DOJ Prosecution Of BAE Heralds Continued Aggressive FCPA Enforcement Environment

Tuesday, March 9, 2010 - 00:00

Steven Tyrrell

Weil, Gotshal & Manges LLP

On Friday, February 5, 2010, BAE Systems plc, one of the largest defense contractors in the world, announced that it had negotiated a global resolution of the U.S. and U.K. governments' investigations of corruption allegations that had been levied against BAE.

In order to resolve the U.S. Department of Justice's (DOJ) ongoing investigation of violations of the Foreign Corrupt Practices Act (FCPA), BAE agreed to plead guilty to a one-count criminal Information charging that BAE had conspired to make false statements to various U.S. government agencies regarding its anti-corruption undertakings and had failed to disclose its payment of hundreds of millions of dollars in commission payments in connection with arms sales as it was required to do in order to obtain export licenses for U.S. defense articles that were included in its products. BAE also agreed to pay a $400 million criminal penalty to the U.S. In order to resolve the U.K. Serious Fraud Office's (SFO) ongoing investigation of BAE's activities in a number of countries in Eastern Europe and Africa, BAE agreed to plead guilty to one charge of breach of duty to keep accounting records in relation to payments made to a former marketing advisor in Tanzania. BAE also agreed to pay a criminal penalty of £30 million to the U.K. Thus, BAE agreed to pay a total penalty of approximately $450 million to resolve the two ongoing investigations against it.

The BAE settlement is noteworthy for a number of reasons. First, it demonstrates DOJ's ongoing commitment to pursue FCPA matters and represents the third largest criminal penalty ever imposed in an FCPA matter (Siemens AG paid a criminal penalty of $450 million in late 2008 and Kellogg, Brown & Root LLC paid a $402 million penalty in early 2009). Second, the DOJ's FCPA investigation of BAE was not resolved with a plea to an FCPA anti-bribery charge. Instead, BAE agreed to plead guilty to a conspiracy charge involving false statements, in violation of 18 U.S.C. § 1001, and concealment of substantial commission payments in arms export applications, in violation of the Arms Export Control Act, 22 U.S.C. § 2778. Although the filed criminal Information describes payments that appear to be actual or intended bribes, it is noteworthy that DOJ was willing to forego a bribery charge to resolve this significant matter. Undoubtedly, this was an important part of the deal for BAE to allow it to position itself to respond to possible government suspension and debarment actions that may follow these pleas. Third, the case again demonstrates the DOJ's willingness to push its jurisdictional reach in cases involving foreign-based, non-issuers that make suspect payments outside the United States. Unquestionably, the false statements and omissions involving U.S. government agencies described in the Information provide a jurisdictional basis. With respect to the questionable payments, however, it appears that most were made outside the United States with the exception of "substantial benefits" provided to "one [Saudi] official . . . through various payment mechanisms both in the territorial jurisdiction of the U.S. and elsewhere." Thus, in spite of this seemingly slight jurisdictional nexus, DOJ aggressively pursued this FCPA matter and obtained an agreement from BAE to plead guilty to a felony and pay a $400 million penalty. Fourth, like the Siemens matter, this case involves a coordinated, global resolution of parallel investigations by two different countries, highlighting the ever-increasing levels of cooperation between U.S. authorities and their foreign counterparts.