Original URL: http://www.theregister.co.uk/2009/10/01/sfo_last_gasp_vs_bae/

SFO kicks BAE corruption charges upstairs

Will Brown agree to prosecute the Labour Party? Err ...

By Lewis Page

Posted in Government, 1st October 2009 13:55 GMT

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.

Peston: "BAE is a significant part of the UK economy". About 0.003 of it, in fact.

DESO is gone now, replaced by a tentacle of the new biznovation ministry called the Defence and Security Organisation. It is now run by a former oil exec, and no longer has its offices inside MoD headquarters (which used to be a source of some pain to MoD procurement officials trying to plan their bargaining strategy against Brit arms firms - apparently they would often find armsbiz people from DESO innocently wandering in and out of their offices, earwigging their meetings etc).

But DSO still "works closely with the MoD" - in other words its people still have passes to MoD Main Building. Noticeably its boss ranks among the management team of UK Trade and Investment: no other business sector is represented at this level. There are those who'd say that actually little has changed with DESO's passing, and that in fact the tail still wags the dog.

That said, when Prime Minister Brown shut DESO down it did make BAE extremely angry. It could be that in future corruption cases, the government will no longer be the defendant, and it seems clear that Brown is willing to face up to BAE to some degree.

But the cases the SFO would now like to take to court date very much from the DESO era - and from the era of the present Labour government too, when Gordon Brown was in the Cabinet.

Furthermore, BAE Systems wields enormous political clout in Britain. Most people have failed to fully realise the extent to which it has either shut down or moved offshore, with fully 70 per cent of its employees overseas nowadays. Noted biz correspondents still foolishly assert that the firm is "the biggest manufacturer in the UK and a significant part of the British economy".

No matter that this is wildly at variance with the facts, as a swift glance at the Forbes list of the 40 biggest UK companies reveals. GlaxoSmithKline, Unilever, AstraZeneca and Diageo all have big manufacturing operations in Blighty; all have a much more valid claim to being the UK's biggest manufacturer than BAE, well down in the bottom half of the list.

BAE is certainly not a "significant part of the British economy", either: even company reps only claim that 50 per cent of the firm's global turnover takes place in the UK - almost certainly an exaggeration given that barely 30 per cent of its people are here - and that stacks up at a measly US$9bn, approximately three thousandths of the UK economy. Just to drive in the final nail, the vast majority of what business BAE does do in the UK involves supplying otherwise-unsaleable equipment to the British government at enormously inflated prices - scarcely an economic activity with any real benefits for the nation. To paraphrase Margaret Thatcher's pungent description of the old nationalised coal industry, much of BAE's vaunted manufacturing base here in the UK is in effect a (highly inefficient) system of indoor relief.

Unfortunately this reality isn't widely acknowledged, and the awkward fact remains that if Gordon Brown authorises the SFO's case he will in effect be prosecuting his own party's recent past record - to a large degree, prosecuting himself.

BAE issued a statement today, saying:

If the Director of the SFO obtains the consent that he seeks from the Attorney General and proceedings are commenced, the Company will deal with any issues raised in those proceedings at the appropriate time and, if necessary, in court.

It's all too likely that this case will get precisely as far as the Saudi one did: into the door of No. 10 Downing Street and not a step further. ®