UK: Payload: Taking Aim at Corporate Bribery

Publisher Name: 
New York Times

Late last month, five jumbo jets from Riyadh touched down at Heathrow
Airport in London. They brought with them 13 members of the Saudi
royal family, including King Abdullah and his retainers - and
controversy. Over the last four years, the British government has been
dogged by criticism of its relationship with Saudi Arabia, which is
Britain's biggest trading partner in the Middle East.





The state visit, the first by a Saudi monarch in 20 years, was no
exception, with much of the storm centering on controversial financial
ties linking the British military contracting giant, BAE Systems, to
Downing Street and the desert kingdom. The leader of one major British
political party boycotted King Abdullah's visit while protesters
turned out for his ceremonial carriage ride to Buckingham Palace.





Much of the debate turns on the fact that BAE made billions of dollars
in clandestine and questionable payments to Saudi royals over the last
20 years as part of an $80 billion contract to supply the kingdom with
advanced fighter jets and other military hardware. While the
investigation of BAE's business practices has followed a circuitous
path in Britain, it has recently gained independent momentum in the
United States, where the Justice Department is now investigating the
company.





BAE generates nearly half its revenue in the United States, and it
recently acquired a major supplier of armored Humvees used by American
forces in Iraq. American officials who were granted anonymity because
they were not authorized to speak publicly about the matter said the
Justice Department is examining whether BAE violated domestic laws
banning international bribery and money laundering. Accounts in
Switzerland, the Caribbean and elsewhere are involved, and, like
Britain, the United States has a strategic relationship with the
Saudis that the investigation threatens.





Although the cast of players in the BAE story is unusually broad -
it includes Saudi royals like Prince Bandar bin Sultan, the
kingdom's former ambassador to the United States, as well as Tony
Blair, the former British prime minister - the investigation is but
one in a bounty of cases that the Justice Department recently started
under a once-obscure law called the Foreign Corrupt Practices Act (or
F.C.P.A.).





BAE and the Saudis have openly acknowledged the payments at the center
of the investigation, deny any wrongdoing and say that the payments
were known to the British and Saudi governments. "We are aware of
the U.S. D.O.J. investigation and we are fully cooperating," a BAE
spokeswoman said. "As it is an ongoing investigation, we cannot
comment any further."





While the BAE investigation apparently ran aground in Britain, it has
gained enough interest in the United States to cause some of those in
the middle of it to secure high-profile legal advisers. Prince Bandar,
a confidant of the Bush family, recently retained the former Federal
Bureau of Investigation director Louis J. Freeh, as well as one of the
fathers of the F.C.P.A., the retired federal judge Stanley Sporkin, to
represent him.





"There have been no charges filed," Mr. Freeh said in an
interview. "The prince denies any impropriety and violating any
statutes in the United Kingdom or the United States."





The revelation that British investigators had discovered that BAE
deposited $2 billion in payments into Prince Bandar's Washington
bank accounts led the Justice Department to enter what analysts
describe as the highest-profile F.C.P.A. case to date. Passed by
Congress three decades ago in the wake of Watergate, it is only in the
last five years that the F.C.P.A. has become a powerful tool for
prosecuting domestic and overseas companies suspected of bribing
foreign officials to secure business.





Justice Department officials estimate that there are about 60 such
cases under investigation or prosecution in the United States, with a
new, five-member F.B.I. team dedicated to examining possible
violations of the act. According to the Organization for Economic
Cooperation and Development, a group based in Paris that represents 30
industrialized countries, there are more than 150 prosecutions or
investigations worldwide involving possible bribery of government
officials for commercial gain.



While law enforcement officials and governments in disparate
jurisdictions once hesitated to work together to combat corporate
fraud, graft has come to be seen as such a severe impediment to global
economic growth that cooperation is becoming more frequent.





Analysts say that this shift, along with the enactment of the
Sarbanes-Oxley law tightening corporate oversight - and a greater
willingness among companies themselves to tackle corruption - has
also begun to change how many corporations operate in poorer,
developing countries where graft has been most detrimental.





Lawyers, prosecutors and corporate executives in the United States and
abroad say they are closely watching the BAE investigation because it
offers a test of how aggressively anti-corruption initiatives will be
pursued globally, particularly in countries like Britain and Japan
that have resisted enforcing such efforts. "The BAE case is a
watershed moment," says Mark Pieth, who oversees anti-bribery
efforts for the O.E.C.D. "Large multinationals in many countries
have come to us and told us that."





