I hope Metalstorm never fall for this!Contracts worth billions...

I hope Metalstorm never fall for this!

Contracts worth billions at risk as Serious Fraud Office goes gunning for BAE
Bribery case could cause repercussions on both sides of Atlantic for defence giant
(Reuters)
Gripen multi-task fighter planes fly over Cape Town, but court documents filed in South Africa accuse BAE of paying £115 million in commissions to middlemen to help to facilitate the deal

David Robertson, Tom Baldwin and Tim Reid
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Inside BAE System’s Farnborough headquarters yesterday the language used to describe the prospect of facing corruption charges steadily became stronger as the mood grew darker.

Europe’s largest defence company initially merely “noted” the Serious Fraud Office’s intention to bring a case to the Attorney-General. Later, BAE said it was “perplexed” — and then “puzzled” — that the announcement had been made despite continuing negotiations over a possible out-of-court settlement.

One BAE source said that “pissed off” would be a more accurate description of a company that is now staking its reputation, as well as billions of pounds worth of contracts and tens of thousands of jobs, in a game of legalpolitical poker.

For six years it has laboured, under a cloud of allegations and investigations stretching across three continents, to avoid criminal prosecution.

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But yesterday executives conceded that the moment when they may have to put their cards on the table, even at the risk of losing so much, is looming.

The Serious Fraud Office has, they claim, overplayed its hand. In his determination to send a strong signal concerning bribery by British business, Richard Alderman, the agency’s director, offered a tough deal by which BAE would pay a fine of up to £500 million. That, says the company, is unacceptable not least because any acknowledgement of guilt would undermine BAE’s position in the United States market, which accounts for more than half its turnover.

Although the SFO is understood to be still some way off being ready to present a case to Baroness Scotland, the Attorney-General, an ultimatum from Mr Alderman to accept the “plea bargain” expired yesterday. Instead, BAE appears ready to call the agency’s bluff. Unless the SFO lowers the bar for a settlement to £10-20 million and removes any prospect of being tainted by corruption, the company is ready to go to court.

Other avenues appear to be closed. Three years ago, BAE was able to use its influence in Whitehall to scupper a potential bribery prosecution over allegations that hundreds of millions of pounds were secretly paid by BAE through Swiss banks to prominent Saudis. Tony Blair sent a “personal minute” to Lord Goldsmith, then the Attorney-General, asking for the investigation to be halted because it “threatened national security” and British jobs.

This time, Downing Street is making plain that any plea for similar intervention will be rebuffed. “Gordon Brown is a different Prime Minister”, said one aide. “Even if we wanted to get involved we don’t believe this case carries national security implications.”

Claims that BAE had been running a bribery slush fund first surfaced in 2003. The Guardian newspaper said this was used to pay off and entertain Saudi officials responsible for the £43 billion al-Yamamah arms-for-oil deal signed by the last Conservative Government.

It has been alleged that BAE provided prostitutes, sports cars, Cup Final tickets and lavish meals to Saudi officials and members of its royal family. The US Department of Justice is still looking into payments worth more than £1 billion made by BAE to Saudi officials, including Prince Bandar bin Sultan, a former Ambassador to Washington.

The latest SFO investigation, however, focuses on four other countries where it is alleged that BAE used bribes to secure arms contracts — the Czech Republic, South Africa, Tanzania and Romania. Although evidence that millions of pounds was paid out by intermediaries retained by BAE is substantial, the company has always insisted it had no knowledge of it and that the deals were concluded before Britain outlawed bribery in foreign countries.

BAE is in hot water because it has traditionally used intermediaries to secure export deals with foreign governments. These middlemen can use their local contacts to help push BAE’s equipment more successfully than executives flown out from the UK, but these individuals have also been accused of paying bribes to officials in foreign governments.

The Czech deal involved BAE arranging a lease for Gripen fighter aircraft. Count Alfons Mensdorff-Pouilly, an Austrian aristocrat, is alleged to have been one of BAE’s middlemen in this deal and he has since been arrested by Austrian authorities.

