the DOJ ends up holding all the cards. Its decision to investigate and charge a corporation becomes paramount. There won't be a trial where lawyers can argue, raise defenses, challenge the witnesses' credibility, and implore the jury to dish out justice. Instead the process will start and end with the DOJ itself. Yes, there are grounds to criticize the prosecutors' omnipotence in FCPA cases. But for now that omnipotence is a fact of life that has to be faced. Why, then, would a corporation under investigation for alleged FCPA offenses thumb its nose at the prosecutors? What's to be gained?

Instead of fighting, the path forward has been for accused companies to work with the DOJ, to investigate the facts cooperatively, to self-disclose the results, to take remedial action, and to hope the DOJ will be willing to defer the prosecution if the company keeps its nose clean. But that's not what BAE is doing. Why not?

Well, in the U.K., BAE has been protected. The Serious Fraud Office -- responsible for investigating and prosecuting high-level overseas public corruption -- opened a file on the company but closed it in 2006 under irresistible pressure from the Blair government. The High Court in March this year ruled that the SRO couldn't legally drop the investigation, but the government is now appealing that decision to the House of Lords. In the U.K., BAE may yet keep its secrets. So is the company also betting that its U.K. protectors will prevail against U.S. prosecutors as well? That the Western Alliance will be unwilling to press the case and embarrass Saudi Arabia -- a key security ally and OPEC's largest exporter?

We don't know what's going on inside BAE. It has denied doing anything illegal. So all we really know is that the company isn't playing by the usual rules. Instead of making peace with the DOJ, it's flipping the feds an awfully rude gesture. Does that mean BAE has a legal strategy that relies on an ultimate savior, such as the man in the White House? If that's true, what happens if the strategy doesn't work? What happens if BAE ends up in the hands of the Department of Justice like every other company facing FCPA allegations? In that case, BAE and its leaders will have lost an enormous bet, and life will never be the same.

View prior posts about BAE here.

Monday
May192008

U.S. Prosecutors Detain And Search BAE Leaders

The Justice Department escalated its politically explosive investigation into BAE Systems' role in the $2 billion bribery scandal involving alleged illegal payments to former Saudi ambassador to the United States, Prince Bandar bin-Sultan, in return for the sale of jet fighters to the Saudi government.

BAE confirmed today that chief executive Mike Turner and director Nigel Rudd were detained by U.S. officials when they landed last week at Houston's George Bush International Airport. They were later released and allowed to leave the country. Reports say U.S. authorities confiscated and copied information on the executives' laptop computers, cell phones, and papers. The DOJ has also reportedly served additional subpoenas in the U.S. on employees of BAE Systems PLC and BAE Systems Inc. The DOJ's investigation centers on alleged violations of the Foreign Corrupt Practices Act and money laundering.

Britain's Serious Fraud Office dropped its investigation of BAE in 2006. The High Court last month ruled that the SFO acted illegally when it shut down the investigation, but allowed the SFO to appeal the decision to the House of Lords. That appeal is pending. Evidence in the High Court showed that Prince Bandar threatened to stop Saudi Arabia's cooperation with the U.K. on counter-terrorism unless the SFO ended its investigation. The High Court strongly criticized the government's capitulation. It said, "No one within this country or outside, is entitled to interfere with the course of our justice."

View prior posts about BAE here.

Friday
May092008

FCPA Guilty Plea For Bribing UK Official

A former co-owner and executive of California-based Pacific Consolidated Industries (PCI) pleaded guilty yesterday to violating the Foreign Corrupt Practices Act. Martin Eric Self, 51, of Orange, California pleaded guilty to a two-count information charging him with violating the FCPA by paying more than $70,000 in bribes to a U.K. Ministry of Defence official. The bribes were intended to secure equipment contracts with the U.K. Royal Air Force.