FOR BAE, the fact that billions in payments to Prince Bandar and his
relatives might be considered bribes means more than just the
potential imposition of heavy fines. It may also mean, analysts say,
that BAE executives potentially could go to prison and the company
might find itself barred from doing business with the United States
government.





The taint of bribery scandals in emerging markets could also have
bruising financial implications for BAE. In regions of the world where
bribe-taking has long been baked into business transactions - East
Asia, the former Soviet Union, Africa and Latin America, for example -
legal investigations could make the company vulnerable as those areas
become more desirable for military contractors looking for new
clients.





For companies that have not adapted to the new legal landscape, the
consequences are becoming more serious. This year, Baker Hughes, the
oil services company, paid a record $44 million fine after admitting
that it had bribed officials in Kazakhstan, Angola, Russia, Nigeria
and elsewhere.





Halliburton, an oil services giant that was once headed by Vice
President Dick Cheney, has disclosed that it is facing an F.C.P.A.
investigation into its activities in Nigeria before, during and after
Mr. Cheney's tenure at the company. A spokeswoman for the vice
president declined to comment. Halliburton did not respond to an
interview request.





Aon, a major insurance broker, recently disclosed in corporate filings
that it is the subject of an F.C.P.A. inquiry but declined to provide
further details. Last month, the Willbros Group, an oil services
company, said it would pay $32 million to settle an F.C.P.A. charge
related to bribes paid in Nigeria and elsewhere - including $1
million handed over in a suitcase. A former Willbros executive who
pleaded guilty to federal charges in the case faces a prison sentence
of as much as five years. While executives involved in paying bribes
can be jailed, foreign officials cannot be charged under the law.





"The F.C.P.A. has now surpassed Sarbanes-Oxley for being at the
nerve endings of corporate general counsels and executives," says
Daniel E. Karson, executive managing director at Kroll Associates, a
private investigative firm that conducts due diligence and background
investigations for corporations and other clients.





Last week, Alice Fisher, assistant attorney general and head of the
Justice Department's criminal division, traveled to Rome for an
anticorruption conference marking the 10th anniversary of the
O.E.C.D.'s adoption of anti-bribery regulations, which parallel the
Foreign Corrupt Practices Act.





Ms. Fisher, who declined to comment on the BAE case, said her F.C.P.A.
caseload this year was running at twice last year's pace, and she
predicted that the upward trend would continue in 2008. She said she
planned to press her overseas law enforcement counterparts in Rome for
continued collaboration to combat corporate bribery.





"I don't take many foreign trips, but this is important to the
overall program," she said. "There are a lot of countries that can
do more."



ONE of those countries, ironically, is Britain, usually among the
closest of allies of the United States. Historically, according to
documents in British government archives, Britain, long dependent on
foreign trade, has resisted anticorruption efforts because it believes
that they undermine the country's business interests abroad.





After a series of articles in 2003 and 2004 in The Guardian, the
British newspaper, about possible bribes and other improprieties
involving BAE, the Serious Fraud Office of Britain started an official
investigation. But after the Saudi government strongly objected to the
investigation, Mr. Blair, then the prime minister, ordered it halted
late last year on security grounds.





"The result would have been devastating for our relationship with an
important country with whom we cooperate closely on terrorism, on
security, on the Middle East peace process," Mr. Blair said at a
news conference. "That is leaving aside the thousands of jobs which
would have been lost, which is not the consideration in this case, but
I just point it out."





The British High Court recently ordered a full judicial review of Mr.
Blair's decision not to pursue the BAE investigation. Meanwhile, the
Justice Department's BAE investigation has benefited from
cooperation by law enforcement agencies elsewhere in Europe, according
to people with direct knowledge of the inquiry. A decade ago, such
cooperation would have been impossible because many European
governments considered corporate bribery tolerable - and in the case
of Germany, even made it tax-deductible, as "schmear gelt," or
"grease money."





Since then, German authorities have become particularly aggressive in
pursuing possible corruption violations, as illustrated through their
continuing investigation of Siemens AG, the German industrial
conglomerate. Although some American companies once actively lobbied
to water down the F.C.P.A., arguing that it made it hard to compete
overseas, many corporations here have now thrown their weight behind
it in the belief that it can be used to prevent competitors from
indulging in bribes. So anti-corruption efforts in the United States
are now gathering legal steam.





