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Harry Cassin
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Thomas Fox
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Marc Alain Bohn
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Will the DOJ ask BAE to squeal on EADS?

Britain’s BAE Systems and Europe’s EADS are proposing to merge, they said earlier this month, to create a defense giant capable of competing against Boeing and Lockheed Martin.

BAE is one of the biggest military contractors to the U.S. government. It’s not clear if the Pentagon will agree to the merger due to security concerns (the French government owns 15 percent of EADS).

The deal also raises anti-corruption compliance issues for the companies and the U.S. government.

In 2010, BAE paid a $400 million criminal fine to resolve overseas bribery and other offenses. The DOJ charged BAE with conspiracy to defraud the United States, make false statements about its Foreign Corrupt Practices Act compliance program, and violate the Arms Export Control Act and International Traffic in Arms Regulations.

A plea agreement required BAE to ‘cooperate fully’ with the DOJ, and with the FBI, Immigration and Customs Enforcement, the Defense Criminal Investigative Service, and the General Services Administration, “in any investigation or prosecution being conducted by the [DOJ],” subject only to applicable U.K. privacy and data protection laws.

Now EADS is the target of an overseas bribery probe. In August this year, the U.K. Serious Fraud Office launched an investigation into possible bribes in Saudi Arabia by an EADS unit based in the U.K. A former employee said the EADS unit gave Saudi officials cars, jewellery, and cash to win a £2 billion communications contract.

The DOJ hasn’t said if it is investigating EADS (the DOJ doesn’t confirm or deny pending investigations, or disclose any information about them).

But if the DOJ does investigate EADS, would prosecutors ask BAE for information about overseas sales practices that might violate the FCPA, particularly those in Saudi Arabia?

BAE knows how business was done there. At the heart of its FCPA enforcement action was a contract, allegedly tainted, to supply jet fighters to Saudi Arabia.

Companies from other industries have delivered information to the DOJ about competitors. Johnson & Johnson talked about other orthopedic device makers, and Pfizer about overseas sales practices of other pharmas.

Even after a merger with EADS, BAE would still be obligated to cooperate with the DOJ. According to its plea deal, if BAE disappears into EADS, the remnant of BAE, or EADS itself, might still be compelled to talk to the DOJ, FBI, or other U.S. agencies.

In 2011, the U.S. State Department entered into a civil settlement with BAE for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR) (22 C.F.R. Parts 120-130). No court action was involved.

In that enforcement action, BAE agreed to pay the biggest penalty in State Department history — $79 million.

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