Enforcement Action

 

Docket or Case Number:    10-cr-00035

Court:    District of Columbia

Initiation Date:    02/04/2010  Information

Prosecuting Agency:    US Department of Justice

Name of Prosecuting Attorneys:   

  • Paul E. Pelletier, Acting Chief, Fraud Section, Criminal Division
  • Mark F. Mendelsohn, Deputy Chief, Fraud Section, Criminal Division
  • Nathaniel B. Edmonds, Senior Litigation Counsel, Fraud Section, Criminal Division
  • John J. Dion, Chief, Counterespionage Section, National Security Division
  • Patrick T. Murphy, Trial Attorney, Fraud Section, Criminal Division

Assisting Agencies:    Undetermined , Federal Bureau of Investigation , U.K. Serious Fraud Office , Department of Justice- Criminal Division’s Office of International Affairs , U.S. Immigration and Customs Enforcement , U.S. Department of Defense

Type of Action:    DOJ Criminal Proceeding

Origin of the Proceeding:    Foreign investigation

Whistleblower:    Unknown

Case Status:    Resolved


Summary

BAE Systems plc ("BAES"), formerly known as British Aerospace, was a multi-national defense contractor with its headquarters in the United Kingdom. In 2008, BAES was the largest defense contractor in Europe and the fifth largest in the United States, as measured by sales.

From 2000, BAES made certain false, inaccurate and incomplete statements to the U.S. government and failed to honor certain undertakings given to the U.S. government. These statements and undertakings included that BAES would, within an agreed upon time frame, create and implement policies and procedures to ensure compliance with provisions of the Foreign Corrupt Practices Act. Among the false statements were undisclosed payments associated with the lease of Gripen fighters to the Czech Republic and Hungary as well as undisclosed payments associated with the sale of Tornado aircraft and other defense materials to the Kingdom of Saudi Arabia.

In 2001, BAES made payments of over £135,000,000 and over $14,000,000 to certain of its marketing advisors and agents through an offshore entity in the British Virgin Islands. BAES did not subject these payments to the type of internal scrutiny and review that BAES had represented they were or would be subjected to in the foregoing statements made to the U.S. government. These payments were made even though in certain situations there was a high probability that part of the payments would be used in order to ensure that BAES was favored in the foreign government decisions regarding the sales of defense articles.

Beginning in the late 1990s and continuing into the early 2000s, BAES provided marketing services in connection with the lease by the government of Sweden of the Gripen fighter jet to the Czech Republic and Hungary. BAES made payments of more than £19,000,000 to entities associated with an individual. At least some of the payments were in connection with the solicitation, promotion, or securing the conclusion of the leases of Gripens. BAES made these payments even though there was a high probability that part of the payments would be used in the tender process to favor BAES.

Beginning in the mid-1980s, BAES began serving as the prime contractor to the U.K. government following the conclusion of a Formal Understanding between the U.K. and the Kingdom of Saudi Arabia ("KSA"). Between May 2001 and early 2002, in connection with the KSA Fighter Deals, BAES agreed to transfer sums totaling more than £10,000,000 and more than $9,000,000 to a bank account in Switzerland controlled by an intermediary. BAES was aware that there was a high probability that the intermediary would transfer part of these payments to the KSA Official.

On February 4, 2010, the DOJ filed a single count information in the District of Columbia against BAES alleging conspiracy to make false statements and conspiracy to violate the Arms Export Control Act. The false statements were in relation to promises the company had made with respect to FCPA compliance programs. On March 1, 2010, BAES entered into a plea agreement with the DOJ. Under the agreement, BAES agreed to pay a fine of $400 million plus a mandatory assessment of $400, implement a corporate compliance program, and hire an indepedent monitor for a term of three years. After the district court judge granted a 90 day extension for the appointment of a monitor, but changed the description of the monitor to ensure he would work for a full three years, BAES appealed, arguing that the district court judge lacked authority to change the monitor's term. The D.C. Circuit granted BAE's motion on October 22, 2010.

In a deal with the Serious Fraud Office made around the same time, BAE paid a penalty of £30 million ($44 million) for failing to keep accounting records of payments to a marketing adviser in Tanzania.

Country(ies) involved:    Czech Republic, Hungary, Saudi Arabia

Sanction to Bribe Ratio:    $400,000,400 / $228,500,000 = 175.06 %

Sanction to Revenue Ratio:    N/A

Sanction to Profit Ratio:    N/A

Number of Related Enforcement Actions (Including This Enforcement Action):    1

Country(ies) involved:    Czech Republic, Hungary, Saudi Arabia

Total $ Bribery Payments:    $228,500,000

Total $ Revenue Generated from Bribery:    N/A

Total $ Profit Earned or Expenses Avoided from Bribery:    N/A

Total $ Monetary Sanctions:    $400,000,400

Sanction to Bribe Ratio:    $400,000,400 / $228,500,000 = (175.06 %)

