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BAE Systems, the largely overseas-based but UK-headquartered arms firm, has refused a peace deal with the Serious Fraud Office (SFO). British politicians will now have to decide whether to take the company to court for corrupt deals in Africa and Eastern Europe. But BAE wields colossal political influence in the UK; there's every chance that the case will be deep-sixed like others before it.

Negotiations are understood to have been underway for some time between the SFO and BAE, following investigations into BAE's dealings in Tanzania, the Czech Republic, Romania and South Africa. In all cases, the firm is alleged to have paid bribes in order to win deals, a practice which is well-nigh endemic in the global arms trade but (nowadays) illegal under UK law.

The SFO has sought to have BAE admit guilt in some fashion, and to have the company pay a fine - in effect a plea bargain of the sort common in everyday criminal prosecutions, undertaken for the same reasons of saving court costs and time. But the company has already faced shareholder lawsuits in the US on the grounds that its activities in Saudi Arabia - and subsequent payments to Saudi royalty via a Washington bank - have triggered an investigation by the US justice department. Any concrete admission of guilt might lay the firm open to other and stronger suits.

As a result, BAE has been reluctant to go further than its admission last year that it "has not always met the highest ethical standards".

Following the apparent breakdown of bargaining between the SFO and BAE, the government must now decide whether to take action in the courts. In theory this is a decision for the attorney general, Baroness Scotland, currently in the pillory for hiring an illegal immigrant as domestic staff.

In reality of course, any such decision will be made by the Prime Minister, as decisions involving BAE generally are. Famously, high court judges described Tony Blair's decision to quash a long-running SFO probe into BAE's activities in Saudi Arabia as "abject surrender". Blair had been visited at No 10 Downing Street by Prince Bandar prior to ordering the investigation dropped on spurious "national security" grounds - Prince Bandar being, as the judges noted, allegedly up to his neck in the case as one of those who had received huge sums from BAE.

The judges in that case also stated that the British government - of both parties down the years - was "in reality the defendant", rather than BAE. That's because of the fact that most of the shady deals BAE has made were, on paper, made for it by the government. Many of the huge wedges of cash received by Prince Bandar and others had actually moved through UK government accounts.

This happened owing to the existence of a bureau within the Ministry of Defence called DESO, the Defence Export Services Organisation. It was taxpayer funded and able to call on military personnel, but was controlled and partly staffed by seconded Brit armsbiz executives. It was DESO which actually did many of the bad things alleged by BAE's critics.

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