Private Eye 1256/29
The
Serious Farce Office managed to snatch a
victory of sorts from the jaws of looming defeat with its increasingly
criticised settlement deal to end the six-year BAE Systems bribery
investigation. A senior SFO source confirms that:
SFO legal advisers believed it had a "weak hand" against the company with a far
from certain chance of conviction;
There was also no chance of a successful case against any main board directors,
such as former chairmen Sir Dick Evans or ex-chief executive Mike Turner;
It was unsure that agreement to a BAE prosecution would be given by the
attorney-general, Baroness Scotland;
BAE insisted that there would be no deal unless there was no allegation of
corruption, which meant already implicated individuals walked;
The SFO had to drop the largest remaining bribery investigation, involving up to
£100m paid over a South African arms deal, because of a lack of co-operation
from the government there:
No costs will be recovered from an investigation that has cost probably £10m-£20m;
The SFO is expected to face an application for costs from BAE "consultant" and
alleged bagman Count Alfons Mensdorff- Pouilly:
The SFO turned down the option to appoint a monitor to oversee BAE. , which will
be done by the US Department of Justice: .
BAE is likely to be fined no more than £2m. with the rest of its agreed
£28m
payment to be returned to Tanzania - if a way can be found of ensuring it is not
misappropriated [ ie stolen - Editor ].
All of which helps explain why the SFO faced with the sudden likelihood of a
deal between BAE and the DoJ when it still had not even sent the prosecution
papers to the attorney general- accepted BAE's offer on the corruption tainted
£28m deal in Tanzania. This was not much more than a tenth of the $400m fine BAE
had agreed with the Americans over payments to obtain business in Saudi Arabia.
the Czech Republic and Hungary. It also explains why the final deal was much
nearer the £20m-nOm ballpark suggested by BAE than the SFO's talk of fines of
first up to £1bn and then reduced to £300m.
The SFO source admits it was a "big mistake" to try to bluff BAE into a deal by
30 September or face immediate prosecution. Its case was not ready for court or
even the attorney-general by that date, despite the length of time that has
passed since the original Saudi Arabian investigation was dropped, under
pressure from Tony Blair, in December 2006. The resulting delay allowed the
initiative to pass to the far more experienced negotiators of the DoJ in
Washington. who had identified more than £140m in suspect offshore payments made
by BAE after it had given assurance that it was not engaged in corrupt practices
in 2000.
The DoJ always held the whip hand because the US foreign corrupt practices act
is a far more fearsome weapon than the archaic British corruption legislation,
even after recent
amendment. The DoJ can command big-ticket settlements - Siemens ($800m) and
Halliburton ($579m) ~ whereas the SFO is restricted by the parking-fine approach
the British courts take to corporate bad behaviour. The SFO's biggest hits have
been against Mabey & Johnson (almost £7m) and AMEC (almost £5m). The BAE
£30m is
the largest British corporate fine.
BAE had to get a deal under which it was not charged or convicted with
corruption, as conviction would have probably debarred it from defence
contracts. It will plead to bad bookkeeping here and false statements in the
US. Prosecutors in both Washington and London preferred not to take such a
complex and costly case to trial and risk defeat. So both sides knew there would
be a deal- the only question was the price BAE would pay.
The DoJ was happy to run with the Saudi part of the BAE case ~ involving the
payments made and services provided to Prince Bandar and Prince Turki bin Nasser.
the son and son-in-law of the long time Saudi defence minister Prince Sultan,
and others who all deny wrongdoing. BAE is alleged to have paid more than £lbn
to Bandar and to have operated a £60m "slush fund" as part of the £40bn Al-
Yamamah defence contract. The DoJ targeted payments of more than £15m made in
Switzerland to one unidentified Saudi official between 2001 and 2002.
Unlike Blair. the Americans were not cowed by Saudi threats of non-cooperation
against al-Qaeda. But then the greedy Saudi royals depend on the US for their
continued survival. The ability to levy humongous fines
meant the DoJ was always likely to be more feared by BAE than the SFO and its
peashooter.
Despite its bullish spin, the SFO was warned by its legal advisers that it was
going to be difficult to prove that BAE knew of and had authorised the suspected
corrupt payments. The test is that directors, as the controlling minds of the
company, must either know or have delegated such payments and that
intermediaries were making corrupt payments to government officials or
politicians. That was a problem in terms of charging the company and also any
directors.
This may explain in part why last year the SFO dropped its investigations
involving a £7m payment regarding Romania and had previously, due again in part
to the time that has passed since the events, dropped Qatar and Chile from its
list.
The SFO felt confident about proving corruption in relation to the 2001 contract
in the Czech Republic to lease Gripen fighters, and a similar 2003 deal in
Hungary. The SFO believed it had a good case against Austrian Count
Mensdorff-Pouilly and three other "lower-level" figures regarding £19m paid to
get BAE contracts in Eastern Europe. The count, a former BAE agent, was formally
charged on 29 January with making corrupt payments; the SFO did not know then
how close the DoJ and BAE were to a deal He was released and the charges were
dropped :,' part of the BAE deal agreed on 4 February.
An SFO source insists this was not a "tactical" move to put pressure on BAE
but was dictated by fears that Mensdorff-Pouilly might not be extraditable from
Austria. He is now to seek costs from the SFO for his arrest and time
in custody.
The SFO was eager to press on with the Eastern European arm of the investigation
but again
the legal advice was that it would be difficult to charge BAE itself. So it was
decided to hand the case over to the Americans, who could exact a bigger fine.
