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Original URL: http://www.theregister.co.uk/2007/06/18/feds_off_leash_bae_friendless/

Washington backing for Brit arms biz coming unstuck

By Lewis Page
Published Monday 18th June 2007 15:58 GMT

The US authorities are definitely investigating allegations of corrupt practice by UK-based arms colossus BAE Systems, according to reports.

The Guardian, the paper which has probed British arms sales to Saudi Arabia for over a decade, reports (http://www.guardian.co.uk/baefiles/story/0,,2105173,00.html) that a US investigation into BAE's conduct is imminent - along with the news that Britain's attorney general is to be grilled by MPs over his decision to scuttle the UK's investigation. But the LA Times reported on Friday that the Department of Justice and FBI have started work already.

The LA Times's anonymous informants said that the American probe would not be limited to deals in Saudi Arabia, which have been the centrepiece (http://www.theregister.co.uk/2007/06/08/bae_uk_saudi/) of allegations thus far.

"It's not just Saudi payments that are an issue here," said the Times source. The feds were reportedly "looking broadly; it's a companywide thing."

This wide-ranging investigation could signal that America is willing to hang BAE - and, by extension, the British government - out to dry on this issue. The Saudi allegations have been widely reported, and are thought to be a prosecutor's nightmare. Winning convictions in Western courts would be difficult, as the Saudi principals would be unlikely to accept any wrongdoing on their part. This has been a major part of the justification offered by the British attorney-general, Lord Goldsmith, for dropping the UK probe.

The British Serious Fraud Office (SFO) still has files open on BAE's dealings in other countries, however, where it may be possible to get useful government cooperation. If the Times is right, the US federales will also be able to pursue BAE's dealings in these places. That permission, combined with American diplomatic clout, could lead to successful US indictments, potentially very bad news for BAE.

The arms giant is engaged at present in a drive (http://www.theregister.co.uk/2007/05/14/bae_media_push_going_well/) to place much of its capital investment in the USA, having sold out of the European civil-aircraft game. In particular, BAE needs US government approval for its planned buy of Armor Group.

If the upper levels of the US government were planning to let that deal through on the nod, as they have in the past, they might well have prevented or limited the scope of any federal investigation of BAE. It now appears that there may be no such top-level Washington protection in place for the Armor deal, or indeed for the UK arms trade in general.

That would be bad news for BAE; and perhaps bad news for the UK government. The British Ministry of Defence, and in particular its Defence Export Sales Organisation (DESO), the government-funded and government-run arms sales bureau, are heavily implicated in all UK overseas weapons deals*. The OECD international corruption watchdog, dismayed by the axing of the SFO's Saudi probe, is now very interested in the UK arms biz and its relationships with DESO and British ministers.

The UK has already made efforts to restrain and impede the OECD, but it may not be able to shrug off international finger-pointing by its own efforts. If the full weight of US influence were behind Britain, however, the British government would have little to fear.

But support from Washington may be a trifle lukewarm on this issue, it now appears.®

*Interestingly, DESO now appears no longer to be regarded as quite such a great idea. Today's Financial Times reported that there are moves afoot to slash DESO's budget and personnel.

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