A serious settlement

The settlement brought an end to a six-year investigation by the US Department of Justice (DoJ) and UK SFO into the company’s alleged corruption in arms deals.

In the US, where BAE was advised by Linklaters’ US head Larry Byrne, the company agreed to pay a $400m (£255.5m) fine and pled guilty to one charge of conspiracy to make false statements to the Government.

Compare that with the UK where the company, advised by Allen & Overy partner Jonathan Hitchin, agreed to plead guilty of failing to keep “reasonably accurate accounting records” in relation to its sale of a radar system to Tanzania and agreed to pay £30m.

The investigation spanned five years and was triggered by suspicions that BAE used a worldwide network of more than 200 agents to bribe officials in at least six countries.

In October 2009, the SFO asked attorney general Baroness Scotland for permission to prosecute the firm in relation to allegations that the company paid bribes to several nations in Africa and Eastern Europe.

But the settlement appears to put an end to any investigation. The prosecutions have been laid to rest and once again the SFO has come in for serious criticism.

The Campaign Against Arms Trade (CAAT) and campaigning group The Corner House led the charge against the settlement. CAAT said it was “outraged and angry” that the allegation failed to reach a criminal court, while The Corner House said the settlement “simply raises far more questions and creates yet further demands for justice”.

Liberal Democrat MP Norman Lamb said he was “deeply concerned” that BAE had escaped a full investigation into its practices.

In reality, however, what the SFO seriously lacked in this investigation was the legal framework to bring a case against BAE.

In the Bribery Bill, which is due to be enacted later this year, the common law offence of bribery is to be tightened up. This will provide greater alignment between UK and US law and enforcement on the bribery of foreign officials.

According to one US lawyer if the bill had already been enacted the SFO would have been able to build a much stronger case against BAE.

“The Bribery Bill represents a seismic change in the obligation on corporates to disclose criminality,” the litigator says. “In the case of BAE, it’s likely there would’ve been some prosecutions. Right now the UK lags behind the US.”

The Bribery Bill will put the onus on general counsel to be aware of the ethical activities of their company.

“In-house lawyers will need to be much closer to the management board,” another lawyer says. “We’re seeing significant changes in who’s responsible for controlling risk.”

Legislation is being negotiated that will result in mechanisms for stronger corporate governance. Some argue this will end up with shareholders having a better route to redress through the courts when wrongdoing is uncovered.

Pressure is building on companies to make risk management a central part of boardroom activity.

BAE has learnt its lessons, but the introduction of the Bribery Bill could mean the consequences are more serious for those who ignore the warnings.