Dual Prosecutions of BAE Systems by DOJ and SFO

On February 5, 2010, the U.S. Department of Justice (“Department”) filed a criminal information in the U.S. District Court for the District of Columbia (“District Court”) charging BAE Systems plc (“BAE Systems”) with a single count of conspiracy under 18 U.S.C. § 371.1 The criminal information charged BAE Systems with conspiring to [a] defraud the United States by knowingly and willfully impeding and impairing the lawful functions of the U.S. government by “making false, inaccurate and incomplete statements” to the Department of Defense and the Department of State, and failing to honor certain undertakings given to the U.S. government, and [b] commit offenses against the United States by [i] “knowingly and willfully” making materially false, fictitious, or fraudulent statements or representations, in violation of 18 U.S.C. § 1001, and [ii] “knowingly and willfully” causing export license applications to be filed with the Department of State, Directorate of Defense Trade Controls, that failed to state a material fact, in that they failed to properly “disclose fees or commissions made, offered and agreed to be made, directly and indirectly, in connection with sales of defense articles,” in violation of 22 U.S.C. § 2778 and 22 CFR, Sections 127 and 130.

The plea agreement between the Department and BAE Systems is not expected to be made public until a hearing is held in the District Court and the company enters its plea of guilty to the charge in the information. According to published reports about the Department’s charge, BAE Systems has agreed to a criminal fine of $400 million.2 If this fine is imposed, it will be the third-highest in the history of enforcement of the Foreign Corrupt Practices Act (“FCPA”).

In a parallel action against BAE Systems in the United Kingdom, the Serious Fraud Office (“SFO”) also announced on February 5, 2010 that the company would enter a guilty plea in the Crown Court to an offense under Section 221 of the Companies Act 1985 arising from its failure to keep reasonably accurate accounting records regarding a 1999 transaction in which a radar system was sold to Tanzania.3 According to a statement issued by the SFO, BAE Systems “will pay £30 million [$47 million] comprising a financial order to be determined by a Crown Court judge with the balance [to be] paid as an ex gratia payment for the benefit of the people of Tanzania.”

Additionally, on January 29, 2010, a charge of conspiracy under Section 1 of the Criminal Law Act 1977 was brought by the SFO against Count Alfons Mensdorff-Pouilly, an Austrian national and a former agent of BAE Systems. The charge alleged that Count Mensdorff- Pouilly had conspired with others to give or agree to give corrupt payments to officials and other agents of certain governments, including the Czech Republic, Hungary and Austria in connection with the provision of Saab/Gripen fighter aircraft. Although the SFO had opposed bail for the defendant, following its announcement of a “global” agreement between the SFO, BAE Systems and the Department, the SFO withdrew proceedings against Count Mensdorff-Pouilly.4

According to the U.S. criminal information, the then CEO of BAE Systems, John Weston (“Weston”), wrote on November 16, 2000, to the U.S. Secretary of Defense that the company would not “knowingly offer, pay, promise to pay, or authorize the payment of anything of value, directly or indirectly, to a foreign public official for the purpose of influencing any official act or omission in order to obtain or retain business in violation of the FCPA.” Weston additionally confirmed that the company’s Board had adopted a “proposal for all of the [c]ompany’s non- U.S. businesses to comply with the anti-bribery provisions of the FCPA, as if those provisions applied to us.” The criminal information further alleges that BAE Systems made additional false statements in May of 2002 when it indicated in a second letter to the U.S. Department of Defense (“DOD”) that it had complied with “the spirit and the letter” of the statements previously made on November 16, 2000.

The information alleges that, both before and after BAE Systems made its representations to the DOD, the company agreed to make payments to third parties to assist in the sale of defense articles which payments were not subjected to the “degree of scrutiny and review required by the FCPA” and concealed its relationships with certain third parties by paying them through offshore shell entities beneficially owned by BAE Systems, including one entity in the British Virgin Islands. It is further alleged that the company encouraged certain third parties to create their own offshore shell entities to receive payments. According to the information, BAE Systems’ contracts with third parties and “other relevant materials” were maintained by “secretive legal trusts in offshore locations.” The information alleges that BAE Systems paid more than $225 million to third parties after November 2001.

