BAE Systems is the world’s third largest arms producer. It is headquartered in the UK, but considers the US, UK, Saudi Arabia and Australia to be “home markets” (BAE website). The company’s portfolio includes fighter aircraft, warships, nuclear missile submarines, tanks, armoured vehicles, artillery, missiles and small arms ammunition.
BAE’s Role in Arming the World
BAE’s arms are sold indiscriminately around the world. The company has military customers in over 100 countries and around 93% of its sales are military (SIPRI, Top 100 2015). Its weapons and equipment are deployed across the world, including in Iraq and Yemen.
BAE does not believe it has a moral obligation to consider its customers’ actions. When questioned at the company’s 2016 AGM by activists concerned about the uses to which BAE’s weaponry is put, Roger Carr, the company’s chairman, said: We are not here to judge the way that other governments work; we are here to do a job under the rules and regulations we are given. (Guardian, 4 May, 2016)
BAE is currently supplying Saudi Arabia with Eurofighter Typhoon combat aircraft, in accordance with a contract known as the Al-Salam deal which was signed in 2007. BAE has, to date, delivered 68 of an order of 72 Typhoons (ukserials.com). Negotiations are believed to be ongoing for a further order for 48 Typhoons (BBC, 6 October, 2016).
These warplanes are playing a central role in Saudi Arabia’s attacks in Yemen (Washington Institute, 11.8.2015 & Hansard, 6.6.2016) which have been condemned by human rights organisations. Typhoons, operated by the Royal Saudi Air Force but made in the UK, have bombed numerous targets, contributing to the conflict’s thousands of casualties (Human Rights Watch). For more information, see CAAT’s Stop Arming Saudi Arabia campaign.
Another notorious deal was for 200 Tactica armoured vehicles to Saudi Arabia. These vehicles were used by Saudi troops helping to suppress pro-democracy protests in Bahrain in March 2011 (Jane’s Defence Weekly, 23.3.2011).
In the UK, amongst a wide variety of arms procurement contracts with the UK government, BAE runs the only UK shipyards capable of building sophisticated warships (Parker Review, 29.11.2016). Although the 2016 Parker Review called for more competition in this market, this seems unlikely to happen in the near future (Telegraph, 3.1.2017). Amongst its current commissions, BAE is constructing seven Astute Class attack submarines, three of which have been delivered (BAE, 18.5.2014), and has started building the next generation of nuclear missile submarines (BAE, 5.10.2016). It is also the lead contractor for the UK’s new Queen Elizabeth Class Aircraft Carriers (BAE).
BAE has a workshare agreement with Lockheed Martin producing the US F-35 stealth combat aircraft. The rear section of each F-35 will be built by BAE either in the UK or Australia, and a wide range of components will be manufactured in the UK (BAE). The F-35 has been in development for well over a decade, and currently around threethousand are expected to be produced for twelve different countries (globalsecurity.org). Israel, for example, took delivery of its first F-35 in 2016 (f35.com).
In early 2017, BAE announced a deal to supply the Indian military with 145 M777 ultra-lightweight howitzers. (BBC, 14.1.2017)
From 2004 to 2006, various BAE deals came under investigation by the UK’s Serious Fraud Office. Covering deals with numerous countries, the most pivotal allegation was of corrupt practices concerning the massive Al-Yamamah deals with Saudi Arabia. Specifically, it was alleged that the deal was facilitated through bribes paid from a BAE ‘slush fund’ to members of the Saudi Royal Family (Guardian, 12.9.2003). BAE’s dealings with Chile, the Czech Republic, Hungary and Austria, Qatar, Romania, South Africa and Tanzania were also investigated.
In 2006, the Serious Fraud Office announced that it was dropping the Saudi arm of the investigation following representations from the government citing ‘national security’ concerns (Telegraph, 21.12.2010). Reports in the Daily Telegraph suggested that the Saudi government had threatened to withdraw from the Al-Salam deal to buy 72 Eurofighter Typhoons if the investigation was not stopped (Telegraph, 1.12.2006). Documents revealed in court showed that the then Prime Minister, Tony Blair, had intervened personally to stop the investigation (Royal Courts of Justice, 10.4.2008).
Corner House Research and CAAT took the government to court over the matter, arguing that the SFO’s decision to drop the case was unlawful. Initially, they were successful, obtaining a High Court judgement that the Director of the SFO submitted too readily to threats from Saudi Arabia, when the rule of law required him to resist that pressure (Royal Courts of Justice, 10.4.2008). The government appealed however and the House of Lords overturned the High Court’s judgement, finding that the national security threat, that Saudi Arabia would withdraw security cooperation, was sufficient to render the decision lawful, if distasteful (House of Lords, 30.7.2008).
