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BAE faces criminal inquiry in US

Posted: 2007-06-14
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The US department of justice is preparing to open a corruption investigation into the arms company BAE...


By David Leigh and Rob Evans
(The Guardian)

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 sources say US officials were particularly concerned by the allegations in the Guardian that UK Ministry of Defence officials actively colluded in the payments. One said: "The image of all these Bob Cratchits in Whitehall sitting at their high stools processing invoices from Bandar has been a startling one to us."

The Guardian has revealed allegations that BAE used the US banking system to transfer quarterly payments to accounts controlled by Prince Bandar at Riggs Bank in Washington. Another senior US source said this brought the payments within the ambit of the FCPA. "Prosecutors have previously taken the view that the FCPA does reach that far," the source said.

Any decision to investigate BAE would be taken by assistant attorney general Alice Fisher, who heads the criminal division. An investigation would most likely be handled by the chief prosecutor of FCPA cases, Mark Mendelsohn, deputy chief of the justice department's fraud section.

The department does not officially announce investigations, Washington sources say, but the company could be expected to make public announcements to the stock market if it happened. In past cases, US companies have often agreed to cooperate with criminal investigations rather than embark on litigation to defend themselves. Last night, BAE spokesman John Neilson repeated the company's denials of any impropriety. He added: "This question is one which should be addressed to the US department of justice". Prince Bandar has issued a statement denying any wrongdoing. He says the payments represented official Saudi government funds and were used for purposes approved by the Saudi ministry of defence.

Details of the US move came as Tony Blair told the Commons he took full responsibility for the decision to halt the Serious Fraud Office inquiry into corruption allegations against BAE and to withhold details of the 1bn payments to Prince Bandar from the anti-corruption watchdog, the Organisation for Economic Cooperation and Development.

Menzies Campbell, the Liberal Democrat leader, asked: "Which minister is answerable ... for the decision to withhold information from that inquiry in relation to payments made by the Ministry of Defence to Prince Bandar?"

The prime minister replied: "If he wants to blame anyone for this he can blame me, and I'm perfectly happy to take responsibility for it."

Mr Blair did not say whether the Bandar payments were continuing. He went on: "It would lead to the complete wreckage of a relationship that is of fundamental importance of the security of this country ... That's why I took the decision; I don't regret it then and I don't regret it now."

There is a history of rancour between British officials and US prosecutors over BAE bribery allegations. Released documents show that the former FCPA prosecutor Peter Clark clashed with Sir Kevin Tebbit, former MoD permanent secretary, over the UK's refusal to pursue allegations of corruption in the Czech Republic and in Qatar.

In the Qatar case, 7m was discovered to have been paid by BAE to the foreign minister of the Middle East oil state, and deposited in offshore accounts in Jersey. One source said: "We said to Sir Kevin, 'There's a roomful of documents in Jersey indicating bribery'. But he told us he had got a letter sent after the event from the ruler of Qatar saying he had no objections to the payment. We didn't regard that as altering the legal situation."

In London, the chairman of the OECD's bribery panel, Swiss lawyer Mark Pieth, told a legal conference that under the terms of the anti-bribery treaty, to which the UK is a signatory, Britain could only flout it on national security grounds "in an extreme case of necessity". That had yet to be proved. He said his personal view was that a British court should have the opportunity to decide whether the alleged payment to Prince Bandar had been legal or illegal. He hoped a judicial review would be allowed on the decision to halt the police investigation.
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