BAE Systems To Pay Massive $400 Million Fine In FCPA Case – One Of The Largest Criminal Fines Ever

BAE Systems plc pleaded guilty today in federal court in Washington, D.C., to conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act (FCPA) compliance program, and to violate the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR). BAE was sentenced to pay a $400 million criminal fine, one of the largest criminal fines in the history the Department of Justice’s efforts to combat overseas corruption in international business and enforce U.S. export control laws. 

According to court documents, from approximately 2000 to 2002, BAE represented to various U.S. government agencies, including the Departments of Defense and Justice, that it would create and implement policies and procedures to ensure its compliance with the anti-bribery provisions of the FCPA, as well as similar, foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-bribery Convention. According to court documents, BAE knowingly and willfully failed to create mechanisms to ensure compliance with these legal prohibitions on foreign bribery.
 
According to court documents, the gain to BAE from the various false statements and failures to make required disclosures to the U.S. government was more than $200 million.
 
According to the government, despite BAE’s representations to the U.S. government to the contrary, BAE knowingly and willfully failed to create sufficient compliance mechanisms to prevent and detect violations of the anti-bribery provisions of the FCPA.
 
According to court documents: BAE made a series of substantial payments to shell companies and third party intermediaries that were not subjected to the degree of scrutiny and review to which BAE told the U.S. government the payments would be subjected. BAE admitted it regularly retained what it referred to as "marketing advisors" to assist in securing sales of defense items without scrutinizing those relationships. In fact, BAE took steps to conceal from the U.S. government and others its relationships with some of these advisors and its undisclosed payments to them. For example, after May 2001, BAE contracted with and paid certain advisors through various offshore shell companies beneficially owned by BAE. BAE also encouraged certain advisors to establish their own offshore shell companies to receive payments from BAE while disguising the origins and recipients of these payments. BAE admitted that it established one company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships, including who the advisor was and how much it was paid; to create obstacles for investigating authorities to penetrate the arrangements; to circumvent laws in countries that did not allow such relationships; and to assist advisors in avoiding tax liability for payments from BAE.
 
According to the government: Through this BVI entity, from May 2001 onward, BAE made payments totaling more than £135 million plus more than $14 million, even though in certain situations BAE was aware there was a high probability that part of the payments would be used to ensure that BAE was favored in foreign government decisions regarding the purchase of defense articles. According to court documents, in many instances, BAE possessed no adequate evidence that its advisors performed any legitimate activities in justification of the substantial payments.
 
In addition, according to court documents, BAE began serving as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. According to court documents, the "support services" that BAE provided according to the formal understanding resulted, in part, in BAE providing substantial benefits to a foreign public official of KSA, who was in a position of influence regarding sales of fighter jets, other defense materials and related support services. BAE admitted it undertook no adequate review or verification of benefits provided to the KSA official, including no adequate review or verification of more than $5 million in invoices submitted by a BAE employee from May 2001 to early 2002 to determine whether the listed expenses were in compliance with previous statements made by BAE to the U.S. government regarding its anti-corruption compliance procedures. In addition, in connection with these same defense deals, BAE agreed to transfer more than £10 million plus more than $9 million to a bank account in Switzerland controlled by an intermediary, being aware that there was a high probability that the intermediary would transfer part of these payments to the same KSA official.
 
Also as part of its guilty plea, BAE admitted to making and causing to be made certain false, inaccurate and incomplete statements, and failing to make required disclosures to the U.S. government in connection with the administration of certain regulatory functions, including statements and disclosures related to applications for arms export licenses, as required by the AECA and ITAR. The AECA and ITAR prohibit the export of defense-related materials to a foreign national or a foreign nation without the required U.S. government license, and the Department of State has the power to approve or deny such applications. As part of the licensing scheme, applicants are required to identify associated commissions to the State Department – whether they are legitimate commissions or bribes – paid to anyone who helps secure the sales of defense materials.
 
BAE admitted that, as part of the conspiracy, it knowingly and willfully failed to identify commissions paid to third parties for assistance in soliciting, promoting or otherwise securing sales of defense items in violation of the AECA and ITAR. BAE failed to identify the commission payments paid through the BVI entity described above, in order to keep the fact and scope of its external advisors from public scrutiny. In one specific instance, BAE caused the filing of false applications for export licenses for Gripen fighter jets to the Czech Republic and Hungary by failing to tell the export license applicant or the State Department of £19 million BAE paid to an intermediary with the high probability that it would be used to influence that tender process to favor BAE.
 
As part of its guilty plea, BAE has agreed to maintain a compliance program that is designed to detect and deter violations of the FCPA, other foreign bribery laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws. Under the terms of the plea agreement, BAE has agreed to retain an independent compliance monitor for three years to assess BAE’s compliance program and to make a series of reports to the company and the Justice Department.