Shock for arms dealers as judge challenges BAE plea bargain

By staff writers
December 20, 2010

In a shock development, an agreement between arms giant BAE Systems and the Serious Fraud Office (SFO) has been challenged by the very judge who was expected to rubber-stamp it.

The plea bargain, widely seen as letting BAE 'off the hook' over corruption allegations, was presented at Southwark Crown Court yesterday (20 December 2010). This was assumed by observers on all sides to be a formality.

But the judge, Mr Justice Bean, vigorously questioned barristers for both BAE and the SFO, making clear that he thought the terms of the agreement did not make sense.

Under the settlement, BAE agreed to plead guilty to accounting irregularities in a deal with Tanzania, expecting a fine, possibly of around £2 million – a small amount for one of the world's largest arms companies. In return, the SFO would drop all corruption investigations into BAE, including those involving deals with South Africa, Romania and the Czech Republic as well as Tanzania.

But the judge went into detail about the admission of incorrect accounting, asking why it was such a big affair unless corruption were involved. To BAE's embarrassment, he returned again and again to the issue of corrupt payments.

Bean made clear that he would be happy to see BAE tried before a jury, but the SFO has declined to bring a prosecution. He will therefore give a sentence tomorrow for the accounting offence which BAE has admitted. But given his atttiude in court today, it looks likely to be harsher than anticipated by the plea bargain.

Bean forensically questioned barristers representing BAE and the SFO as to the exact nature of payments made through companies Red Diamond and Envers to Sailesh Vithlani, a BAE agent in Tanzania.

He was openly sceptical about the nature of the services offered by Vithlani and the amount of $12 million paid to him. This is between 30 per cent and 40 per cent of the cost of the contract when the norm is around three per cent. It is widely alleged that payments of this size are given to allow the agent to make bribes to secure BAE contracts.

Commenting on the payments, Bean asked, “If this wasn't money to be used for corrupt purposes, then why was 97 per cent of it paid through a British Virgin Islands company established by British Aerospace [the earlier name of BAE]?”

He also challenged the terms of the plea bargain, which appears to state that the SFO will never prosecute BAE for corruption, thus granting an amnesty to the company. Under questioning from the judge, the barristers for both BAE and the SFO admitted that they knew of no precedent for this.

The SFO's most famous investigation into BAE, which related to multibillion pound deals between the arms giant and the Saudi government, was dropped in 2006 following the intervention of the then Prime Minister, Tony Blair. Campaigners have since called on the SFO to vigorously pursue its other inquiries into the company.

In freezing weather this morning, supporters of the Campaign Against Arms Trade (CAAT) and The Corner House held a colourful pageant outside the court house. A giant puppet of Dick Olver, BAE Chairman, hugged a protester dressed as the Duke of York, who WikLleaks recently revealed to have insisted that BAE's alleged corruption should not be investigated.

The Olver puppet handed out peanuts as the campaigners urged the court not to fine BAE “peanuts” in the form of the £2million suggested.

Standing in the snow, the campaigners sang “We won't go until there's justice” to the tune of We Wish You a Merry Christmas.

"We went into the court today with expectations that signing off the plea bargain with arms giant BAE would be a formality,” said CAAT's Kaye Stearman.

But she added, “Instead we have seen a judge question the nature and seriousness of the offence, openly suggesting that BAE was happy to channel funds to Mr Vithlani and not pursue what he did with them. We will be very interested to see what the judge has to say tomorrow when he delivers the sentence."


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