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BAE reaches $450m settlement with US, Britain

BAE Systems, Europe’s biggest military contractor, will pay about $450-million in fines in the United States and Britain, settling long-running corruption investigations on both sides of the Atlantic.

In the United States, BAE, the Pentagon’s fifth largest supplier by sales, will plead guilty to one charge of conspiring to make false statements to the US government. The company will also pay $400-million in fines, one of the largest penalties against a defence contractor and comparable to the $402-million KBR agreed to pay in February 2009 in a Nigerian bribery case.

According to a criminal charge filed in the US District Court in Washington, BAE had gains of more than $200-million on the business related to the false statements, including deals in Saudia Arabia.

BAE will also plead guilty in Britain to one charge of breach of duty in relation to records of payments made in Tanzania. It will pay £30-million ($48-million), the largest penalty imposed by Britain’s Serious Fraud Office.

“While it’s a substantial figure, it’s less than the worse case scenario,” said analyst Tina Cook at brokerage Charles Stanley, noting initial media reports had suggested a figure of up to £1-billion from the SFO alone, later revised down to between 200-million and 300-million.

A statement by the SFO said its decision ended its investigations into BAE’s defence contracts.

US Department of Justice officials, however, said their investigations were ongoing. They declined to elaborate.

BAE chairperson Dick Olver said in a statement: “The company very much regrets and accepts full responsibility for these past shortcomings. These settlements enable the company to deal finally with significant legacy issues.”

The US court filing outlined a number of BAE’s dealings, including the sale of fighter aircraft and other defense material to Saudi Arabia and the lease by the Swedish government of fighter aircraft to the Czech Republic and Hungary. Because the leased jets contained US-controlled defence components, Sweden needed to secure an arms export licence from the US Department of State.

“BAES did not subject these payments and benefits to the type of internal scrutiny and review that BAES had represented it would subject them to” in previous undertakings to the US government,” the court document said.

A previous investigation by the Serious Fraud Office into reports BAE paid about £1-billion over a decade ago to Prince Bandar bin Sultan in connection with the Saudi al-Yamamah arms deal had been halted in 2006 by former prime minister Tony Blair after the probe angered Saudi Arabia.

The US court filing alleged the company “provided substantial benefits” to a Saudi official “in a position of influence” and to the official’s associates. But the filing did not identify the individual.

In connection with the Saudi fighter deals, BAE agreed to transfer £10-million and more than $9-million to a bank account controlled by an intermediary, according to the complaint. BAE “was aware that there was a high probability that the intermediary would transfer part of these payments to the KSA official,” the complaint states.

US unit not accused
BAE’s US subsidiary, BAE Systems, was not accused of wrongdoing by the Justice Department. As a result, it may escape suspension or debarment from doing business with the US government. The company supplies products and services to the Defence Department, US intelligence and Homeland Security. The US accounts for more than half of BAE’s sales.

The settlement BAE reached with the SFO of Britain relates to the sale of an air traffic control system in Tanzania, a contract worth £30-million, according to an SFO spokesperson. Part of of the £30-million penalty will be a fine, to be decided by a court, with the remainder as a charity payment.

After the settlement was announced, the SFO said it had withdrawn a corruption charge it filed on January 29 against Count Alfons Mensdorff-Pouilly, a BAE agent involved with BAE contracts in Eastern and Central Europe.

In London, BAE shares closed up 1,6%, as the market welcomed news of the settlement.

In a conference call with reporters on Friday, BAE Systems chairperson Dick Olver said the activities addressed by the settlement were “all legacy issues”.

“We are now seen as a company of good standing and a responsible company to do business,” he added.

He added that the settlement amounts were non-tax deductible and would be included in BAE’s 2009 results.

Gavin Cunningham, head of corruption investigations at accountancy firm BDO Stoy Hayward, said the SFO penalty “sends out a powerful message to UK business that corruption is going to be investigated and prosecuted”.

Some lawyers have said the SFO wanted to show it had teeth by following the examples of Germany and the United States in dealing with international corruption. In late 2008, for example, German industrial conglomerate Siemens agreed to pay just over $1,3-billion to settle corruption probes.

SFO director Richard Alderman said in a statement: “I am very pleased with the global outcome achieved collaboratively with the DoJ. This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation.” – Reuters

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