UK: BAE Systems Agrees To Pay £287m In Fines But Does Not Admit Corruption

Last Updated: 11 February 2010
Article by Omar Qureshi and Joe Smith

On 5 February, the UK Serious Fraud Office ("SFO") and the US Department of Justice ("DoJ") simultaneously announced that they had reached a global settlement with defence giant, BAE Systems plc ("BAE"), bringing to an end a series of long-running and controversial global corruption investigations. BAE will plead guilty to criminal charges in the UK and the US and will pay a total of £287 million in fines, but will not have to admit to corruption.


In October 2009, the SFO asked the Attorney-General to prosecute BAE following a lengthy corruption investigation surrounding four deals that BAE had concluded with South Africa, Tanzania, the Czech Republic and Romania. The inquiry related to arms deals going back some 10 years ago in which BAE allegedly used middlemen who bribed officials to win the business. That investigation followed the collapse amidst political pressure of the SFO's investigation in 2006 into the al-Yamamah arms deal between BAE and the Saudi Arabian Government (the largest ever commercial deal by a UK business), alleged to have been procured through the payment of massive bribes to members of the Saudi royal family.

The collapse of that investigation once again highlighted the need for reform of anti-corruption legislation in England and Wales and resulted in international condemnation and the downgrading of the UK by Transparency International in its influential Global Corruption Perceptions Index of corrupt-free places to do business. The US, however, announced it would conduct its own investigation into the al-Yamamah deal.

In an effort to improve its own reputation and processes, BAE commissioned Lord Woolf to report and make recommendations on its anti-corruption procedures. His Committee's report was published in May 2008. That report, which BAE has undertaken fully to implement within a three-year time-frame, now represents a gold standard in anti-corruption procedures and policies for the largest multinationals to aspire to. (For further information, please click here ( to visit our Anti-Corruption Zone).

Settlement with the SFO

The deal concluded with the SFO directly relates only to a contract under which BAE sold a military air traffic control system to Tanzania (one of Africa's poorest nations) in 1999, despite Tanzania having no apparent use for such a system – it had no military air force at the time. BAE has agreed to plead guilty to the offence under s.221 of the Companies Act 1985 of failing to keep reasonably accurate accounting records in relation to its activities in Tanzania; it will not admit any form of corruption. The company will pay £30 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".

As part of the settlement arrangements, the SFO has said that no further prosecutions will be brought against BAE in respect of any of the matters that it was investigating – including the other deals in South Africa, the Czech Republic and Romania. The SFO has also withdrawn proceedings against Count Alfons Mensdorff-Pouilly, the Austrian aristocrat who was just last week charged with conspiracy to corrupt in connection with the supply by BAE of SAAB/Gripen fighter jets to certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria. (For further information click here) ( In a statement published on its website, the SFO said it had decided that " all the is no longer in the public interest to continue the investigation into the conduct of individuals".

Following the settlement, the SFO's Director Richard Alderman said: "I am very pleased with the global outcome achieved collaboratively with the DoJ. This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation..."

Settlement with the DoJ

At the time of writing the DoJ has yet to publish any statement on the settlement. However, the US deal is much broader, relating to the earlier 2006 al-Yamamah arms deal. BAE has agreed to pay $400 million to the US authorities (£255.7 million) after admitting that it had made certain false, inaccurate and incomplete statements in relation to compliance with anti-corruption standards. Importantly again, BAE made no admissions of corruption.


Despite the size of the total payment, the settlement represents a clear result for BAE; the company and its new board can draw a line under these historical events and get on with its businesses knowing it no longer faces lengthy, costly and potentially very damaging criminal proceedings in both the UK and the US. The settlement sums are also striking, not least when one considers that the SFO was originally said to be looking for a payment of between £200m and £300m. Most important from BAE's perspective is that, since it admitted only false accounting offences, and not bribery or corruption, it will not face automatic debarment from public procurement contracts in Europe, nor the likelihood of similar debarment in the US, which could have been catastrophic for its future business – BAE is one of the main defence equipment suppliers to the Pentagon.

Even though the final settlement is a long way off the rumoured deal that the SFO had wanted BAE to accept, this should still be regarded as a landmark for the SFO, representing the single largest recovery of its kind by a huge margin. It also demonstrates the SFO's commitment to close international co-operation in tackling fraud and corruption. This is the first time that the SFO and DoJ have announced a combined and connected settlement – it may be the shape of things to come. This can be seen as good for business, in terms of allowing those under investigation to achieve certainty by negotiating a global settlement with all relevant prosecutors around the world.

However, some have criticised the SFO for being too lenient and failing to pursue a prosecution against BAE or any involved individuals for bribery and corruption in connection with the deals. Whether or not that criticism is justified, this settlement is another example of the SFO taking a pragmatic approach and achieving a positive outcome in circumstances where any contested prosecution would have been hugely protracted, expensive and bedevilled by the highly discredited existing laws on bribery and corruption in England and Wales. In this regard, it is noteworthy that the BAE settlement is consistent with the SFO's approach to settlements with Balfour Beatty and Amec; like BAE, these companies did not admit to corruption offences but did admit to certain accounting irregularities (click here ( ) for further information).

Perhaps in future, if the much-anticipated Bribery Bill becomes law (with its promise of a simpler set of criminal offences that will be more effective and easier for prosecutors to prove), the SFO will be able to take a more hard-line approach in appropriate cases and insist on admissions of guilt for corruption. As things stand, it is difficult to be overly critical of the SFO for not pursuing a prosecution under corruption laws described by the Law Commission as "in some instances unfit for purpose".

For further information, please visit the Anti-corruption Zoneor ( see our contacts below.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 09/02/2010.

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