The information details, but does not charge substantively, payments allegedly related to the lease of Gripen fighter aircraft to the Czech Republic and Hungary.5 The information also alleges that in connection with the sale of several Tornado and Hawk aircraft, BAE Systems transferred approximately $30 million to a Swiss bank account of an intermediary while aware that there was a high probability that the intermediary would transfer part of the funds to a Saudi government official, thus failing to comply with the company’s representations previously made to the DOD.

The plea agreement, when it is made public, may provide further details concerning the full agreement between the Department and BAE Systems. The criminal information raises several interesting FCPA questions. The charge in the criminal information could, for example, reflect a situation in which the Department was unable to charge substantive violations of the FCPA’s anti-bribery provisions,6 either due to the absence of a U.S. nexus for such a violation or because the conduct was outside the statute of limitations.7 Absent a U.S. nexus for the alleged payments to foreign government officials, the DOJ may have had only one basis upon which to charge BAE Systems -– the representations in the November 16, 2000 letter from BAE Systems’ Chief Executive Officer to the Secretary of Defense, which presumably were relied upon by the DOD for years thereafter. Although substantive violations of the FCPA were not charged in the criminal information, the information provides details of BAE Systems’ activities, such as the use of intermediaries and offshore accounts, which, in similar cases, have implicated the FCPA’s accounting or “books-and-records” provisions.8

Finally, it appears that the parties negotiated a disposition that may enable BAE Systems to avoid debarment in future European Union procurements. As of the date of this FCPA Advisor, no information is publicly-available regarding any possible suspension or debarment action against BAE Systems preventing it from entering government contracts in the United States.9

Links to Relevant Documents:

  • Department’s Criminal Information

http://download57.mediafire.com/wylbvy9kudwg/id1z55n4mxk/fraud.fcpa.bae/information.pdf  

  • SFO Press Release

http://www.sfo.gov.uk/press-room/latest-press-releases/pressreleases-2010/bae-systems-plc.aspx

FCPA Sting Operation Highlights DOJ Enforcement Priorities

As previously reported in the FCPA Advisor, in prepared remarks delivered in the latter part of 2009, Assistant Attorney General for the Criminal Division Lanny Breuer outlined the Department’s upcoming enforcement priorities to include a further increase in prosecutions of individuals, more multi-national cooperation, the commitment of additional resources to investigating and prosecuting FCPA-related offenses, and the initiation of more cases from pro-active investigations using traditional law enforcement techniques.10 On January 19, 2010, evidence of these priorities was on clear display with the Department’s announcement of the indictment of 22 corporate executives and other individuals for FCPA offenses resulting from an undercover FBI sting operation targeted towards uncovering foreign bribery in the military and law enforcement products industry.11

According to a press release issued by the Department, on January 19, 2010, 16 indictments returned by a federal grand jury in Washington, D.C., in December 2009, were unsealed following the arrest of 21 defendants at a Las Vegas arms trade show, and an arrest of another defendant in Miami, in connection with the alleged payment of bribes to an undercover FBI agent posing as a representative of the minister of defense of an African country.12 Each of the indictments allege that the defendants conspired to violate the FCPA, conspired to engage in money laundering and engaged in violations of the FCPA’s anti-bribery provisions. The indictments also seek criminal forfeiture of ill gotten gains. The Department described the prosecution as “the first large-scale use of undercover law enforcement techniques” to detect FCPA violations and “the largest action ever undertaken” by the Department against individuals for FCPA offenses.