The case continued however in the US, where BAE was forced to agree a plea bargain with the US Department of Justice in 2010. The company was sentenced…
to pay a $400 million criminal fine, one of the largest criminal fines in the history of DoJ’s ongoing effort to combat overseas corruption in international business and enforce US export control laws.
justice.gov, 1 March 2010
Following this, the SFO agreed a £30 million settlement in relation to a corrupt Tanzanian radar system contract, for which BAE admitted to false accounting practices (BAE). The settlement was described by Private Eye as “crumbs”.
and plea bargains
In 2004 the Serious Fraud Office (SFO) started an investigation into BAE Systems’ deals with respect to Chile, the Czech Republic, Hungary and Austria, Qatar, Romania, Saudi Arabia, South Africa and Tanzania.
The UK government halted the Saudi investigation in December 2006. The formal announcement that all the other investigations had finished was made when the SFO announced a plea bargain deal on 5 February 2010. BAE would pay £30million and plead guilty to failing to keep reasonably accurate accounting records in relation to its activities in Tanzania. No action would be taken in respect of the allegations with regards to the other countries.
Information about the legal challenge CAAT and The Corner House made to the plea bargain between February and April 2010 can be found here.
UK plea bargain
Under the plea bargain BAE pleaded guilty to one charge of failing to keep proper accounting records. Mr Justice Bean held a sentencing hearing at Southwark Crown Court and was clearly unhappy about the deal between the SFO and BAE as his sentencing remarks on 21 December 2010 make clear. BAE was to pay a fine of £500,000 and make a further £29.5million payment to the people of Tanzania. Following the hearing, the SFO released its lawyers opening statement to the court as well as the actual plea bargain.
The court hearing revealed for the first time the details of the blanket immunity from prosecution given to BAE by the SFO as part of the plea bargain, but lawyers for CAAT and The Corner House subsequently received assurances from the SFO and BAE that it would be interpreted more narrowly. To quote BAE’s lawyers: “..we confirm that our client would not dispute that paragraph 8 should properly be interpreted as meaning that the SFO will not prosecute our client’s group in relation to matters which were the subject of its investigations or of which the SFO was otherwise aware before the date of the settlement.”
It was reported in May 2011 that BAE had set up a committee of six people, three of them BAE employees, to decide how the £29.5million payment agreed as part of the UK plea bargain should be spent. The Tanzanian and, allegedly, the UK governments were said to be unhappy about this and thought the money should go to the Tanzanian government. On 19 July 2011 the Commons’ International Development Committee held a hearing to discuss this payment. The Committee made clear its unhappiness about the BAE comittee idea, said that there was already a good scheme for the payment of the money agreed by the UK Department for International Development and the Tanzanian government, and wanted the money paid over without further delay. BAE did bow to the pressure from the Committee which, on 9 September 2011, announced that the company had agreed to honour its settlement with the SFO and make an immediate payment of £29.5million to the Tanzanian government.
On 15 March 2012 the Serious Fraud Office announced that a Memorandum of Understanding had been signed enabling the £29.5million plus interest to be paid for educational projects in Tanzania. BAE issued its own press release and the media reported that the money was paid over on that date.
US plea bargain
Simultaneously with the UK plea bargain, BAE agreed another with the US Department of Justice. On 1 March 2010 BAE pleaded guilty in the United States District Court in Washington DC to conspiring to defraud the US by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. The company was fined $400 million, one of the largest criminal fines in the history of the US DoJ’s effort to combat overseas corruption in international business and enforce US export control laws.
On 17 May 2011 BAE agreed to pay additional fines of up to $79million as part of a civil settlement with the US State Department. This was for 2,591 violations of US regulations governing the export and brokering of sensitive military hardware. Full details can be found in the Proposed Charging Letter, the Consent Agreement and the Order.
The agents and Red Diamond
The Proposed Charging Letter confirms the role of Red Diamond. This was set up in February 1998 in the British Virgin Islands by a Liechtenstein company Uniglobe to conceal BAE’s brokering arrangements.
BAE’s brokers, or advisors, or agents, were either overt or covert. The Proposed Charging Letter says there were approximately 350 covert agreements wih 299 brokers. Red Diamond, at the specific direction of BAE’s then senior management, made 1,000 payments to the brokers between 1998 and 2007, when it was dissolved by BAE.
BAE auditor investigation peters out
The Accountancy & Actuarial Discipline Board (AADB) announced in October 2010 that it was looking at the conduct of KPMG Audit as BAE’s auditor from 1997 to 2007 in relation to the commissions paid by BAE through any route to subsidiaries, agents and any connected companies.
After nearly three years, on 1 August 2013, the Financial Reporting Council (FRC), as the AADB had become, said the inquiry had been closed. The FRC said it would have had to look into audits which took place before 1997 and, as it was unlikely that an adverse finding would be made in respect of work done so long ago, it was not in the public interest to continue. The media was scathing about this – see an example. Lawyers acting for CAAT and the Corner House wrote to the FRC and there was an exchange of correspondence.