High Court halts Fraud Office corruption settlement with arms giant

By agency reporter
March 2, 2010

The High Court has granted an injunction prohibiting the director of the Serious Fraud Office from taking any further steps in its plea bargain settlement with BAE Systems.

The injunction is in force until the Court has decided whether or not to give permission to Campaign Against Arms Trade (CAAT) and The Corner House, a social justice NGO, to apply for a judicial review of the settlement - which they argue prevents serious charges of bribery and corruption being resolved publicly and properly.

The Court is due to make this decision by 20 March 2010.

Lawyers acting for The Corner House and CAAT formally lodged papers seeking judicial review permission on Friday 26 February 2010, together with a request for the injunction.

The Serious Fraud Office has been investigating alleged bribery and corruption in BAE’s arms deals since 2004 in several countries (including Chile, Czech Republic, Qatar, Romania, Saudi Arabia, South Africa and Tanzania). BAE is alleged to have paid bribes, often in the form of commissions to 'advisers' to clinch the deals.

On 1 October 2009, the SFO announced that it intended to prosecute BAE Systems for offences relating to overseas corruption.

On 29 January 2010, the SFO charged Count Alfons Mensdorff-Pouilly with conspiracy to corrupt in connection with BAE's deals with eastern and central European governments including the Czech Republic, Hungary and Austria. In the course of these preliminary hearings, the SFO told the courts that “From 2002 onwards, BAE adopted and deployed corrupt practices to obtain lucrative contracts for jet fighters in central Europe.” It was a “sophisticated and meticulously planned operation involving very senior BAE executives.” (See David Leigh and Rob Evans, “BAE chiefs ‘linked to bribes conspiracy'", The Observer, 7 February 2010). On 4 February 2010, Mensdorff-Pouilly was granted bail of £1 million.

On 5 February 2010, however, the SFO announced its plea bargain settlement with BAE. Under the SFO’s proposed settlement, BAE would plead guilty in court to “accounting irregularities” in its 1999 sale of a radar system to Tanzania and would pay penalties of £30 million. The SFO would not bring prosecutions relating to alleged bribery and corruption in BAE’s arms deals elsewhere, including in the Czech Republic, South Africa and Romania.

This settlement was announced in conjunction with a much larger settlement made by the US Department of Justice with BAE. Under this settlement, BAE admitted making false statements in 2000-2002 in relation to BAE's arms deals with Saudi Arabia and passing covert payments through the United States in regard to its arms deals in Central European countries. It will be fined $400 million (£256 million). Because it has not pleaded guilty to corruption charges, BAE can continue to bid for US military contracts.

Later on 5 February 2010, the Serious Fraud Office announced that it was withdrawing proceedings against Count Alfons Mensdorff-Pouilly on the grounds that it was no longer in the public interest to continue.

CAAT and The Corner House sent a Letter Before Claim to SFO Director Richard Alderman on 12 February, and asked the Courts on 26 February 2010 for permission to apply for a judicial review of the settlement.

The groups contend that the proposed settlement is unlawful because the SFO did not follow the correct prosecution guidance (including its own guidance) on plea bargains.

They argue that the agreement does not reflect the seriousness and extent of BAE's actions.


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