Bribery/Anti-corruption: BAE Systems
18 March 2011 | By Andrew Pugh
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While the appointment of external corporate monitors in corruption investigations is now commonplace in the US, it has taken a lot longer to catch on in the UK.
Recent activity by the Serious Fraud Office (SFO), however, suggests it is becoming an increasingly popular option for the watchdog, after external monitors were appointed following corruption investigations into Balfour Beatty in 2008 and Mabey & Johnson in 2009.
One of the most recent and high-profile examples is UK defence giant BAE Systems.
In February 2010 the company agreed to pay $450m (£288m) after pleading guilty to producing false statements and accounting practices relating to deals with Saudi Arabia and Tanzania.
The settlement with the SFO saw it fined £30m, while the settlement with the US Department of Justice (DoJ) resulted in a $400m payout.
The investigation related to activities that occurred before 2000 and the settlement drew a line under any further actions by the DoJ or the SFO.
BAE was keen to settle. “One challenge of regulatory investigations is that they put a lot of things on ice,” says BAE general counsel Philip Bramwell. “You don’t want long, lingering investigations.”
As part of the DoJ settlement, former Herbert Smith senior partner David Gold was appointed as independent corporate monitor. The veteran City litigator was given responsibility for monitoring the company’s agreement with the DoJ as well as reviewing its reporting procedures.
His role also includes evaluation of the practices put in place after Lord Woolf was appointed by the company to investigate its ethical conduct in 2007.
Bramwell was one of the figures behind Gold’s appointment. He describes the relationship as “professional, cordial and constructive”, adding that the pair meet “as and when required, but at least monthly”.
“No recommendations have yet been made,” he explains. “This is a three-year programme and it is expected that any recommendations will emerge in the latter part of the exercise.
“The monitor’s remit is set out in the documents relating to the settlement between the DoJ and the company in February 2010 - there have been no modifications.”
While BAE is not bound to accept any of Gold’s recommendations Bramwell says that “it’s hard to imagine a situation in which we would not implement a recommendation”.
Much of the work was done well before Gold’s appointment. Bramwell joined the company in 2007 and immediately set about restructuring the legal department, implementing a fundamental reset.
“It’s been a big challenge,” says Bramwell. “When I arrived I was just the new guy from O2 with an idea of how a legal department should work.”
One of his first moves was to appoint a chief counsel in each business unit in a bid to integrate the legal function into the business.
“We were a first mover after the Woolf report and I believe our procedures are more than adequate,” says Bramwell.
“We gave evidence to a select committee on what we’ve done on all 23 recommendations, and we’re probably now at the conservative end of the spectrum.”
BAE helped create the UK Defence Industry Anti-Corruption Forum and played a leading role in drafting the Common Industry Standards for the European defence and aerospace industries. Bramwell believes none of this would have been possible if he had not had the support of his board.
“The first things you need to ask yourself are, can you define the business value of the legal function and can you win a mandate?” he says. “If you don’t have influence in the business you can’t do anything.
“Historically, the perception of in-house lawyers has been as cost centres. That’s rooted in the 1970s when publicly-listed companies brought in lawyers to protect the business.
“We thought there has to be a bigger aspiration. A lot of people just have a list of don’ts. If you can articulate a mission and get a consensus other things fall into place, and you get a licence to operate.”
Gold agrees. “Senior management is in tune with what Philip wants to achieve,” he says. “Normally, the monitor comes in at a very early stage but by the time I came in a lot of the work was already done. One brave thing [Bramwell] did was terminate all adviser contracts and start again.”
Gold believes UK companies can expect to see more external monitors appointed in SFO corruption investigations.
“I wouldn’t be surprised if the concept of an external monitor is something that people here consider for the future,” he says.