In October 1999, Self, a U.S. citizen, and Leo Winston Smith, then PCI’s executive vice president and director of sales and marketing, had PCI enter into a marketing agreement with a relative of a U.K. Ministry of Defence official. According to the DOJ, Self -- a signatory on PCI's marketing agreements and bank accounts -- admitted that he didn't know of any genuine services provided by the official’s relative. Instead, Self believed the payments probably were benefiting the official in exchange for obtaining and retaining the equipment-supply contracts.

Self is scheduled to be sentenced in federal court on September 29, 2008. Although he faces a maximum sentence of five years in prison per count, his plea agreement contemplates a prison term of eight months, subject to the court's final determination at sentencing.

For his role in the scheme, former marketing head Smith, a co-founder of PCI, was indicted in April 2007. The government says he conspired to bribe the U.K. Ministry of Defence official in order to obtain equipment contracts worth more than $11 million dollars. In addition to the FCPA violations, the indictment also charges Smith with money laundering and tax offenses. He's scheduled to stand trial in July 2008. Self, as part of his plea agreement, will presumably testify against his former colleague. Evidence against Smith is also likely to come from U.K. authorities. Their investigation of the U.K. Ministry of Defence official resulted in his guilty plea in the United Kingdom for accepting bribes from PCI. He was sentenced to two years in prison.

Privately-held PCI manufactures Air Separation Units (ASUs) and other equipment for the military, medical, and oil and gas markets. ASUs generate oxygen in remote, extreme and confined locations. The DOJ said that in late 2003, after the alleged illegal conduct occurred, PCI was acquired by a group of investors who referred the case to U.S. prosecutors and "fully cooperated in the government’s investigation."

Assistant Attorney General for the Criminal Division Alice S. Fisher, who departs from the DOJ later this month, said, “Individuals who resort to bribery and other fraudulent means to secure contracts with foreign governments not only corrupt legitimate bidding processes, but they also damage the integrity of the global marketplace. Furthermore, using an intermediary to make bribe payments will not insulate individuals from prosecution."

Referring to the collaboration by prosecutors in the U.S. and U.K., Ms. Fisher also said, "The coordinated international law enforcement efforts of this case exemplify the type of cooperation needed to fight crime in the 21st century, where physical borders are not boundaries for criminal activity. I would like to thank our colleagues in the United Kingdom for their efforts and assistance in prosecuting this case as well as the FBI and IRS for their investigatory assistance.”

View the DOJ's May 8, 2008 news release here.

Tuesday
May062008

The Woolf Report Tells No Tales

The message in our inbox yesterday said: You may find this interesting if you haven't seen it already. It's the Woolf Committee Report on BAE -- released this morning. It's breathtaking in the extent to which they have focused stubbornly on the future and avoided a meaningful review of past conduct. I know that was the basis upon which the committee was formed, but it's difficult to imagine how future conduct can be determined without past wrongdoing explored.

Our correspondent is a fine compliance professional with one foot in Washington and the other in London, so we took the warning seriously. That is, we lowered our expectations. But even so, the report was disappointing. Not only does it avoid dealing with anything historical or factual, but it also never says that public corruption is wrong. That it's a crime that always cheats a national treasury somewhere, perverts the marketplace, and victimizes the citizens. There was none of that.

Instead, the report from the 75-year-old former lord chief justice, who was commissioned in June 2007 by BAE at a wage of £6,000 a day, says over-and-over that BAE's reputation is hurt when the company is caught doing bad things, and that damage to its reputation is in turn bad for its business. Beyond that, the report's action items could have been cut-and-pasted from compliance boilerplate -- creating an impression that the Woolf Committee (Lord Woolf, Philippa Foster Back, Sir David Walker, Dr Richard Jarvis and Douglas Daft) either didn't actually speak with anyone who works at BAE, or didn't find anything they said notable enough to be repeated.

The Guardian, meanwhile, posted a short list of provocative questions that remain unanswered:

· Did BAE set up a secret offshore subsidiary called Red Diamond to handle worldwide cash for arms deals?

