Corruption is a Crime

The Guardian reports that US Department of Justice officials investigating bribery and corruption allegations in relation to the Al-Yamamah arms deal between BAE and Saudi Arabia have issued a subpoena to BAE’s business development director Alan Garwood:

Until last year, Garwood led a team of 600 civil servants at the Defence Export Service Organisation at the MoD, where he worked on projects including last year’s deal to sell Eurofighter Typhoons to Saudi Arabia. He was seconded to the MoD from BAE in 2002.

That secondment reinforces the suggestion that the relationship between the MoD and BAE is too close.

BAE chief executive Mike Turner and non-executive director Sir Nigel Rudd had already been issued with subpoenas.

Whilst the UK Government decided to axe Britain’s investigation into corruption allegations arrising from the Al Yamamah arms deal with Saudi Arabia, the Swiss are cooperating with the US’s own investigation:

Swiss prosecutors have also agreed to hand over financial records linked to the Saudi Royal family, according to a report by the Guardian newspaper. A US source told the paper “The investigators are confident they can get what they need from Switzerland. That’s where all the BAE arrangements were made”.

Read more in Arabian Business.

The New York Times reports:

As far back as July 2002, representatives from the State, Justice and Defense departments, as well as the C.I.A., sat down in Washington with senior British officials from the Ministry of Defense to complain about suspected bribery by BAE in Central Europe, the Persian Gulf and South Africa.

Sir Kevin Tebbit, then Britain’s permanent under secretary of the Ministry of Defense, rejected the suspicions as baseless. American officials who participated in the meeting later nicknamed him Sir Topham Hatt after a character in the Thomas the Tank Engine children’s series because of what they said was “his almost haughty disdain for the allegations of bribery involving BAE” and the manner in which he challenged them to detail evidence of wrongdoing…

American officials say they believe that the Hungarian and Czech governments were influenced by payments. They cite a C.I.A. briefing during which they were told that BAE paid millions of dollars to the major political parties in Hungary to win the contracts there.

Hat tip: Guido Fawkes.

From The Guardian:

US corruption investigators have gone behind the back of Downing Street to fly a British witness to Washington to testify about Saudi arms deals with the UK arms firm BAE Systems, the Guardian can disclose. In a hitherto secret move, Swiss federal prosecutors have also agreed to hand over to Washington financial records linked to the Saudi royal family.

The US is seeking - but has so far been refused - more than a million pages of documents seized from BAE, its bankers, Lloyds TSB, and the Ministry of Defence during an investigation by the Serious Fraud Office…

British ministers are refusing to grant a six-month-old official request from the US department of justice for mutual legal assistance, in defiance of the UK’s anti-bribery treaty obligations. This follows the suppression of Britain’s own Serious Fraud Office investigation, which was abandoned last year on the grounds that the inquiry might jeopardise national security.

Labour ministers are refusing to assist the Americans’ investigation into alleged corruption by BAE, the Guardian reports.

The newspaper claims that Home Secretary Jacqui Smith hasn’t approved a request for assistance made by the US authorities two months ago.

The formal request for assistance came from the US department of justice earlier in the summer, but Ms Smith has refused to pass it on to the Serious Fraud Office for processing in the normal way.

This is unusual behaviour towards a major ally, with whom legal cooperation is normally automatic. Last night, the Home Office said its failure to pass on the request was “not unprecedented”, but could not give any example of similar behaviour.

The SFO possesses important files on BAE gained from its own major inquiry into £1bn of payments to Prince Bandar of Saudi Arabia and other Swiss bank accounts linked to the Saudi royal family. But SFO investigators are not allowed to speak to US authorities until Home Office officials forward the paperwork.

The Government’s failure to assist the US inquiry has been condemned by Liberal Democrat MP Norman Lamb, who is quoted in the same story:

“There is no justification for delay. This information should be handed over immediately. Again, one is left with the suspicion that by refusing to cooperate, the government is more interested in securing arms deals than in the pursuit of justice.

“It makes a mockery of the government’s assertion that they are robustly tackling corruption.”

Read the full story here.

An international crisis is brewing between the United Kingdom and the United States over the US Department of Justice’s continuing investigation into the BAE. Today’s Guardian reports that the US has formally requested documents relating to the BAE/Al Yamamah investigation.

If British ministers defy the justice department, this could go on to endanger reciprocal cooperation and intelligence-sharing with the US. Britain depends far more heavily on Washington than it does on Saudi Arabia. One senior source close to the US department of justice told the Guardian: “Britain’s definition of national security might have to change under these circumstances.”

Ministers are likely to be challenged today in the Commons on whether they will seek to obstruct US investigators. The Liberal Democrats have scheduled another opposition day debate in an effort to smoke out the prime minister’s position. The Liberal Democrat deputy leader, Vince Cable, said: “Gordon Brown has made much fanfare about promising a more open approach to government, but if he was serious, he would find a way of opening the lid on the secrecy surrounding this murky deal.

“Allegations that the British government has been complicit in large-scale corruption are incredibly serious. It is profoundly unsatisfactory to invoke national security as the reason for this government’s refusal to pursue either legal action or parliamentary oversight.”

