and plea bargains
In 2004 the Serious Fraud Office (SFO) started an investigation into BAE Systems' deals with respect to Chile, the Czech Republic, Hungary and Austria, Qatar, Romania, Saudi Arabia, South Africa and Tanzania. The UK government halted the Saudi investigation in December 2006. The formal announcement that all the other investigations had finished was made when the SFO announced a "plea bargain" deal on 5 February 2010. BAE would pay £30million and plead guilty to failing to keep reasonably accurate accounting records in relation to its activities in Tanzania. No action would be taken in respect of the allegations with regards to the other countries. Information about the legal challenge CAAT and The Corner House made to the "plea bargain" between February and April 2010 can be found here.
UK plea bargain
Under the "plea bargain" BAE pleaded guilty to one charge of failing to keep proper accounting records. Mr Justice Bean held a sentencing hearing at Southwark Crown Court and was clearly unhappy about the deal between the SFO and BAE as his sentencing remarks on 21 December 2010 make clear. BAE was to pay a fine of £500,000 and make a further £29.5million payment to the people of Tanzania. Following the hearing, the SFO released its lawyers opening statement to the court as well as the actual "plea bargain".
The court hearing revealed for the first time the details of the blanket immunity from prosecution given to BAE by the SFO as part of the "plea bargain", but lawyers for CAAT and The Corner House subsequently received assurances from the SFO and BAE that it would be interpreted more narrowly. To quote BAE's lawyers: "..we confirm that our client would not dispute that paragraph 8 should properly be interpreted as meaning that the SFO will not prosecute our client's group in relation to matters which were the subject of its investigations or of which the SFO was otherwise aware before the date of the settlement."
US plea bargain
Simultaneously with the UK plea bargain, BAE agreed another with the US Department of Justice. On 1 March 2010 BAE pleaded guilty in the United States District Court in Washington DC to "conspiring to defraud the US by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations". The company was fined $400 million, one of the largest criminal fines in the history of the US DoJ's effort to "combat overseas corruption in international business and enforce US export control laws".
On 17 May 2011 BAE agreed to pay additional fines of up to $79million as part of a civil settlement with the US State Department. This was for 2,591 violations of US regulations governing the export and brokering of sensitive military hardware. Full details can be found in the Proposed Charging Letter, the Consent Agreement and the Order.
The agents and Red Diamond
The Proposed Charging Letter confirms the role of Red Diamond. This was set up in February 1998 in the British Virgin Islands by a Liechtenstein company Uniglobe to conceal BAE's brokering arrangements.
BAE's brokers, or advisors, or agents, were either "overt" or "covert". The Proposed Charging Letter says there were approximately 350 covert agreements wih 299 brokers. Red Diamond, at the specific direction of BAE's then senior management, made 1,000 payments to the brokers between 1998 and 2007, when it was dissolved by BAE.
BAE auditor investigated
An investigation of BAE's auditor has now started. The Accountancy & Actuarial Discipline Board announced in October 2010 that it was looking at the conduct of KPMG Audit as BAE's auditor from 1997 to 2007 "in relation to the commissions paid by BAE through any route to subsidiaries, agents and any connected companies".
In 1989, Chilean leader General Pinochet arranged an artillery rocket deal with BAE's Royal Ordnance division. The Rayo 160mm multiple rocket launcher system was to be developed jointly with Chile. The Chilean army was reported to have sunk $60million into it before abandoning the project in 2003. There were also joint naval projects. In 2005, in response to a Chilean judge investigating Pinochet's tax affairs, the US handed over banking records showing payments totalling $2,098,841 made by BAE to what were said to be front companies and middlemen associated with Pinochet.
The status of the investigation with regards to Chile ahad long been unclear as the SFO did not mention it, but refused to answer questions about when it stopped.
Czech Republic, Hungary and Austria
In 1995 Sweden's Saab and BAE set up a joint venture to sell the Gripen fighter, made by Saab. The Czech government wanted to buy fighter aircraft and, in 1999, asked companies to submit proposals. Gripen was one of five companies which bid, but the other four withdrew from the contest in 2001, alleging that the whole process seemed corrupt.
The Gripen team sorted out a generous finance package and offsets - contracts worth 150% of the cost of the aircraft were to be placed with Czech companies. In December 2001 there was a provisional agreement for the sale of 24 Gripen planes costing £900 million. However, the Czech parliament had still not approved the deal when, in August 2002, the country suffered devastating floods. The clean up costs meant the planes were no longer affordable and, by the end of 2002 cheaper alternatives were being sought. This culminated in a £400 million lease agreement for 14 Gripens being signed in June 2004.
It was a similar story in Hungary, where, in 1991, the government rejected the advice of its National Security cabinet to buy F-16s. It decided instead to lease 14 Gripens at a cost of $500million, it was said because Saab-BAE had a better offset deal. In Austria, in 2003 and after years of deliberation, it was confirmed that 18 Eurofighters would be bought at a cost of $2.24billion. There were later threats to cancel the deal on grounds of cost and because of bribery allegations, but, in 2007, the Austrian government decided to go ahead because the cancellation costs were so high.
In October 2008 the SFO interviewed the Austrian Count Alfons Mensdorff-Pouilly whose company is said to have had a contract with BAE since 1992. In March 2009 he was arrested by the Austrian authorities and questioned about an £11 million payment allegedly made to him by BAE. It was alleged that monies reached ministers and others via a complex web of small companies, many of them registered in such places as the Bahamas and the British Virgin Islands. He was charged by the SFO on 29 January 2010 with conspiracy to corrupt in connection with BAE's deals with eastern and central European governments including the Czech Republic, Hungary and Austria.Julian Scopes, who had been BAE's central Europe chief, had also been interviewed by UK police in October 2008.