· Did the company pay 31% "commission" into a Swiss account on a sale to the African state of Tanzania?

· Did BAE employ Count Alfons Mensdorff-Pouilly, previously caught up in a bribery scandal, as its undercover agent in central Europe?

· Did it provide exotic holidays and prostitutes to the entourage of the head of the Saudi air force?

· Did it pay £1bn to Saudi agents including Wafic Said, and another £1bn to Saudi Prince Bandar? To every question about what BAE may have actually done, Woolf's answer was the same: "We weren't given the job of looking at the past."

The Guardian also reminded readers that BAE "still faces criminal investigations in London, Washington, Dar es Salaam, Bucharest, Prague, Berne, Budapest and Johannesburg, over continuing multi-million pound arms contracts. Last month Woolf's former colleague, Lord Justice Moses, ruled that the abandonment of the Serious Fraud Office investigation into BAE had betrayed the rule of law. Moses said there had been an 'abject surrender' to threats when the SFO, under pressure from BAE, from the then prime minister Tony Blair, and from Prince Bandar, agreed to drop investigations into the Saudi payments."

(As an aside, we're not often on common editorial ground with the Guardian. But its enterprise and leadership on the BAE story show why the somewhat offbeat, trust-controlled newspaper has a reputation for courageous reporting. In the movie, "The Bourne Ultimatum," an investigative report in the Guardian that mentions Jason Bourne is important to the plot and ultimately leads to the assassination of the fictional reporter. )

The Corner House, one of the public-interest campaigners that won the BAE court case against the Serious Fraud Office, called the Woolf inquiry "an interesting academic exercise. . . BAE should have saved its £1.7m spent on the committee and adopted instead accepted best practice: namely, to employ a law firm as an independent investigator to go through all its internal emails and documents in order to make adequate disclosure to the law enforcement authorities. . . . If BAE is serious about breaking from the past, it needs to show that it is fully cooperating with all the current investigations by law enforcement officers in the UK, US and Switzerland."

As for our disappointment, we always try to be realistic about public corruption. We know bribery is the second oldest profession and won't disappear anytime soon. The temptation in business to take shortcuts via well-placed bribes to government officials is powerful. When people fall, as they sometimes will, they and their approving employers deserve punishment. Once punished, though, they also deserve another chance -- assuming there's at least some recognition of wrongdoing ("mistakes were made"). That, after all, is the path to rehabilitation and to a full restoration of corporate citizenship.

The Woolf Committee Report is available here.

Monday
Apr212008

The Majesty of the Law

We admit to being stunned. Boggled, bowled over, dumbfounded, floored and flabbergasted (thanks, Roget's). We never expected the British High Court to disturb the U.K.'s somnolent status quo in the fight against international public corruption, by ruling that the Serious Fraud Office broke the law in dropping its investigation of BAE. After all, in the ten years since it became a party to the OECD Convention on Combating Bribery of Foreign Public Officials, Britain did not bring a single prosecution against overseas public bribery. Not one. History, as they say, was unanimous.

That's why we could write in December last year: "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."

Other voices, we noted, had joined the chorus of condemnation. 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. "

Who, then, could have predicted that on April 10, 2008, Lord Justice Moses and Mr. Justice Sullivan would reassert the authority of the U.K.'s independent judiciary? That they would reclaim for Britain and all common law countries the rule of law -- the simple idea that no man or woman is above the law -- an idea that shapes and preserves every great and not-so-great democracy on the planet.

The High Court's 46-page decision can be found here. It's a powerful, magisterial document, evidence of a court compelled at last to act as final arbiter of right and wrong -- to step forward, stand alone and draw a line in the sand. "No one," the court said, "within this country or outside, is entitled to interfere with the course of our justice." Strong words from officialdom in our politically correct, interdependent, terror-strickened world.

