BAE Systems Pleads Guilty to Bribery Allegations

10 February 2010 Publication

On February 5, 2010, British defense contractor BAE Systems plc announced that it had reached settlements of bribery allegations with both the U.K.'s Serious Fraud Office (SFO) and the U.S. Department of Justice.

In its announcement, the Company stated that it had entered a plea agreement with the Department of Justice, which is subject to court approval, whereby it pleaded guilty to one charge of conspiring to make false statements to the U.S. Government in connection with certain regulatory filings relating to the company's anti-corruption compliance measures. In exchange, BAE will pay a fine of $400 million and make additional commitments concerning its ongoing with anti-corruption compliance.

According to the U.S. criminal information, BAE willfully made certain false and incomplete statements to the U.S. government from 2000 to 2002 and failed to honor certain undertakings given to the U.S. government, including in a November 18, 2000 letter to the then-Secretary of Defense, where the company represented that it was committed to operating in full compliance with the FCPA and the OECD Anti-Bribery Convention. The criminal information also stated that BAE had made false, inaccurate, and incomplete statements in applications for arms export licenses, chiefly through the failure to disclose commissions paid to secure sales of defense articles. Specifically, the criminal information alleges that BAE made false statements despite, among other things, the company's practice of making commission payments to third-parties that were not subject to the degree of scrutiny and review required by the FCPA. In particular, the Company made payments to certain "marketing advisors" through various offshore shell entities even though there was a high probability that part of the payments would be used to ensure BAE was favored in foreign government decisions regarding defense contracts. According to the criminal information, these payments "were not subjected to the type of internal scrutiny and review that BAE had represented that they would be subject to in the [] statements made to the U.S. government." The U.S. government calculated that the gain to BAE from "the various false statements to the U.S. government exceeded $200,000,000."

Under the agreement with the SFO, BAE pleaded guilty to one charge of breach of duty to keep accounting records in relation to payments made to a former marketing adviser in Tanzania, for which it agreed to pay a 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.

On January 29, 2010, the U.K.'s Serious Fraud Office charged Count Alfons Mensdorff-Pouilly, a former BAE agent, with bribery in connection with arms sales to countries in Eastern and Central Europe. The SFO alleged that Mensdorff-Pouilly conspired with others from 2002 though 2008 to bribe government officials and representatives from the Czech Republic, Hungary, and Austria. The bribes were intended to secure contracts from those governments for the Sale of SAAB/Gripen fighter jets marketed by. However, on February 5, 2010, the SFO said it was dropping all charges against Mensdorff-Pouilly as a result of the larger settlement with BAE.

The SFO press release can be found here. A copy of the U.S. criminal information is attached.