In May 2010 it was reported that the Czech Prosecutor General had ordered that the case be reopened.
BAE was part of a consortium which won a record £500million deal to sell military hardware, including Hawk aircraft, to Qatar in 1996. £7 million “commission” was alleged to have been paid into three Jersey trust funds under the control of Qatar’s Foreign Minister. A criminal investigation began in Jersey in 2000, but ended in 2002 on “public interest” grounds. The Qatari Foreign Minister denied any wrongdoing, but agreed to pay Jersey £6million for “perceived damage”.
As with Chile, the status of the investigation with regards to Qatar ahad long been unclear as the SFO did not mention it, but refused to answer questions about when it stopped.
Under an agreement signed in January 2003 the Romanian government bought two ex-Royal Navy frigates. BAE paid the UK MoD £100,000 for each ship and then upgraded them in a £116 million package. The deal was underwritten by the UK's Export Credits Guarantee Department.
On 7 June 2007 The Guardian alleged that an agent called Barry George, whose wife is a Romanian with good connections to the old communist regime, was paid £7 million by BAE to fix the deal. BAE had allegedly told the ECGD that 1% commission had been paid to Barry George and 6% to another agent based in Guernsey. However, SFO investigators had allegedly discovered that all the money had gone to the Georges.
There were reports from Romania suggesting that the SFO may have ended its inquiry regarding that country in June 2009.
The largest of the deals being investigated by the SFO involved reports of "slush funds" as well as hundreds of millions of pounds being paid into the bank account of Prince Bandar, the son of the Defence Minister, Prince Sultan. The SFO's investigation of BAE's Saudi arms deals was stopped after the intervention of then Prime Minister Tony Blair in December 2006. The US Department of Justice, however, included Saudi-related offences in its action against BAE. More information about the deals, the corruption allegations and the court case brought by CAAT and The Corner House in connection with the ending of the SFO investigation can be found here.
In 1999 South Africa bought military equipment from companies in several different European countries. Critics asked why South Africa needed to spend so much on arms when it had major health and housing needs. The equipment included 28 Saab/BAE Gripen aircraft and 24 BAE Hawk trainers, worth about £1,000million to BAE. The Hawk purchase, in particular, raised questions since the planes cost more than double that of an Italian equivalent which was preferred by the military. The Export Credits Guarantee Department underwrote the full Gripen and Hawk package for near £1,680million.
Stories of corruption were soon circulating about various aspects of the European deals. Durban businessman Schabir Shaik was convicted and imprisoned in 2005 for corruption and fraud on a deal involving a French company. With regards to BAE, requests from the SFO for help from the South African authorities led to the leaking of documents which talk of secret payments totalling more than £100million.
Various small companies are named. Mostly registered in the Channel Islands and British Virgin Islands (BVI), they are said to have received payments, often through Red Diamond. One such company was said to have been under the control of the late Richard Charter, then BAE's main agent in South Africa; another agent was reportedly the Zimbabwean John Bredenkamp. An alleged recipient is Fana Hlongwane, who was an adviser to the late Joe Modise, the Defence Minister, when the arms deals were struck. The SFO documents are also said to name very senior BAE figures who approved the payments. Alegations have continued to be made. In December 2010, for example, it was said that General Siphiwe Nyanda, head of the South African Defence Force when ke decisions were made, had received a very favourable loan to buy a property from a company owned by Fana Hlongwane.
Former ANC MP Andrew Feinstein spoke about the case at CAAT's 2009 National Gathering.
In 2001 BAE sold a £28million Watchman air traffic control system to Tanzania, one of the world's poorest countries. The sale was funded through a loan from Barclays Bank. The deal was backed by then Prime Minister Tony Blair, but opposed by his International Development Secretary Clare Short, who, though she had no evidence, said she did not think the contract "could have been made cleanly". In 2002 the International Civil Aviation Organisation said the system used dated technology and was not adequate for civil aviation. Norman Lamb MP, who compiled a dossier on the deal, said a modern system could have been provided for 10% of the cost.
The documents released as part of the December 2010 UK plea bargain hearing, see above, revealed what had happenned. In October 1999, an agreement was drawn up between two companies controlled by BAE and two under the control of BAE's Tanzanian agent Sailesh Vithlani - one called Marlin International Ltd and the other, the Envers Trading Corporation. Merlin was a Tanzanian company and under the agreement was to receive 1% of the contract price from BAE itself; Envers, based in Panama, received 30% of the contract price via Red Diamond. The total paid was approximately $12.4million.
An international arrest warrant was issued for Sailesh Vithlani in August 2007 and a criminal case has been filed in Tanzania charging him with perjury and lying under oath in connection with the radar deal. He is said to have been in Europe and reports say he was interrogated by the SFO in July 2009.
In April 2008, Andrew Chenge, Tanzania's Infrastructure Minister, who had been Attorney General at the time of the radar purchase, resigned following claims regarding £500,000 in a Jersey bank account. He does not dispute the money's existence, but denies it came from BAE. One report alleges that Sailesh Vithlani sent a copy of a legal opinion by Andrew Chenge to Barclays stating that the purchase would not make Tanzania ineligible for International Monetary Fund loans.
It was reported in May 2011 that BAE had set up a committee of six people, three of them BAE employees, to decide how the £29.5million payment agreed as part of the UK plea bargain should be spent. The Tanzanian and, allegedly, the UK governments were said to be unhappy about this and thought the money should go to the Tanzanian government.