While the court's entire opinion is worthwhile, especially its brave conclusion, we particularly admire the Introduction. It is two parts John le Carré and one part Authorized Version. With simple but dramatic prose, it sets the tone for what's to come. It gives us character, place and plot -- and draws us into an irresistible detective story, where the search is not for the missing person or murderer or stolen jewels, but for . . . a legal principle.

Here's the Introduction:

1. This is the judgment of the court.

2. Between 30 July 2004 and 14 December 2006 a team of Serious Fraud Office lawyers, accountants, financial investigators and police officers carried out an investigation into allegations of bribery by BAE Systems plc (BAE) in relation to the Al-Yamamah military aircraft contracts with the Kingdom of Saudi Arabia. On 14 December 2006 the Director of the Serious Fraud Office announced that he was ending the SFO' s investigation.

3. In October 2005 BAE sought to persuade the Attorney General and the SFO to stop the investigation on the grounds that its continued investigation would be contrary to the public interest: it would adversely affect relations between the United Kingdom and Saudi Arabia and prevent the United Kingdom securing what it described as the largest export contract in the last decade. Despite representations from Ministers, the Attorney General and the Director stood firm. The investigation continued throughout the first half of 2006.

4. In July 2006 the SFO was about to obtain access to Swiss bank accounts. The reaction of those described discreetly as "Saudi representatives" was to make a specific threat to the Prime Minister's Chief of Staff, Jonathan Powell: if the investigation was not stopped; there would be no contract for the export of Typhoon aircraft and the previous close intelligence and diplomatic relationship would cease.

5. Ministers advised the Attorney General and the Director that if the investigation continued those threats would be carried out; the consequences would he grave, both for the arms trade and for the safety of British citizens and service personnel. In the light of what he regarded as the grave risk to life, if the threat was carried out, the Director decided to stop the investigation.

6. The defendant in name [the SFO], although in reality the Government, contends that the Director [of the SFO] was entitled to surrender to the threat. The law is powerless to resist the specific and, as it turns out, successful attempt by a foreign government to pervert the course of justice in the United Kingdom, by causing the investigation to be halted. The court must, so it is argued, accept that whilst the threats and their consequences are "a matter of regret", they are a "part of life".

7. So bleak a picture of the impotence of the law invites at least dismay, if not outrage. The danger of so heated a reaction is that it generates steam; this obscures the search for legal principle. The challenge, triggered by this application, is to identify a legal principle which may be deployed in defence of so blatant a threat. However abject the surrender to that threat, if there is no identifiable legal principle by which the threat may be resisted, then the court must itself acquiesce in the capitulation.

Wednesday
Apr162008

SFO Chief Calls For US-Style Reforms

U.K.-based Ethical Corporation magazine has just released its 2008 anti-corruption special report. The 22-page publication (available by request here) is packed with Foreign Corrupt Practices Act compliance advice, descriptions of best practices from GE and others, and lots of news and analysis about enforcement trends.

It's all great content from this first-class publisher and compliance-event organizer (they draw a staggering 75,000 visitors a week to their website). But what caught our eye is managing editor John Russell's interview with U.K. Serious Fraud Office director Robert Wardle, who leaves his post at the SFO on April 21.

Wardle was interviewed before the High Court ruled last week that his decision to stop an investigation into BAE over the Al-Yamamah arms deal with Saudi Arabia was unlawful. He was criticized for his role by the High Court, which said: "It is the failure of government and the defendant [Wardle] to bear that essential principle in mind that justifies the intervention of this court."

In the interview, Wardle makes it clear that the U.K.'s anti-corruption effort needs to be reformed before it can be effective. That's apparent, given that the Serious Fraud Office, the U.K. body that investigates and, where possible, prosecutes U.K. companies or indi­viduals for corruption, hasn't brought a single prosecution after more than ten years of the U.K. having been party to the OECD Convention on Combating Bribery of Foreign Public Officials. How should the U.K. reform its anti-corruption efforts? By being more like the United States and its Foreign Corrupt Practices Act, Wardle says.

