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US: BAE chief detained as US turns up heat in bribes case

by Nick Clark and Stephen FoleyThe Independent (U.K.)
May 19th, 2008

BAE Systems admitted yesterday that American authorities investigating corruption claims over an arms deal with Saudi Arabia had issued a series of subpoenas to senior executives, as the investigation continues to gather pace. Two bosses of the defence giant were also detained after they landed at a Houston airport last week.

BAE released a statement which said: "The Department of Justice last week served a number of additional subpoenas in the US on our employees as part of its ongoing investigation."

The statement added: "The company has been and continues to be in discussion with the Department of Justice concerning the subpoenas served in the course of its investigation."

The chief executive, Mike Turner, and an unnamed senior colleague were held for 20 minutes by US law enforcement agents at George Bush International Airport this week. The pair were served with subpoenas while they were detained at the airport. A further three executives, all based in the US, were served at home. The spokesman said Mr Turner had now returned to Britain, but added that he had not been prevented from entering the US last week. He declined to comment on the nature of the subpoenas, which could range from requests for information, to orders for a personal appearance in front of a jury to give evidence.

The US DoJ is investigating BAE over alleged corruption charges during the 1980s and 1990s relating to the 43bn al-Yamamah fighter plane deal. BAE denies any wrongdoing.

The Serious Fraud Office in London also launched an investigation into the deal, but it was suspended in December 2006 over fears that it would damage Britain's relations with Saudi Arabia. This has been challenged by a High Court ruling, although the Government is appealing against the decision.

News that Mr Turner and others were detained in Houston suggests that the DoJ investigation is proceeding at some pace, 11 months after BAE first disclosed its existence. On a single day in June last year, BAE shares fell by 8 per cent amid concerns that the DoJ could impose significant sanctions under its powerful Foreign Corrupt Practices Act (FCPA), and that the problems could affect the company's lucrative and deepening business ties with the US military.

The FCPA gives US authorities the power to prosecute offences of corporate bribery, even if the company involved is not American and the bribery is carried out overseas.

The Act has its roots in a string of scandals in the US aerospace industry in the Seventies, when hundreds of firms admitted paying bribes to secure contracts overseas. Last year the US government collected more than $100m in fines from oil, chemical and telecoms companies under the FCP. The number of foreign bribery cases filed by criminal and civil investigators in the US has more than doubled since 2004.

Firms which issue shares or bonds in the US are subject to the Act, as are any firms found to have used the US phone, mail or banking systems as part of the bribery scheme. The now defunct Riggs bank in Washington was used to channel some payments under the Al-Yamamah deal, it was revealed last year, although BAE says those payments were legitimate.

Separately, BAE will today announce it has been awarded a 43.9m contract with the Ministry of Defence to maintain the Royal Air Force's tanking and transport fleet of VC10s.

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