Sanction to Revenue Ratio:    N/A

Sanction to Profit Ratio:    N/A

Name:    BAE Systems PLC

Place of Incorporation:    United Kingdom

HQ Country(ies):    United Kingdom

Entity Type:    Public Company

FCPA Claims:    N/A

Related Claims:    Conspiracy to Make a False Statement (18 U.S.C. § 371; 18 U.S.C. § 1001) ; Conspiray to Violate the Arms Export Control Act (18 U.S.C. § 371; 18 U.S.C. § 2778)

Statutory Basis for FCPA Jurisdiction:    Conspirator

Period of Bribery:   1999 - 2002

Total Bribery Payments:    $228,500,000

Total Revenue Generated from Bribery:    N/A

Total Profit Earned or Expenses Avoided from Bribery:    N/A

Country(ies) involved:    Czech Republic, Hungary, Saudi Arabia

Officials Potentially Influenced (Name; Title; Organization): 

  • Name N/A, Official; Saudi Government
  • Name N/A, Official; Saudi government

Defendant-Related Entities Involved in the Misconduct:    N/A

Third-Party Intermediary:   

  • Offshore entity in the British Virgin Islands , Shell Company
  • Offshore Entity/Legal Trusts in the British Virgin Islands , Shell Company
  • Person A (Marketing Advisor) , Agent/Consultant/Broker
  • Travel agent , Agent/Consultant/Broker
  • Unnamed intermediaries , Agent/Consultant/Broker

Type of Bribe:   Money, Travel/Lodging, Automobile/Vehicle, Land/Real Estate, Personal Expense/Service/Care

Cash, Wire or Check:    Wire Transfer

Purpose of Bribe:    Obtain/retain business

TRANSACTION OVERVIEW
Undisclosed payments associated with the lease of Gripen Fighters to the Czech Republic and Hungary

Period of Bribery:   1999 – 2001

Total Bribery Payments:    $19,000,000

Total Revenue Generated from Bribery:    N/A

Total Profit Earned or Expenses Avoided from Bribery:    N/A

Country(ies) involved:    Czech Republic, Hungary

Officials Potentially Influenced (Name; Title; Organization):  

    N/A

Defendant-Related Entities Involved in the Misconduct:    N/A

Third Party Intermediary:    Offshore Entity/Legal Trusts in the British Virgin Islands - Shell Company
Person A (Marketing Advisor) - Agent/Consultant/Broker

Type of Bribe:   Money

Cash, Wire or Check:    N/A

Purpose of Bribe:    Obtain/retain business

TRANSACTION OVERVIEW
Undisclosed payments associated with the sale of Tornado aircraft and other defense materials to the Kingdom of Saudi Arabia

Period of Bribery:   2001 – 2002

Total Bribery Payments:    $28,500,000

Total Revenue Generated from Bribery:    N/A

Total Profit Earned or Expenses Avoided from Bribery:    N/A

Country(ies) involved:    Saudi Arabia

Officials Potentially Influenced (Name; Title; Organization):  

  • Name N/A, Official; Saudi Government;
  • Name N/A, Official; Saudi government;

Defendant-Related Entities Involved in the Misconduct:    N/A

Third Party Intermediary:    Offshore Entity/Legal Trusts in the British Virgin Islands - Shell Company
Travel agent - Agent/Consultant/Broker
Unnamed intermediaries - Agent/Consultant/Broker

Type of Bribe:   Money, Travel/Lodging, Automobile/Vehicle, Land/Real Estate, Personal Expense/Service/Care

Cash, Wire or Check:    Wire Transfer

Purpose of Bribe:    Obtain/retain business

TRANSACTION OVERVIEW
Payments to "marketing advisors"

Period of Bribery:   2001 – 2001

Total Bribery Payments:    $216,500,000

Total Revenue Generated from Bribery:    N/A

Total Profit Earned or Expenses Avoided from Bribery:    N/A

Country(ies) involved:    N/A

Officials Potentially Influenced (Name; Title; Organization):  

    N/A

Defendant-Related Entities Involved in the Misconduct:    N/A

Third Party Intermediary:    Offshore entity in the British Virgin Islands - Shell Company

Type of Bribe:   Money

Cash, Wire or Check:    N/A

Purpose of Bribe:    Obtain/retain business

Misconduct by Subsidiary?  No


M&A Negotiated or Completed During Misconduct, Investigation, or Resolution?     No

Re: BAE Systems PLC

  • Inadequate anti-corruption compliance policies, procedures, or program
  • Inadequate internal controls or auditing
  • Inadequate safeguards concerning use of third parties

Mitigating Factors Referenced by the Government (Company Defendants):

Defendant Self-Report Cooperation Voluntary Remedial Measures Misconduct Limited to Low Level Individuals Other factors
BAE Systems PLC      

Aggravating Factors Referenced by the Government (Company Defendants):

Defendant Insufficient Cooperation Insufficient Remedial Measures
BAE Systems PLC

Total Monetary Sanctions for the Action:    $400,000,400

Case Status:    Resolved


Disposition:    Plea Agreement

Date of Disposition:    03/01/2010

BAE Systems PLC

—  Total Monetary Sanctions for Defendant:    $400,000,400

—  Organizational Probation:    36 months

—  Compliance Obligation:    Yes

—  Reporting Obligation:    Independent monitor

—  Admission of Guilt/Acceptance of Responsibility:    Yes

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