Charged With Making False Statements To The U.S. Government,
Violating Arms Export Act
BAE Systems plc (BAES) pleaded guilty Monday in U.S. District
Court in the District of Columbia to conspiring to defraud the
United States by impairing and impeding its lawful functions, to
making false statements about its Foreign Corrupt Practices Act
(FCPA) compliance program, and to violating the Arms Export Control
Act (AECA) and International Traffic in Arms Regulations (ITAR),
announced Acting Deputy Attorney General Gary G. Grindler. BAES was
sentenced by U.S. District Court Judge John D. Bates to pay a $400
million criminal fine, one of the largest criminal fines in the
history of DOJ's ongoing effort to combat overseas corruption in
international business and enforce U.S. export control laws.
"Today (Monday), BAE Systems pleaded guilty to knowingly and
willfully making false statements to U.S. government agencies. The
actions of BAE Systems impeded U.S. efforts to ensure international
trade is free of corruption and to maintain control over sensitive
U.S. technology," said Acting Deputy Attorney General Gary G.
Grindler. "BAE Systems will pay a $400 million fine for its
criminal conduct - one of the largest criminal fines ever levied in
the United States against a company for business related
violations. The remediation measures BAE Systems has undertaken, in
conjunction with its agreement to retain an independent compliance
monitor, are evidence supporting BAE Systems' stated commitment to
ensure that it operates in a transparent, honest and responsible
manner going forward. The Department of Justice will continue to
hold accountable companies that impair the operations of the U.S.
government by lying about their conduct and operations."
"Competition is one of the foundations of our economic system,"
said Shawn Henry, Assistant Director in Charge of the FBI's
Washington Field Office. "Corporations and individuals who conspire
to defeat this basic economic principle not only cause harm but
ultimately shake the public's confidence in the entire system."
"Providing false statements to circumvent U.S. export laws and
to defraud the U.S. Government must be vigorously prosecuted," said
John Morton, assistant secretary of Homeland Security for U.S.
Immigration and Customs Enforcement (ICE). "ICE is committed to
working with our federal and international partners to investigate
violations of U.S. export controls to assure sensitive technologies
are not fraudulently and unlawfully acquired."
BAES is a multinational defense contractor with headquarters
in the United Kingdom and with a U.S. subsidiary - BAE Systems Inc.
- headquartered in Rockville, MD. None of the criminal conduct
described in the plea involved the actions of BAE Systems Inc.
According to court documents, from approximately 2000 to 2002,
BAES 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, BAES knowingly and willfully failed to create mechanisms
to ensure compliance with these legal prohibitions on foreign
bribery. According to court documents, the gain to BAES from the
various false statements and failures to make required disclosures
to the U.S. government was more than $200 million.
The FCPA makes it illegal for certain businesses and
individuals, or anyone taking action within U.S. territorial
jurisdiction, corruptly to make payments to foreign government
officials for the purpose of obtaining or retaining business. In
addition, the FCPA prohibits corruptly making payments to a third
party, while knowing that all or a portion of the payments will go
directly or indirectly to a foreign government official for the
purpose of obtaining or retaining business. Despite BAES's
representations to the U.S. government to the contrary, BAES
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, BAES 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
BAES told the U.S. government the payments would be subjected. BAES
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, BAES 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, BAES contracted with and paid certain
advisors through various offshore shell companies beneficially
owned by BAES. BAES also encouraged certain advisors to establish
their own offshore shell companies to receive payments from BAES
while disguising the origins and recipients of these payments. BAES
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 BAES.
Through this BVI entity, from May 2001 onward, BAES made
payments totaling more than pounds Sterling 135 million plus more
than $14 million, even though in certain situations BAES was aware
there was a high probability that part of the payments would be
used to ensure that BAES was favored in foreign government
decisions regarding the purchase of defense articles. According to
court documents, in many instances, BAES possessed no adequate
evidence that its advisors performed any legitimate activities in
justification of the substantial payments.
In addition, according to court documents, BAES 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 BAES provided according to the formal understanding
resulted, in part, in BAES 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. BAES 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 BAES employee from May 2001 to
early 2002 to determine whether the listed expenses were in
compliance with previous statements made by BAES to the U.S.
government regarding its anti-corruption compliance procedures. In
addition, in connection with these same defense deals, BAES agreed
to transfer more than pound Sterling 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, BAES 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.
BAES 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. BAES 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,
BAES 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 $30 million BAES paid to an intermediary with the
high probability that it would be used to influence that tender
process to favor BAES.
As part of its guilty plea, BAES 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, BAES has agreed to retain an
independent compliance monitor for three years to assess BAES's
compliance program and to make a series of reports to the company
and the Justice Department.
The criminal case was investigated by FBI special agents who are
part of the Washington Field Office's dedicated FCPA squad and
special agents of the U.S. Immigration and Customs Enforcement's
Counter Proliferation Unit. Investigative assistance also was
provided by the Defense Criminal Investigative Services and the
General Services Administration, Office of Inspector General. The
Criminal Division's Office of International Affairs provided
substantial assistance in support of the investigation.