"There has been a dramatic increase in the resources dedicated to
enforcing the law by the Justice Department and the F.B.I., and even
more important, a strong public commitment to compliance as well as
enforcement," says Peter B. Clark, who oversaw F.C.P.A. prosecutions
at the Justice Department from the enactment of the law in 1977 until
his retirement two years ago.





According to top Justice Department officials, strengthening F.C.P.A.
enforcement isn't only about getting American companies to clean up
their act or punishing foreign enterprises for breaking domestic laws.
It is also part of an attempt to deal with the long-term impact that
bribery has on emerging markets.





"Corruption undercuts democracy, stifles economic growth and creates
an uneven playing field for U.S. companies overseas," Ms. Fisher
says. "We are facing transnational crime all over the place."





Any company with an American connection - a listing on the New York
Stock Exchange, for example, or the use of an American bank account to
transfer suspect payments - opens the door for prosecution under the
F.C.P.A. For example, the Justice Department began investigating
BAE's payments to the Saudi royals, and Prince Bandar in particular,
this year, after it learned that BAE deposited billions of dollars in
such payments in American banks.





Among those institutions was Riggs Bank. Riggs, a subsidiary of the
Riggs National Corporation, paid $41 million in federal penalties in
2004 and 2005 to settle a high-profile federal investigation of
money-laundering violations before it was taken over by the PNC
Financial Services Group. A PNC spokesman declined to comment directly
on the BAE matter, but said that any possible transgressions occurred
before the takeover and that Riggs was required to divest units
catering to diplomats and foreign clients before the buyout.





ON a rainy morning this August, an unusual visitor arrived at the
Justice Department's headquarters in Washington. Although a British
citizen, he had, for security reasons, taken a circuitous route via
Paris to meet with senior Justice Department prosecutors, F.B.I.
agents and members of the criminal division of the Internal Revenue
Service.



During two days of questioning in a windowless conference room, that
visitor, Peter Gardiner, detailed how he had helped BAE disburse
millions to the Saudi royal family to pay for everything from luxury
travel to female escorts, according to people with knowledge of the
meeting who insisted on anonymity because they were not authorized to
publicly discuss the case.





Much of the money Mr. Gardiner said he had disbursed went to cover
expenses racked up by Prince Turki bin Nasser, head of the Saudi air
force and a major BAE customer. Other funds were earmarked for the
honeymoon of Prince Bandar's daughter. Mr. Gardiner owned a travel
agency that catered to the needs of BAE and its Saudi customers, and
his information about their dealings has been known to British
authorities for some time. It was also a primary basis for some of The
Guardian's articles about the matter.





But the meetings, on Aug. 20 and 21, signaled that the Justice
Department had moved beyond asking London for assistance with the
investigation to interviewing witnesses and collecting documents
directly, based on the belief that BAE's payments may have violated
United States laws banning international bribery and money
laundering.





When contacted for an interview about the meetings, Mr. Gardiner said
that the Justice Department had asked him not to comment.





In September, about 10 months after Mr. Blair quashed the BAE
investigation in Britain, the company won a new contract to supply
Typhoon jets to Saudi Arabia; the deal could amount to $60 billion
over the next 25 years, according to trade publications.





By the time Mr. Blair shut down the British investigation late last
year, however, the Justice Department was already aware of BAE's
practices. As far back as July 2002, representatives from the State,
Justice and Defense departments, as well as the C.I.A., sat down in
Washington with senior British officials from the Ministry of Defense
to complain about suspected bribery by BAE in Central Europe, the
Persian Gulf and South Africa.





Sir Kevin Tebbit, then Britain's permanent under secretary of the
Ministry of Defense, rejected the suspicions as baseless. American
officials who participated in the meeting later nicknamed him Sir
Topham Hatt after a character in the Thomas the Tank Engine
children's series because of what they said was "his almost haughty
disdain for the allegations of bribery involving BAE" and the manner
in which he challenged them to detail evidence of wrongdoing.





Mr. Tebbit, now retired, declined to comment and referred questions
about his interactions with American officials to his former employers
in the Ministry of Defense. The ministry declined to comment.





The meeting with Mr. Tebbit came after the United States Defense
Department, along with the military contractors Lockheed and Boeing,
formally withdrew from a competition to sell fighter aircraft to the
Czech Republic in 2001. A letter written by Lt. Gen. Tome H. Walters
Jr., then head of overseas sales for the Pentagon, to the Czech
foreign minister said that there was a "lack of transparency" in
the negotiations. The letter also cited a conclusion by the United
States government that competition for the contract was not above
board. The contract was subsequently awarded to BAE and its Swedish
partner, Saab.





