US imposes ethics watchdog on BAE

By DAN ATKINSON, MAIL ON SUNDAY ECONOMICS EDITOR
Updated: 18:50 EST, 6 February 2010

Defence and aerospace giant BAE Systems is to have an ‘ethics monitor’ imposed on it by the U.S. Department of Justice.

The appointment is a central part of Friday’s plea bargain under which BAE paid a fine of £250 million in the US and £30 million in Britain over business dealings in Saudi Arabia and Tanzania.

While the monitor will be a British national, his or her appointment will have to be approved by the Washington authorities – an extraordinary and unprecedented position for one of Britain’s biggest companies.

The deal with the US and UK authorities brings to an end a lengthy investigation into alleged corruption at BAE   

The monitor will, in effect, have a veto over the hiring of sales agents by BAE anywhere in the world, a move designed to stamp out the risk of dubious commission payments.

Given the sensitivity of much of BAE’s defence work and the fact that it is forced to compete against America’s most powerful contractors for the large US contracts that now make up a majority of its business, the appointment is highly controversial.

BAE, which has swallowed up some of the great names of engineering including Marconi, British Aircraft Corporation and the aerospace interests of Hawker Siddeley, said the monitor would not be an indefinite appointment, but it was not clear how long the Department of Justice intended the job to last.

BAE had been under investigation on both sides of the Atlantic over allegations that it paid bribes to win contracts. 

The American fine did not relate to bribery, but to having misled the US authorities regarding certain payments in Saudi Arabia.

The fine in Britain was for failing to keep proper records regarding payments made in Tanzania. Since 2007, BAE has had a scrutiny panel that examines in detail every proposal to hire sales agents – precisely the sort of middlemen whose activities have led to allegations of corruption.

Now the panel will be joined by a monitor who must be completely independent and is likely to be a lawyer.

Financial Mail broke the news on September 6 that the SFO was demanding that BAE either plead guilty or face trial. At the time, it seemed that the SFO would be looking for a fine of hundreds of millions of pounds, but this weekend the agency insisted that it was pleased with the outcome.

An SFO source said: ‘This is a good result. This company denied there were any problems and has now admitted that there were.’

Meanwhile, the SFO source warned that it had another British firm in its sights. The household-name manufacturer is believed to be paying bribes overseas. The firm has been behaving ‘blatantly’, according to the source, who added: ‘It would be nice if the senior managers came and talked to us about this. Otherwise we will go after them.’