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BAE Saudi 'corruption' case could go to US Supremes

British, US governments flip hot potato back and forth

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A corruption lawsuit in the USA against UK-headquartered but nowadays primarily US-based arms globocorp BAE Systems may move to the Supreme Court, according to reports.

Reuters quotes lawyer Patrick Coughlin, representing the city employees' pension fund of Harper Woods, Michigan, as saying that he and his clients "will consider" going to the Supreme Court after lower courts said that the case was a matter for the British justice system rather than that of the US.

The suit by the pension fund accuses BAE's management of corruption in that the firm paid more than $2bn to Saudi Prince Bandar - according to the lawsuit, as bribes for the hugely lucrative "al-Yamamah" deal in which Saudi Arabia ordered tens of billions' worth of military hardware from BAE. The pension fund, as BAE shareholders, argue that this has brought the firm into disrepute and as such they have a legitimate grievance.

The primary argument offered in the suit to prove that BAE's actions have in fact caused such disrepute is the fact that the US Justice Department are known to be investigating the payments to Bandar on the grounds that they were made through a Washington DC bank.

For their part, BAE and Bandar have both stated that the payments were completely legitimate, having been previously agreed by the British and Saudi governments. They have also argued that even though the payments were made in America, most of the key defendants are resident abroad and thus the US courts should not have jurisdiction in the matter.

Critics of BAE's "the government done it" argument point up the fact that the UK government agency which dealt with the Saudis was the infamous Defence Export Services Organisation (DESO), nominally a part of the Ministry of Defence (MoD) but in fact controlled and partly staffed by seconded arms-business executives. Thus, there was in fact almost no effective UK government supervision of the al-Yamamah deal. DESO has since been closed down and replaced by a new bureau in the biznovation ministry.

Al-Yamamah was formerly being probed in a long-running UK investigation by the Serious Fraud Office. This was closed down in 2006 on the orders of the former Prime Minister Tony Blair, following a visit by Prince Bandar to No. 10 Downing Street. Blair stated that Bandar had threatened to cease supplying invaluable counter-terrorist intelligence to the UK, vital for safeguarding "British lives on British streets".

High Court judges, reviewing Blair's decision to quash the SFO investigation, later described the move as "abject surrender" to "a threat made by an official of a foreign state, allegedly complicit in the criminal conduct under investigation, and, accordingly, with interests of his own in seeing that the investigation ceased".

Following the abject surrender by Blair, disgruntled SFO investigators leaked information, in particular about the Washington DC payments to Bandar when he was ambassador to the USA, and the Justice Department duly opened a file. This in turn led to shareholder lawsuits against BAE management in America, notably the Harper Woods pension fund one.

Thus far, however, US judges have accepted BAE's position that the matter is one for British courts to deal with - even though the only reason it comes before American beaks is that the British government has prevented it coming before UK ones.

American jurists may also have felt that BAE, as a company originally assembled from the UK defence-industrial base and headquartered in London, is surely not their business. It may be worth noting, however, that BAE nowadays is mostly American, having consistently shut British factories and spent British revenues on acquiring US firms. The company now employs substantially more people there than it does in the UK.

Against this background, Coughlin's comment to Reuters that he and his clients have "no current plans to litigate in England" make sense. ®

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