On February 5, 2010, British defense contractor BAE Systems PLC (BAE) reached separate agreements with the US Department of Justice (DOJ) and the UK Serious Fraud Office (SFO) to conclude long-running investigations into whether BAE made improper payments to foreign officials in order to secure lucrative defense contracts. BAE is Europe’s largest military contractor and has recently grown into one of the most dominant defense firms in the world.

The DOJ and SFO Settlements

In a criminal information filed in the US District Court for the District of Columbia, the DOJ charged BAE with one count of conspiracy to make false statements to the US government; BAE agreed to plead guilty. Specifically, the DOJ alleged that BAE made false statements to the Department of Defense regarding BAE’s commitment to enhanced Foreign Corrupt Practices Act (FCPA) policies and procedures. In a letter to the Secretary of Defense in 2000, BAE’s then-CEO confirmed that the company and its affiliates were complying with anti-bribery standards. Years later, the government discovered that BAE had been making improper payments at the time this and other letters were sent. 

The DOJ also claimed that BAE made false statements to the State Department by failing to disclose on license applications that BAE had made substantial payments to certain officials and intermediaries in order to ensure that it would be awarded defense contracts with foreign governments. The alleged payments involved deals with Saudi Arabia, the Czech Republic and Hungary for military aircraft and other equipment. BAE allegedly earned more than $200 million over two decades from improperly obtained contracts.

To settle the charge, BAE agreed to plead guilty and pay a fine of $400 million to the US government. BAE also agreed to comply with the FCPA and other global anti-corruption standards going forward. 

Separately on the same day, the SFO announced that BAE had agreed to plead guilty to a charge that it failed “to keep reasonably accurate accounting records in relation to its activities in Tanzania.” That charge related to commissions that BAE allegedly paid to consultants in Tanzania in connection with the sale of an air traffic control radar system. As part of the settlement, BAE agreed to pay £30 million (almost $50 million) to the Crown Court, most or all of which will be used to benefit the people of Tanzania.

The settlements ended investigations by both the US and UK governments into illegal activities by BAE and its subsidiaries. However, the DOJ is continuing to investigate whether any individuals—either BAE executives or “marketing advisers” working on BAE’s behalf—violated the FCPA or other criminal laws.

Lessons Learned

The investigations and settlements are remarkable on several grounds. First, the case demonstrates the increasing willingness of the US government to cooperate and partner with foreign enforcement authorities to investigate allegations of global corruption schemes. Less than one month ago, the DOJ and the UK’s City of London Police simultaneously executed search warrants in a closely coordinated enforcement action. Second, the fact that the DOJ continues to investigate the executives involved in the case underscores the ongoing focus on the prosecution of individuals under the FCPA.

Companies whose business activities bring them within the reach of the FCPA can take comfort from, but also should be wary of, the result of this investigation. By settling the charges against it, BAE was able to avoid the penalty of debarment that would have crippled its defense contracting business in the United States and overseas. However, the case also stands as a warning to corporations that having a strong FCPA compliance program in place—as BAE did—is meaningless if the company and its employees fail to abide by its policies and procedures.