"[T]he UK should further emulate the US," Wardle says, "by making use of plea-bargaining agreements, which grant suspects in corruption cases a reduced sentence in exchange for their co-operation. He believes that there should be a specific accounting rule prohibiting companies from taking steps to cover up suspicious trans­actions, like the books and records provision of the FCPA. He explains: 'We would benefit if companies knew it would be a specific criminal offence to conceal bribes.' Wardle would also like to see UK companies face greater liability for crimes committed by their employees. 'We should be looking at making a company responsible when a reasonably senior manager has been responsible for the offence or the payments,' he says."

Wardle ends his frustrating tenure at the SFO lamenting that U.K. companies still lack sufficient deterrents to bribing foreign public officials. He says: "One of the problems we have is that companies need to know that there is a price to be paid for corruption overseas."

Without doubt, American companies -- still waiting to see a level playing field for global anti-corruption enforcement -- will share Wardle's hope for long over-due reforms in the U.K.

Tuesday
Apr152008

All The News That Fits The Prince

Hurrays all around for the British High Court's ruling last week. It said the Serious Fraud Office broke the law last year when, under irresistible pressure from the Blair government, it dropped an investigation into alleged bribes from British defense contractor BAE to Saudi Prince Bandar. Whenever the rule of law wins a big one, which it surely did in London last week, there's something to cheer about.

The SFO's decision to stand down was a travesty. It seemed clear at the time that had the investigation continued, it would have confirmed that BAE secretly paid £1 billion to Prince Bandar in return for inside help selling Typhoon jet fighters to the Saudi government; that the money moved irregularly from American banks to accounts in Switzerland; and that the prince, who was once Saudi Arabia's ambassador to Washington, shared the largess with other Saudi officials. According to reports, the prince didn't bother to deny what had happened, only that neither he nor BAE had broken any laws -- notwithstanding British prohibitions on international public bribery, Swiss money laundering concerns, and the application of the U.S. Foreign Corrupt Practices Act.

While shutting down the investigation was a shocking development -- and although Mr. Blair said vaguely that the reason was the U.K.'s national security -- the case still seemed to be just the latest international corruption saga, albeit on a grand scale and played out in the public eye. But then in mid February this year, things took a sinister turn.

At a High Court hearing in London contesting the SFO's scuttling of the investigation, a two-judge panel, according to the Guardian newspaper, "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."

It sounded way too . . . sensational, a silly plot twist in a B-movie where everyone in sandals is a bad guy. But last week Lord Justice Moses and Justice Sullivan confirmed the worst. The threats were real, they said; the U.K. government didn't dispute the facts. Speaking of the prince's message and the government's reaction to it, the justices said: "Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice. . . . So bleak a picture of the impotence of the law invites at least dismay, if not outrage."

The editors of the Wall Street Journal said this: "Mr. Blair has eloquently argued on other occasions that bringing democratic institutions to the Middle East is a vital part of fighting Islamic terrorism. In stopping the BAE case, his administration missed a perfect opportunity to show the Saudis that one of the foremost of these institutions is the rule of law -- and that neither justice nor human lives should be toyed with for expediency's sake."

The Journal's sentiment is right, of course, but it makes a molehill out of a mountain. This case is about a lot more than a missed opportunity to show the Saudis the benefits of the rule of law. It's about the enormous chasm that separates the West and one of its touted in situ allies in the war on terror. It's about oil-importing countries being vulnerable to political blackmail. It's about the agenda in Iraq and the region and whether any of it makes sense in light of the self-interests of the local regimes.

But coming back to our bailiwick, the British High Court said it will issue orders for action later. In the U.S., the Justice Department is running its own investigations into BAE and Prince Bandar, who incidentally has retained for his defense Freeh Group International, among whose partners are former FBI director Louis Freeh, former head of enforcement at the SEC Stanley Sporkin, and retired British High Court judge Sir Stephen Mitchell.