The decision to drop the South African case,
it is claimed, was driven by a lack of co-operation from the authorities there.
This is no surprise, as the £70m- £100m payments made by BAE to grease the
wheels of a £1.6bn deal in 1999 for Gripen and Hawk aircraft went mainly to
individuals close to the ruling ANC party or to the party itself.
"We were not getting the evidence to prove corruption," says an SFO source. There
was evidence that BAE had paid school fees for a government minister's children,
but that was considered too little and too old. The Americans, it is said, had
no interest in South African bribes.
According to SFO insiders, director Richard Alderman had decided by July last
year that BAE was not serious in its negotiations, so he plumped for the £1bn
bluff only to find that he was unable to canny out the threat of asking the
attorney general to green-light a prosecution. The legal opinion was that there
was a case but it needed further work. Months of legal discussions, further
interviews and more evidence collection followed.
Suddenly, on 26 January, the message from Washington was that negotiations with
BAE had "picked up pace" and were at a "good stage" for a deal on Saudi
Arabia
and Eastern Europe. This may have been influenced by BAE's wish to avoid the
risk that the attorney-general would say prosecute.
This was not good news - the SFO was still at least two weeks away from
sending its request for prosecution. And it was "not absolutely sure" the
attorney-general would agree, how long that would take or if she would request
her own outside legal advice. And the SFO's own lawyers were not exactly, super-confident
about tying BAE to the payments made in Tanzania or Eastern Europe - where some
thought its case "very weak".
So the SFO was in a bad place when parallel secret final discussions began at
the offices of BAE's Washington and London lawyers (Linklaters) on 4 February. BAE's "red line" was that it would
not admit to corruption. Nor
would it
agree to any similar reference in proceedings
against individuals such as Mensdorff-Pouilly.
This is said to have provoked a major row between Alderman and QCs Tim Langdale and
David Williams, who wanted to be able to make
that link to the jury. They allegedly threatened to
withdraw from the case. But this was unnecessary
when it became clear that in order to get a deal the SFO would have to drop any
bribery case against any individuals and any mention of corruption by BAE. By
now, for the SFO the settlement was the "major purpose". So it threw in its hand against
Mensdorff-Pouilly and other BAE little helpers.
Another reason driving SFO towards a deal at almost any price was the expectation of a long and costly prosecution beset with legal challenges and huge costs relating to handling the material to be disclosed in the discovery process. This was estimated to possibly take some 2,000 staff hours. A re-run of the NHS generic drug fiasco was not wanted.
Remarkably it is claimed that the Americans
did not disclose to the SFO until it had done its
deal just how much BAE was offering to pay to settle the US case, The number was
reportedly redacted from the emails passing between the two prosecutors. So while
BAE was telling the SFO it was a maximum of £30m take it or leave it, it was
agreeing to pay the DoJ $400m (just over £250m). Whether the SFO would have been able to
increase that £30m significantly is
uncertain.
That number - like the question of an independent internal monitor to oversee
good BAE's future behaviour in future - was not seen by the SFO as a 'deal-breaker". The SFO was asked by BA.E whether it
wanted to oversee the monitoring but turned down the option, despite BAE being a
major
British company. So the gig will be decided by the DoJ, to whom the US monitor
will report. The remarkable explanation is that the SFO did not have the
resources and the task was "not realistic or necessary" - because BAE will
be "monitored to death" by the DoJ, who can be asked for information if
required!
The SFO has appointed monitors in its settlements with Balfour Beatty, AMEC and Mabey & Johnson, so passing up the chance with the much bigger BAE is at least surprising.
Equally surprising is that the SFO will seek no cost order against BAE as part of the Tanzania settlement. BAE was prepared to pay costs but only as part of the £30m. Alderman, it seems prefers to repay the £28m Tanzania paid for a military radar system it neither wanted nor or could afford and which generated £9m in bribes.
Whether the taxpayer would agree with such philanthropy is open to debate, That deal awaits approval by a judge, perhaps next month.
But by 10.45pm on 4 February, when the talks ended all that mattered was reaching a deal. Any deal. "There was a big rush at the end," says a an SFO insider.
BAE is clearly happy with the deal, which has damaged its reputation and ended a saga which has threatened its ability to win contracts here, elsewhere in the EU and in the US, The price is manifestly affordable - as this week's 2009 sales (£21bn-plus), and profits (£2bn-plus) will show. All those at BAE who knew about the corruption are safe. The guilty politicians and officials in Saudi Arabia, South Africa and Eastern Europe are also home free.
The SFO line is that it "played a fairly weak hand very well", forcing BAE, which had always denied everything into a "monumental climb down" Others, like anti-corruption NGOs, disagree and are going to court for a judicial review of the plea bargain.
The US has obtained a big result - the third largest fine - the Swiss are said to be angry as they have a money-laundering case involving the BAE payments via middlemen to the Saudi royals. The Austrians, too, are said to be less than pleased as they were keen on a case involving the Eastern European contracts.
So what is the "lesson for corporates" declared by Alderman? Play hardball and keep saying "see you in court" so long as you have the financial muscle and political clout to take the SFO on for the long haul. Because until the financial punishment fits the crime, as in the US, and directors can be held accountable, the SFO is unlikely to want to risk a trial.
The current bribery bill, if it becomes law before the election, may change future outcomes. But probably not for the BAE-style corporate corruption of the past.