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Transparency - corruption, bribery and the BAE case

Forensic Focus - June 2010

compassAuthor: Lorinda Kelly

The Siemens scandal used to be the case on everyone’s lips but now Britain’s BAE Systems, the second largest defence contractor in the world, has taken the corruption spotlight. The settlement that was reached in the first week of February, between BAE, the UK Serious Fraud Office (SFO) and the US Department of Justice, means that the full details of the bribery and corruption undertaken by BAE will never be publicly aired. While complete transparency has not been achieved, numerous allegations and admitted facts have emerged.

The settlement with the SFO came about after BAE pleaded guilty to a charge of failing to keep proper accounting records in relation to transactions in Tanzania. There is reference in the settlement to “payments made to a former marketing adviser in Tanzania”. These payments to a “marketing adviser” came about when BAE sold Tanzania a GBP28million air traffic control system in 2002. The Times reported that The World Bank and the International Civil Aviation Organisation said the system was unnecessarily sophisticated and overpriced. This is easy to believe when you consider that in 2002 Tanzania was the third poorest country in the world – and barely even had an air force.

The US settlement, in relation to charges under the Foreign Corrupt Practices Act, extended to wider allegations that were not pursued by the SFO. The Justice Department were investigating allegations of payments of $US2billion by BAE to Prince Bandar Bin Sultan, a Saudi ambassador to Washington and son of the Saudi defence minister.

As part of the settlement, other investigations into BAE have been dropped. These include the GBP5.5 billion arms deal with South Africa, which some South Africans allege was secured through the payment of more than GBP100million in bribes. The Times report that some of the fighter jets that were sold have never left their hangars as there are no pilots to fly them.

The charges against Austrian Count Alfons Mensdorff-Pouilly, a former BAE Systems agent, have also been dropped. Mensdorff-Pouilly was remanded in custody in January after the SFO charged him with conspiring with others to give or agree to give corrupt payments to agents of certain central and eastern European governments between 2002 and 2008. The SFO prosecution said that BAE and the Count were behind a “sophisticated and meticulously planned operation and involved very senior BAE executives.”

Just months ago, the SFO was preparing to prosecute BAE and BAE agents over allegations of bribery and corruption in South Africa, Tanzania, Austria, Romania, the Czech Republic and Hungary. Now with a payment by BAE of GBP288million, the investigations will go no further. With no guilty pleas to bribery charges, BAE can continue international trading without being blacklisted.

Some view the settlement as a blow for transparency, with the Guardian stating, “The Serious Fraud Office’s settlement with BAE is a travesty of justice”. However Lord Goldsmith, the former attorney general, said he “strongly supported” the approach, adding “it is the first time that there has been a plea bargain of this sort, and that is one of the things we are learning from the US”.

Curiously, in NZ the settlement announcement coincided with the release of a Transparency International NZ Report entitled “As Good As We Are Perceived? A review of the approach to bribery and corruption by NZ business”. The report finds that just 44% of NZX 50 companies have specific policies prohibiting bribery, compared to 72% in the UK and 69% in the US. Only 16% of NZX companies had a code of ethics rated in the report as ’advanced’. Twenty of the NZX50 companies were identified as being involved in a high risk sector and fourteen involved in a high risk country. Eleven out of the twenty high risk sector companies have specific policies prohibiting bribery.

The report is an interesting read, particularly when it is considered in conjunction with the BAE case. Although NZ is perceived as the least corrupt nation in the world, we should not be complacent. If your organisation is potentially at risk, having robust policies in place and ensuring that staff are aware of those policies is the minimum that NZ companies should be doing.

For more information on protecting your business please contact Lorinda Kelly.

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