The SFO is also investigating another Gripen leasing deal with Romania. The Tanzanian investigation relates to commissions of about $12 million on a $40 million contract to sell the country a new military-grade air-traffic control system.

Meanwhile, a further investigation into the £2.3 billion sale of Gripen and Hawk aircraft to South Africa in 1999 is also under way. Court documents filed in South Africa have accused BAE of paying £115 million in commissions to middlemen to help facilitate the deal.

The leaked evidence from South African police and the British Serious Fraud Office quotes a BAE agent recommending “financially incentivising” politicians.

In both of these deals, one of the BAE middlemen is said to have been John Bredenkamp, formerly a captain of the Rhodesian rugby team, a tobacco trader and a gun-runner.

Mr Bredenkamp has had a colourful career and even ran a sports management company with clients such as Nick Price and Ernie Els, the golfers. He was one of the richest men in Britain earlier this decade with an estimated fortune of £700 million, but has since sold his £8.5 million Surrey mansion and returned to Southern Africa.

During his career, Mr Bredenkamp has been accused of sanctions-busting in Rhodesia in the 1970s and supplying arms to both sides of the Iran-Iraq war. Mr Bredenkamp’s home and offices were raided by the SFO in 2006 as part of an investigation into bribery and corruption allegations against BAE.

If or when the SFO presses ahead with a case against BAE it will be a particularly unwelcome distraction for a company that is trying to protect big projects from Ministry of Defence budget cuts.

There are fears that a high-profile case against BAE alleging ethical and criminal wrongdoing will erode the company’s negotiating position as it tries to persuade the Conservatives and Labour not to see MoD contracts as an area where money could be saved.

A number of large projects such as the £5 billion aircraft carriers, which BAE will build, the next tranche of Eurofighter Typhoons and the Future Rapid Effects System (FRES) armoured vehicle, which could be worth up to £12 billion, are under threat as the Government considers where to wield its axe. BAE argues that the Government should not cut these programmes because they are vital to maintaining jobs and the UK’s manufacturing industry. BAE employs 38,000 people in Britain, while the defence sector as a whole is responsible for more than 300,000 jobs.

There is now concern in the wider defence industry that negative perception towards BAE could impact other companies and undermine their case for protecting the MoD’s budget.

For example, the influence of the Defence Industries Council, which lobbies on defence matters, may be eroded by the fact that it is chaired by Mike Turner, the former chief executive of BAE and its chief operating officer when the contracts under investigation by the SFO were signed. Mr Turner was detained at Houston airport last year and questioned by officials from the Department of Justice about the allegations of corruption in BAE’s Saudi deal.

In the United States, BAE’s problems are likely to be used by rival firms bidding against it for contracts.

Some, jealous of BAE’s success in becoming the fifth-largest supplier to the Pentagon, are said to have already raised past allegations with elected officials — as part of a campaign to poison the waters against the British company. A fully fledged corruption court case in the UK would give them, as well as the trade protectionists lurking in the Democratic congressional caucus, even more ammunition.

The Department of Justice inquiry is understood to have been prompted, at least in part, by pressure from the likes of Senator John Kerry, the former presidential candidate and now chairman of the Foreign Relations Committee. BAE has been forced to spend $2.5 million on lobbyists this year alone to defend itself in the US Congress.

Joe Sestak, a former US Navy admiral and member of the House Armed Services Committee, said that in light of the SFO’s announcement yesterday, he would push for ethics rules to be introduced into the Pentagon’s defence contract bidding process.

Mr Sestak, who sits on a congressional commission that is due to release new provisions for the annual legislation that sets Pentagon rules, told The Times: “If there are firms which ... commit large, egregious violations of laws by corruption or bribery, I think that should be a criteria in whether they get a contract.

“I do think this is a criteria that should be taken into consideration: do they take these nefarious actions? It is not part of the bidding criteria at present.”

Another source put it plainer still. “It’s going to be open season on BAE in DC,” he said.