Europe

U.S. Extends Probe into BAE Systems


Fraud investigators in America have widened their inquiry into BAE Systems in a move that will further damage the defence giant's reputation and overshadow the company's attempts to win contracts in its most important market.

The US Department of Justice (DoJ), already investigating BAE's £43bn al-Yamamah contract with Saudi Arabia, is also looking into its arms sales in Europe and Africa.

Britain's Serious Fraud Office (SFO) said on Thursday it was seeking a criminal prosecution of BAE over allegations that it paid millions of pounds in bribes to win contracts in Tanzania, South Africa, the Czech Republic, and Romania. Now the DoJ wants to know if the deals breached its own corruption rules. It is understood there has been an informal exchange of information between the SFO and the DoJ, but a source said an official request for details is expected soon.

America accounts for more than 50 per cent of BAE's £18.5bn annual sales, and the company is the Pentagon's sixth-biggest arms supplier. With UK and European defence budgets being cut, US spending is key to BAE.

Insiders say the SFO's latest action will encourage BAE's rivals and critics on Capitol Hill to take advantage of every claim of wrongdoing by warning the Pentagon against doing business with it. The SFO declined yesterday to discuss contact with the DoJ, but a source said there had been a "liaison" with its US counterpart "throughout the course of our inquiries".

John Benstead, a former SFO prosecutor who worked on joint investigations with the DoJ, believes the US authorities will be "all over" the contracts with Tanzania, South Africa and in eastern Europe. The DoJ makes "lots of informal and formal requests for information," said Mr. Benstead, a partner at McGrigors, the law firm.

News of the widening US probe will likely delay BAE's attempts to settle with the DoJ the allegations that it bribed Saudi officials to win al-Yamamah. George Brown, a global regulation expert at US-based legal firm Reed Smith, said the DoJ will not contemplate a settlement if BAE could have other skeletons in its closet. "The DoJ will want to know if there is anything else that comes under its jurisdiction," he said.

The SFO offered to settle with BAE if it paid a fine of £500m and admitted criminal activity. However, such an admission would be damaging for BAE as it could debar it from bidding for contracts around the world.

BAE, which fiercely denies wrong-doing, has indicated a willingness to accept a civil penalty and a lower fine of perhaps £20m. Despite the SFO's tough stance, both sides say they are open to further discussions.

There is also speculation the SFO might agree a civil settlement in return for a "scalp"—evidence that some executives were complicit in bribery. One observer said: "The idea that BAE might throw someone to the dogs in return for a civil agreement is intriguing."

However, the SFO maintains that it is focusing on the company, and not on individuals.

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