UK: Implications Of The SFO’s Deal With British Aerospace On Overseas Corruption

Last Updated: 2 March 2010
Article by David Corker

This article first appeared in the New Law Journal on 26 February 2010

The Serious Fraud Office (SFO) announced its "ground breaking global agreement" with British Aerospace (BAe) in early February 2010. The company will pay £30 million in return for the SFO terminating its prolonged investigation of it for overseas corruption. Simultaneously in the US the SFO's US counterpart, the Department of Justice (DoJ) announced that the company had agreed to pay fines totalling £257 million.

What is striking about both announcements is that there is no mention, let alone any finding, of BAe ever being involved in corruption. A gullible reader could be led to believe that BAe's misdemeanour in the US amounted to nothing more than a number of misrepresentations to various parts of the US government in order to win contracts and, in the UK, to the company having committed a relatively trivial Companies Act offence (s221) of possibly misleading shareholders by failing to compile accurate accounts. Such a reader might even have cause to think highly of BAe because the SFO parades the company's corporate social responsibility credentials - the announcement says that "ex gratia" (i.e. as a favour ) the company will donate most of the £30 million "for the benefit of the people of Tanzania."

Success or failure for the SFO?

To what extent does this fudge of a deal reflect badly on the SFO? Recalling that in a press statement last October, Mr Alderman, the SFO's Director, committed himself to prosecuting BAe for corruption, this outcome seems disappointing for the SFO. Mr Alderman described the deal as a pragmatic solution, which underscores this. Comparing the SFO deal with the DoJ one, the latter at least extracted greater admissions of corporate criminality and compelled BAe to pay a much bigger fine.

Nonetheless, the SFO can point to a number of redeeming features.

  • First the quantum of BAe's "fine". £30 million swamps what any UK regulator has hitherto prised from a multinational in relation to its complicity in overseas corruption. In 2008 Balfour Beatty paid £2.25 million. In 2009 AON, Mabey & Johnson (M&J) and AMEC paid £5 million, £6 million and £5 million respectively. In relation to the M&J fine this was imposed by a court. This suggests that there is as yet no judicial appetite for fining companies similar sums to those which the courts have recently awarded in relation to corporate manslaughter.
  • Second the SFO can take credit for its dogged perseverance. Its investigation was always deeply unpopular in Whitehall, and BAe assembled a formidable legal and PR team to defend its interests. Evidence disclosed as a result of the judicial review hearings in 2008, after the SFO dropped its investigation of BAe in relation to Saudi Arabia, demonstrated its determination to investigate the company despite the odds. The challenge of getting BAe to settle even for £30 million should not be underestimated.
  • Third, and most importantly, the legal architecture concerning overseas corporate corruption is hostile terrain for a UK prosecutor. Proving beyond doubt that the board of a company the size of BAe (as opposed to a private company like M&J) agreed to particular acts of corruption where incriminating documents or admissions are absent and the case relies on inference, is notoriously problematic. This is why, in the Bribery Bill, the government wants to enact a new corporate offence of failure to prevent complicity in bribery to which the only defence is proving that there were "adequate procedures" to prevent it.

Impact of BAe deal for Bribery Bill

The important question prompted by this latest corporate-SFO deal is whether the Bribery Bill will make any significant difference. Will it provide the SFO with the teeth necessary to prosecute a multinational and eliminate the fudges and absurdities that bedevil the presentation of these deals? The prognosis is not good. First, this new offence will not apply to individuals. The inability to prosecute a reckless director means that the deterrent is lessened. Statements in the past from the DoJ about, for example, its willingness to seek the extradition of white collar suspects from the UK in relation to FCPA offences had a huge salutary effect here.

Second, a lack of controls and systems offence has been tried before and not attracted interest from law enforcement agencies. Failure to comply with money laundering regulations, for example, has been an offence since 1993 yet no one has ever been convicted of it and there have been mo more than a handful of prosecutions. Contrast this with the FSA's regulatory approach where plenty of firms have been fined for equivalent breaches. Will the SFO show any interest in investigating the finer points of whether or not a company had adequate controls when for whatever reason it could not prosecute it for bribery?

Inherent weakness of Bribery Bill

More fundamentally the Bribery Bill fails to create a means whereby the SFO's discretion to settle with errant companies is subject to any form of accountability. This is desperately needed. Using s221 of the Companies Act to get the BAe deal into court and thereby create an illusion that somehow the deal has been approved by a judge makes a mockery of our criminal justice system. BAe's plea of guilt to this offence is pure theatre. The SFO needs a safe harbour as a bulwark against widespread disquiet that it is condoning two-tier justice, one rule for big companies whilst another for individuals. The public needs to know that, behind the SFO announcements about ground-breaking deals, justice really has been done. Judicial oversight is essential but this Bill ducks that challenge.

Corker Binning is a law firm specialising in fraud, regulatory litigation and general criminal work of all types. For further information go to http://www.corkerbinning.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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