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BAE Settles Bribery Case

British arms-maker BAE Systems plc reached a simultaneous settlement today of bribery allegations with the U.K.’s Serious Fraud Office and the U.S. Justice Department. In its release, the company said:

Under the agreement with the Department of Justice, which requires court approval, the Company will plead guilty to one charge of conspiring to make false statements to the U.S. Government in connection with certain regulatory filings and undertakings. The Company will pay a fine of $400 million and make additional commitments concerning its ongoing compliance.

Under the agreement with the Serious Fraud Office, the Company will plead guilty to one charge of breach of duty to keep accounting records in relation to payments made to a former marketing adviser in Tanzania. The Company will pay an agreed penalty of £30 million comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania.

The SFO’s announcement is here and a copy of the U.S. criminal information can be downloaded here.

The case began six years ago with allegations that BAE secretly paid $2 billion to Prince Bandar bin Sultan — Saudi Arabia’s former ambassador to Washington — in return for inside help selling Typhoon jet fighters to the Saudi government. The SFO opened an investigation but was forced to drop it in December 2006 — just as investigators were closing in on evidence about money transfers through Switzerland. The SFO later said Saudi Arabia had threatened to end all anti-terrorism cooperation with the U.K. unless the Blair government pulled the plug on the investigation.

In an apparent response to the SFO’s decision, the DOJ opened an investigation in 2007. When BAE stonewalled, the U.S. turned up the heat. In May 2008, federal agents detained and searched BAE’s CEO and a director as they travelled separately through the Houston and Newark airports.

BAE — Europe’s largest defense contractor and the fourth biggest military supplier to the American government — has 32,000 employees in the U.K. and about 105,000 worldwide. It’s a lead contractor for the Eurofighter and other big arms projects.

In October 2009, the SFO announced it would seek approval from the U.K. attorney general to prosecute BAE for overseas corruption in Africa and Eastern Europe. The press reported the prosecution would involve sales of aircraft in South Africa and the Czech Republic, purchases of two frigates in Romania, and radar equipment for air traffic control in Tanzania. BAE’s talks with the SFO to resolve those charges reportedly broke down when BAE refused to plead guilty to offenses that could disqualify it from government business in other countries.

Then last week, the SFO charged one of BAE’s former middlemen, Count Alfons Mensdorff-Pouilly, with bribery in connection with arms sales to the Czech Republic, Hungary, and Austria of SAAB / Gripen fighter jets marketed by BAE. But on Friday the SFO said it would drop all charges against Mensdorff-Pouilly, an Austrian citizen, because of BAE’s settlement.

Dowload a copy of the government’s sentencing memorandum in U.S. v. BAE Systems plc here.

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  1. What about Al-Yamamah?

  2. Commentary coming Monday and Wednesday — weather permitting!

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