In an interview, General Walters, now retired, said that the problems
in the Czech Republic followed similar problems trying to sell
American jets to the Hungarian government. BAE secured the Hungarian
contract as well. American officials say they believe that the
Hungarian and Czech governments were influenced by payments. They cite
a C.I.A. briefing during which they were told that BAE paid millions
of dollars to the major political parties in Hungary to win the
contracts there.





BAE said it is unaware of any investigations of the company in
Hungary. "BAE Systems has very strong policies and processes in
place which it is clearly committed to communicating to its employees
and advisers," a spokesman said. "Any action which is unlawful,
dishonest, harmful to others or otherwise against our policies, is
unacceptable."



Although Mr. Gardiner's cooperation signaled a possible escalation
in the American investigation, those with knowledge of the inquiry say
British authorities are resisting requests from Washington for help.
Representatives of the Home Office of Britain, which handles these
requests, have told Parliament that they have yet to decide whether to
cooperate.





Despite tensions between the United States and Britain over the
matter, Swiss law enforcement authorities have decided to cooperate
with the Justice Department investigation, according to a person with
direct knowledge of the matter. The Swiss are likely to soon begin
sharing records of financial transactions and bank accounts with
American prosecutors. That will be crucial to charting what law
enforcement officials describe as a flow of dollars from BAE to a
network of company agents and public officials in Saudi Arabia, South
Africa, Hungary and the Czech Republic.





So far, the American investigation hasn't harmed BAE's booming
business with the Pentagon. This summer, Senator John Kerry, Democrat
of Massachusetts, citing the inquiry, objected to BAE's purchase of
Armor Holdings, which makes armored Humvees and other military
equipment, in letters to the Justice Department and the Treasury
Department. But the Armor Holdings sale was completed in July for $4.5
billion.





DESPITE the new fondness for the F.C.P.A. in domestic law enforcement
circles, the cases are notoriously complex to prosecute and are made
even more so by the fact that many overseas jurisdictions are
involved. Even in an era of increasing cooperation, internal politics
in other countries can become roadblocks.





"The rhetoric has changed," says Benjamin W. Heineman Jr., who was
General Electric's chief legal officer from 1987 to 2005.
"Everybody says the right thing now, but what are they doing?"





Mr. Heineman praises the Justice Department's efforts but says he is
frustrated that the O.E.C.D. isn't doing even more, especially in
the BAE case. "They don't powerfully name and shame the laggards,"
he says.





The threat of an indictment under the F.C.P.A., more than financial
penalties, is what worries most companies that may come under scrutiny
as part of the Justice Department's crackdown on bribery.





"No publicly traded company wants to be branded with the stigma of
an indictment," says David Zornow, who directs the white-collar
criminal practice in New York for the law firm of Skadden, Arps,
Slate, Meagher & Flom. "It's potentially ruinous."





Multinational companies competing in these countries are turning to
law and accounting firms as well corporate investigators like Kroll to
help them navigate through the F.C.P.A.'s regulations and to vet
local partners in countries like China and Nigeria.





PricewaterhouseCoopers has doubled the size of its F.C.P.A. practice
over the past five years. Deloitte & Touche has mobilized in a
similar way. It says that when it scrutinizes companies for possible
bribery problems, it looks for such red flags as tuition payments for
the children of government administrators, property purchases or
rentals from foreign officials or their relatives, and payments in
exchange for information about competitor's activities.





Lawyers with experience in F.C.P.A. cases say that gathering facts in
such matters is never easy. Kevin T. Abikoff, a lawyer at Hughes,
Hubbard & Reed who has represented several companies accused of
running afoul of the F.C.P.A. in Nigeria, says that large companies
typically cut employees loose once they are charged with a crime.





"It's a rare person who says, 'It was me; it's my fault,'"
he says. "There's finger-pointing up, down and sideways."





During the O.E.C.D. anti-corruption meeting in Rome last week, which
celebrated the 10th anniversary of the organization's treaty
outlawing international bribery, its head, Angel Gurria, said that
national security concerns - the reason Mr. Blair gave for
terminating the BAE investigation in Britain - "should not be
used" as a reason for quashing bribery investigations. He also
voiced concern that anti-corruption efforts were in danger of
weakening.


"Now I do not want to spoil the birthday party, but I do have to say
that what we have achieved is still not good enough," he added.
"There will be big risks that countries will go back to doing
'business as usual,' including corruption. The only way to prevent
this is to ensure that everyone plays by the same rules."

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