Approximately 150 FBI agents executed search warrants across the United States in connection with the indictments. Additionally, search warrants were executed in the United Kingdom by the U.K.’s City of London Police, which is conducting its own investigation into the companies alleged to have been involved in the foreign bribery scheme. All of the defendants, a combination of U.S., U.K. and Israeli citizens, allegedly worked at, or ran, companies that supply military and arms equipment, including Smith & Wesson.13 In addition, each of the defendants were purportedly business associates of an individual identified in the indictments as “Individual 1,” who has since been publicly identified as Richard T. Bistrong, a former vice president for international sales at Armor Holdings, a former U.S. publicly traded military equipment manufacturer that was acquired by BAE Systems in 2007.14 On January 22, 2010, in a separate case, the Department filed a onecount criminal information against Bistrong charging him with conspiring to violate the anti-bribery and books and records provisions of the FCPA, and Department of Commerce export licensing requirements. The charges in the information relate to a scheme that allegedly occurred between 2001 and 2006, in which Bistrong and other unidentified co-conspirators agreed to pay, and paid bribes to help Armor Products obtain contracts from foreign government customers, as well as to supply military equipment to United Nations peacekeeping forces.15

The indictments stemming from the undercover operation allege that the defendants engaged in a scheme to pay bribes to an individual they thought was the minister of defense of an African country in order to win a portion of a $15 million deal to equip the country’s presidential guard. According to the indictments, as part of the operation, “Individual 1” introduced the defendants to an undercover FBI agent posing as the minister’s representative for the deal. The indictments further allege that in order to obtain the business, the defendants agreed to pay a 20 percent “commission” to the agent, which they were told half of which would go directly to the minister and the other half to Individual 1 and the agent. As part of the scheme, the defendants purportedly further agreed to create two price quotations in connection with the deal, with one quote representing the true cost of the goods and the second quote representing the true cost plus the “commission.” Each of the defendants also allegedly agreed to engage in a small “test” deal to prove to the minister their commitment to paying the bribes.

The defendants each could face up to five years imprisonment in connection with the FCPA conspiracy and substantive violation charges, while the money laundering conspiracy charge carries a maximum prison term of 20 years. Breuer cited the case as a “turning point” in the fight against foreign bribery and, in an indication that the techniques used in the investigation would likely be used by the Department in the future, warned would-be FCPA violators to “stop and ponder whether the person they are trying to bribe might really be a federal agent.”

Links to Relevant Documents:

  • Government’s Press Release

http://www.justice.gov/opa/pr/2010/January/10-crm-048.html

Technip Discloses Exceptional Charge in Q4 2009 Financials

Technip SA (“Technip”), a publicly traded French company, whose American Depositary Receipts are traded on the U.S. over-thecounter market, has previously disclosed its cooperation with the Department and the SEC in their investigations of the TSKJ joint venture in Nigeria. On February 12, 2010, Technip disclosed that it has discussed with the Department and SEC a resolution of potential claims against the company and, although no final agreement has been reached with these agencies, Technip has estimated the monetary cost of a resolution and will record an exceptional charge of €245 million (approximately $335 million) in its fourth quarter of 2009, based upon the current status of its discussions.

Technip was a 25 percent participant in the TSKJ joint venture, with Kellogg Brown & Root LLC, a former subsidiary of Halliburton Company and a current subsidiary of KBR Inc., Snamprogetti Netherlands B.V., a subsidiary of Eni SpA, an Italian public company, and JGC Corporation, a Japanese public company. In proceedings related to the TSKJ joint venture, KBR entered a plea of guilty to conspiracy and substantive violations of the FCPA by authorizing, promising and making over $180 million in payments to Nigerian government officials to obtain contracts to construct and develop a major liquefied natural gas project on Bonny Island, Nigeria, and was fined $402 million under the terms of a plea agreement with the Department. KBR Inc. and Halliburton, without admitting or denying the allegations of an SEC complaint, agreed to, among other things, disgorge an additional $177 million.16

April Oliver assisted in this edition of the FCPA Advisor.