What will happen with this case in London and Washington in the coming months? We have no idea. But either we'll all discover along with the Saudis that the West does in fact have the political will to enforce the rule of law when it comes to international public corruption. Or we'll see, as the High Court lamented, a sad capitulation and the awful impotence of the law.

View prior posts about BAE and Prince Bandar here.

Wednesday
Apr092008

British High Court Slams Decision To Drop BAE Investigation

The U.K. Guardian reports today (here) that the British High Court has ruled in scathing language that the decision by the Serious Fraud Office to drop an investigation into bribery allegations involving BAE Systems and Saudi Prince Bandar was improper. The court said it will issue orders for further action later.

For anyone new to this story, British defense contractor BAE Systems is accused of paying £1 billion to the former Saudi ambassador to the United States, 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. Meanwhile, the U.S. Department of Justice picked up the investigation and started gathering evidence about possible Foreign Corrupt Practices Act violations directly from British witnesses. Both BAE and Prince Bandar have denied violating any laws.

The SFO's decision to drop its investigation was challenged earlier this year in court by public interest groups. The High Court in London heard in mid February "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."

In the lead up to February's High Court hearings, the Guardian almost single-handedly kept the story alive. Here are excerpts from today's report:

_______________

In a stunning victory for the activist groups that launched the legal challenge, the two judges said Tony Blair's government and the SFO caved in too readily to threats by Saudi Arabia over intelligence sharing and trade.

In an often scathing judgement, Lord Justice Moses and Justice Sullivan rejected the SFO's argument that it was powerless to resist the Saudi threats.

"So bleak a picture of the impotence of the law invites at least dismay, if not outrage," they said.

"Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice."

To give in so easily, the judges said, "merely encourages those with power, in a position of strategic and political importance, to repeat such threats, in the knowledge that the courts will not interfere with the decision of a prosecutor to surrender".

Campaign Against Arms Trade (CAAT) and Corner House Research had sought a review of the decision by the SFO director, Robert Wardle, in December 2006 to drop the investigation into allegations of bribery and corruption over the £43bn Al-Yamamah arms deal, signed in 1985.

"No one, whether in this country or outside, is entitled to interfere with the course of our justice," Moses and Sullivan ruled. . . .

The judges ruled that the SFO decision was unlawful but made no formal orders for further action - something they will consider at a further hearing. It is believed the most likely course will be that the SFO will have to reconsider its decision.

They had harsh words for the attitude of the SFO and the Blair government in never even considering the option of telling the Saudis their threats would be ignored.

"No-one suggested to those uttering the threat that it was futile, that the United Kingdom's system of democracy forbad pressure being exerted on an independent prosecutor whether by the domestic executive or by anyone else; no-one even hinted that the courts would strive to protect the rule of law and protect the independence of the prosecutor by striking down any decision he might be tempted to make in submission to the threat."

At a two-day hearing in February, lawyers for CAAT and Corner House argued that the SFO dropped its investigation due to Saudi Arabian pressure that amounted to diplomatic blackmail.

Blair, the then prime minister, said the Saudis had privately threatened to cut intelligence cooperation over terrorism unless the inquiry was stopped.

The government did not dispute this version of events, the judges noted in their ruling.

They decided that Wardle "was required to satisfy the court that all that could reasonably be done had been done to resist the threat", and said: "He has failed to do so." . . .

David Leigh, the Guardian's investigations editor, said: "The Guardian unearthed and published the facts about BAE's dealings with Saudi Arabia as long ago as 2004. We passed our evidence to the SFO, who embarked on a long inquiry.

"Recently we also decided to name Prince Bandar as the recipient of £1bn from BAE. We are very pleased that today's high court judgment vindicates all the work the Guardian has done in the public interest to expose this scandal."

The judges were told Prince Bandar, a Saudi national security adviser allegedly involved in the bribery, was behind threats to hold back information about potential suicide bombers and terrorists. . . .

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View prior posts about BAE and Prince Bandar here.

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.