Judge flays BAE plea deal

first published 21 December 2010

Mr Justice Bean pulled apart the settlement agreement reached between BAE Systems and the UK's Serious Fraud Office (SFO) in February 2010 when he sentenced the company at London's Southwark Crown court today (Tuesday 21 December 2010).

The SFO had been investigating since 2004 allegations that some £133 million in bribes were paid to obtain contracts for BAE worth £2.8 billion in total in at least six countries (in addition to the £1 billion alledgedly paid to win £43 billion worth of contracts from Saudi Arabia). Many of the alleged bribes were channelled through agents or advisers.

Under the settlement, BAE pleaded guilty to not accounting accurately for $12.4m of payments made between 1999 and 2005 to a Tanzania-based businessman, Shailesh Vithlani, for his work as a marketing agent in helping to secure a £28 million radar contract from the Government of Tanzania in 1999. (See the SFO's opening remarks made in court on Monday 20 December 2010 for more details.) 

Mr Justice Bean said he accepted "there is no evidence that BAE was party to an agreement to corrupt". But pointed out that they "did not need to be" because the company had deliberately structured the payments to the agent via an offshore company controlled by BAE to another Panama-based company controlled by Mr Vithlani so that they were placed “at two or three removes from any shady activity”.

Moreover, in the basis of plea accompanying the agreement, BAE admitted the following:

"Although it is not alleged that BAE plc was party to an agreement to corrupt, there was a high probablility that part of the $12.4 million [paid to the Tanzania agent] would be used in the negotiation process to favour British Aerospace Defence Systems Ltd."

As Mr Justice Bean said of this high probability:

"indeed there was. Otherwise it is inexplicable . . . why the payments . . . exceeded $12m; and even more inexplicable why 97% of that money should have been channelled via . . . an offshore company controlled by BAE, and paid to . . . another offshore company controlled by Mr Vithlani."

He concluded that it was “naiive in the extreme to think that Mr Vithlani was simply a well-paid lobbyist”.

It is generally accepted in international business transactions that a commission fee amounting to 2-5% of a contract's value is probably legitimate, whereas one that amounts to 10-20% of the contract value strongly suggests that bribes are involved. Mr Vithalani was paid 30% of the £28 million radar contract price.

Mr Justice Bean sentenced BAE on the basis that, by describing the payments in its accounts as provision of technical services, BAE was “concealing from the auditors and ultimately the public the fact that they were making payments to Mr Vithlani . . . with the intention that he should have free rein to make such payments to such people as he thought fit to secure the radar contract” for BAE, but that the company "did not want to know the details".

Nicholas Hildyard of The Corner House said:

"BAE has been convicted of an accounting misdemeanour that hid a major crime: concealing improper payments. The company will never be able to deny this in future."

The judge expressed surprise that, although the accounting "mistake" to which the company pleaded guilty was "the result of a deliberate decision by one or more officers" of BAE and the appointment of the marketing advisor, to whom huge payments were made, "was approved personally by the chairman of BAE" (Sir Richard Evans), no individual was charged.

As part of the plea agreement, the SFO has given wide ranging commitments not to investigate or prosecute BAE further, or to name or make allegations against the company in future. In his sentencing remarks, Mr Justice Bean described this undertaking in a “loosely and perhaps hastily drafted” agreement as granting BAE "a blanket indeminty", while in court he called it a "general amnesty".

The settlement was structured so that any fine would be deducted from a PR payment BAE would make to Tanzania "to restore its reputation" (in the words of the company's barrister). This placed the Court under "moral pressure", said Mr Justice Bean, "to keep the fine to a minimum so that the reparation is kept at a maximum." He set the fine at £500,000.

Nicholas Hildyard of The Corner House said:

"The tragedy of this outrageous plea agreement is that the Tanzanian government is unlikely to accept the payment if doing so would be to admit that officials had taken bribes. The SFO's practice of plea agreements must be reviewed urgently if justice is to be served and to ensure that this travesty never happens again."

Kaye Stearman at Campaign Against Armst Trade (CAAT) said:

"Today's sentencing is an indictment of BAE's culpability. Whatever the level of the fine, the judge's remarks are damming."