The Serious Fraud Office is seeking to prosecute BAE for corruption. Haven’t we been here before? Why is the firm being pursued again? Simon Wilson reports.
How important is BAE?
BAE is Britain’s biggest manufacturer, with a 2008 turnover of £18.5bn and a £45.5bn order book. In 2008 it directly employed about 32,000 people in Britain and many more abroad, including 47,000 in America. It also provides indirect employment to tens of thousands in its supplier businesses. As the largest contractor to Britain’s armed forces, it underpins a huge defence export business. So an investigation by the Serious Fraud Office (SFO) matters.
What’s the problem?
Bribery. “The world of arms trading is murky and often perceived as prone to corruption,” says The Daily Telegraph. However, that doesn’t make it acceptable. As well as moral issues, corruption adds to costs, leads to poor decision-making, and allows oppressive regimes to stay in power. According to lobby group Transparency International, 25% of Africa’s GDP, some $148bn, is lost to corruption each year. The group’s Bribe Payers Index, a regular poll of business people, makes clear that the defence sector is among the worst offenders. Indeed, a US government report in 2000 found that the sector accounted for half of all bribery allegations in the prior six years. And in recent years, the UK’s reputation for fair play has come under sustained assault from OECD partners. Siemens, at least as vital to the Germans as BAE is to Britain, was fined $1.6bn last year for systemic bribery. In the US, Halliburton was fined $579m. So the world is watching how Britain treats BAE.
Is this a new issue for BAE?
Far from it. For six years the SFO has been investigating BAE for paying bribes to foreign agents and politicians to win business. By far the biggest case concerned the al-Yamanah fighter aircraft deal with Saudi Arabia, a contract originally signed by then-prime minister Margaret Thatcher in 1988, and worth £43bn between 1988 and 2005, and potentially several times that longer term. Allegations of bribes and commissions to wealthy Saudi princes have dogged the huge deal and the National Audit Office started the first of several investigations as early as 1989. The SFO reopened inquiries after bribing foreign officials was criminalised in 2004. But in 2006, to the dismay of anti-corruption campaigners, Tony Blair ordered the SFO to call off the dogs on the grounds of national security, following threats from the Saudis to withdraw co-operation on anti-terrorist intelligence.
So is BAE at fault?
The 2008 Woolf Report commissioned by BAE itself stated “both the chairman and CEO… acknowledge that the company did not in the past pay sufficient attention to ethical standards”. Defence groups such as BAE have always used middlemen and agents to secure export deals with foreign governments. The issue is on what terms. The latest SFO investigation concerns four countries where BAE allegedly paid bribes to win arms contracts: South Africa, Tanzania, Romania and the Czech Republic. There are allegations that agents retained by BAE shelled out millions of pounds to government officials. But the group has always insisted it had no knowledge of such payments, and that the SFO lacks compelling evidence.
Why the prevarication?
BAE has a tricky balancing act to pull off. On the one hand the firm has admitted that in the past it wasn’t squeaky clean, but on the other it is keen to turn the page under largely new management. The sticking point seems to be the level of fine the SFO has in mind in return for a plea bargain. The latest estimate is £300m, whereas “BAE’s advisers are thought to have recommended about £20m”, notes Tom Bawden in The Times. BAE’s directors could be open to being sued for misuse of shareholders’ funds if any large payment is made without an overwhelming SFO case.
So what next?
The SFO’s new boss, Richard Alderman, has referred the group for future prosecution to the Attorney General. But unless further new evidence emerges, the likely outcome remains a settlement that will keep egg off the faces of both the SFO and BAE.
Is the the Serious Fraud Office right to pursue BAE?
YES
• BAE’s internal corruption audit by Lord Woolf was a fig leaf; if a company of BAE’s importance has been flouting the rules, it should be punished.
• Any hint that the UK authorities put commercial interests above the law weakens us diplomatically and destroys our moral authority to act against corruption elsewhere in the world.
NO
• One man’s commission payment is another man’s bribe; without strong evidence the SFO is wasting taxpayers’ money by chasing BAE. The only victors will be each side’s lawyers.
• BAE is a British success story and a significant part of the UK economy. Slapping it with a huge fine will hurt the Treasury and pension savers, and boost BAE’s foreign rivals.