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."
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. On 19 July 2011 the Commons' International Development Committee held a hearing to discuss this payment. The Committee made clear its unhappiness about the BAE comittee idea, said that there was already a good scheme for the payment of the money agreed by the UK Department for International Development and the Tanzanian government, and wanted the money paid over without further delay. BAE did bow to the pressure from the Committee which, on 9 September 2011, announced that the company had agreed to honour its settlement with the SFO and make an immediate payment of £29.5million to the Tanzanian government.
On 15 March 2012 the Serious Fraud Office announced that a Memorandum of Understanding had been signed enabling the £29.5million plus interest to be paid for educational projects in Tanzania. BAE issued its own press release and the media reported that the money was paid over on that date.
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".