The full story - here - is well worth a read. Meanwhile, the Liberal Democrat Voice blog has asked How far will Brown go to protect BAE from corruption charges?

The Guardian’s BAE investigators David Leigh and Rob Evans have hit back at BAE, which had previously dismissed their reports of an impending anti-corruption investigation into the company by the United States.

BAE’s chief executive, Mike Turner, is eating his words today, only days after trying to dismiss the Guardian’s accurate prediction that the arms giant would face a criminal investigation in Washington.

Named as a potential corruption suspect himself in the Serious Fraud Office BAE dossiers, Mr Turner told a Sunday paper the only reason the SFO had begun its previous investigation was because of allegations in the British media.

The article goes on to note that Lord Goldsmith is likely to avoid serious questions about his role in the affair as Attorney General by standing down as part of the change of Prime Minister today. The whole article is worth a read - but we naturally liked this bit:

The Liberal Democrats, the only British political party with clean hands in the massive 20-year al-Yamamah Saudi arms programme, were quick to see the implications today.

They put down an urgent question: “What role does the government intend to play in assisting the US department of justice in the investigation which it has announced today into alleged corruption by BAE Systems?”

The Lib Dem frontbencher Vince Cable said: “It is extraordinary and embarrassing that we have to rely on the higher standards of probity in the United States to investigate alleged corruption by a British company in its overseas business operations.

“One of the most important challenges facing Gordon Brown is to alter the sleazy behaviour of the outgoing Blair administration and ensure that this government is committed to higher ethical standards and the rule of law.”

Over the last few weeks we’ve covered various stories suggesting that the United States’ Department of Justice would be launching an investigation into BAE Systems plc. The company itself has now confirmed this, the BBC reports. The inquiry will include its business dealings with Saudi Arabia.

BAE is facing allegations that it ran a multi-million pound slush fund to help it win a giant plane and military equipment order from Saudi Arabia.

BAE has always argued that it acted lawfully at all times.

The allegations of illegal payments by BAE date back to the 1980s and the £43bn ($85bn) al-Yamamah deal that supplied Saudi Arabia with Tornado jets and other military equipment.

Analysts said that the probe in the US could damage BAE’s business in North America.

The BBC business editor, Robert Peston, has blogged about the case this morning, noting that it will be “Gordon Brown’s first big diplomatic dilemma as prime minister.”

Why? Because the contract was between the British and Saudi governments, not between BAE and Saudi.

BAE was only the contractor.

So it will be a decision for the Ministry of Defence, not BAE, whether to disclose the details of the deal.

We will be watching with interest to see if Prime Minister Brown is any more open than Prime Minister Blair.

We’ve reported a number of BAE/Al Yamamah stories from the Guardian this week, and the paper presses on hard with its investigation today: “BAE faces criminal inquiry in US over £1bn payments” is the front page headline.

The US department of justice is preparing to open a corruption investigation into the arms company BAE, the Guardian has learned. It would cover the alleged £1bn arms deal payments to Prince Bandar of Saudi Arabia.

Washington sources familiar with the thinking of senior officials at the justice department said yesterday it was “99% certain” that a criminal inquiry would be opened under the Foreign Corrupt Practices Act (FCPA). Such an investigation would have potentially seismic consequences for BAE, which is trying to take over US arms companies and make the Pentagon its biggest customer.

The full story is here. You can find the Guardian’s detailed investigations pulled together in The BAE Files.

Yesterday’s Observer newspaper carried three interesting stories about BAE Systems plc.

Congress stands by to torpedo BAE’s deal

In January, the US formally protested to the British government about the abandonment at the end of last year of the Serious Fraud Office investigation into bribery allegations over the £40bn al-Yamamah arms deal with Saudi Arabia and the sale of Eurofighters to the Saudis.
[...]
As for the Saudi allegations, BAE maintains it has not broken the law and that it would not have launched the Armor deal without taking soundings about regulatory problems. However, there is only so much BAE could have learned on this. One senior industry figure says: ‘I am sure they have got a sign from the Pentagon, but it would have been far harder to get a sounding from the Department of Justice, for example.’

Part of the difficulty is the spread of responsibility around government departments. The Department of Justice looks into anti-trust and criminal issues. A spokeswoman confirms that bribery allegations such as those made over al-Yamamah cannot be investigated under anti-trust laws. As for criminal activity - the SFO’s investigation was a criminal one - a spokesman says this would be the responsibility of the US Treasury.

BAE to face new bribes probe in US

Congressional aides told The Observer they were briefed on Tuesday by officials from the US State Department on investigations by the Serious Fraud Office into allegations of bribery relating to the £40bn al-Yamamah deal with Saudi Arabia, controversially halted in December, and continuing probes into deals with Tanzania, the Czech Republic, South Africa, Chile, Qatar and Romania.

It emerged recently that the UK government had a complaint from the US about the dropping of the Saudi inquiry, and it has been criticised by the OECD.

Swiss investigate BAE corruption claims

Jeannette Balmer, a spokeswoman for the Swiss federal prosecutor’s office, said that a criminal investigation is under way into suspicions of money laundering involving the company, but declined to give further details. The investigation was the result of a report prosecutors received from the Swiss money-laundering authority.