British Aerospace (BAE) Systems,UK: The Ethical standpoint .

8/7/2019 British Aerospace (BAE) Systems,UK: The Ethical standpoint .

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Contents

BAE: Company overview 2

Global Standings

Allegations

Analysis of BAE¶s corrupt involvement in:

Saudi Arabia 2

Chile 3

Czech Republic 3

Qatar 4

Romania 4

South Africa 5

Tanzania 5

Conclusion 6

Reference 7



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BAE¶s long standing corruption scandals and The British

Government.

BAE was recently named the largest arms manufacturer in the world. This placewas usually taken up by American companies in the past. BAE Systems employs over

107,000 people worldwide and has its presence in more than 100 countries. The

company specializes in manufacturing arms for the air, naval & land forces. They also

provide technical support in the fields of advanced electronics and security information

technology. Despite the recession, the company managed to rake in £ 22.4 billion for

the year 2009. The BAE credits its operational framework and effective business

management systems for its performance. BAE¶s major µhome market¶ consists of

countries like Australia, India, Saudi Arabia, South Africa, Sweden, United Kingdom &

the United States of America. They also have global business development offices in

most of these countries with the addition of countries like Korea, Bahrain, Singapore,

Poland, Turkey etc. BAE- Texas was awarded a $ 629 million contract by the US army

to develop mine resistant vehicles. The BAE Systems has been dubbed as a ³Tax

Haven´ by critics in the past. £498 million was paid as tax to the British Government in

the year 2006 alone. (http://www.oef.com)

The amount of money that exchanges hands via the BAE Systems is definitely

noteworthy. It is because of this that the company has been embroiled in various

allegations on bribery and corruption in the past. The involvement & the silence of the

British Government are questionable, since the actions taken against the BAE systems

have hardly encouraged fair practices. The Serious Fraud Office (SFO) had been

investigating corrupt business practices in countries like Chile, Romania, Saudi Arabia,

South Africa, and Tanzania and most recently in the USA. (http://www.guardian.co.uk)

Saudi Arabia (1985-2008)

The BAE was involved in the Al Yamamah arms deals in Saudi Arabia since

1985. The deal involved selling Tornado & Hawk jets to Saudi Arabia. It also included a

commitment to training and maintenance contracts. The BAE is known to have earned

£43 billion in 20 years through these transactions. The UK Government was paid for by

up to 600,000 barrels of crude oil per day. (http://news.bbc.co.uk)

The BAE systems have been under investigation on this deal sighting corruption

and bribery charges in order to secure contracts. They have been accused of

maintaining µSlush funds¶ of £ 60 million for entertaining Saudi Royals by the SFO. The

UK National Audit Office (NAO) was also involved in the investigation. Interestingly, the

reports were never published, making it the only NAO report to be withheld. The



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Ministry of Defense further claimed that the sensitive data would harm UK¶s commercial

interests. The Saudi Government pulled out of the deal to buy Euro fighter jets from

BAE upon being investigated by the SFO on the slush funds. Following this, the SFO

mysteriously dropped its investigation altogether on BAE sighting the need to safeguard

national & international interests. The SFO also had a credible witness to the slush

funds incidents. Edward Cunningham, an employee of BAE Systems provided evidence

on the same to the SFO. The SFO notified Sir Kevin Tebbit, permanent secretary at the

Ministry of Defense, However the matter was suppressed for two years before the

report was leaked to the Guardian in UK. (http://www.guardian.co.uk)

The SFO¶s decision to drop the investigation was challenged by the Corner

House and the Campaign Against Arms Trade (CAAT). The SFO and the British

Government had apparently decided to discontinue the allegations following threats by

the Saudi Government to pull out of the fight against terror. The High Court ruling in

April 2008 pointed that the British Government was guilty of caving in to political

pressure and manipulating laws. The SFO was granted an appeal against the High

Court ruling in the House of Lords. On the 30 th of July the House of Lords passed the

verdict in favor of the SFO. The House of Lords emphasized that the British

Government and the SFO had not acted unlawfully and that it was indeed a matter of

safeguarding national security. (http://news.bbc.co.uk)

Chile, 1989-2005

In a report published by the Guardian in 2005, it was revealed that BAE had been

secretly paying out money to the tune of £1 million to General Augusto Pinochet, the

former dictator of Chile. The Chilean director has been under investigation onallegations of murder, torture & tax evasions in Chile since his rise to power. Augusto

Pinochet had arranged an artillery rocket deal with BAE in 1989. BAE also had a

contract with Chile to refurbish its Howitzers with new barrels.

BAE extended its hospitality to the General in London at a time when the others

were trying to get him arrested over mass murder and other allegations leveled against

him. The General was paid £14 million pounds in commission, most of them from Arms

manufacturing companies like that of BAE. BAE has been paying its commission

through the off shore Red Diamond trading routes, which does not appear in BAE¶s

published accounts. (http://www.guardian.co.uk)

Czech Republic, 2004

This matter concerns that of Czech Republic leasing Gripen fighter jets from the

BAE for £400 million in 2004. The Czech Republic were at the same time, pressurized

to buy a much larger fleet of Gripens at a total worth of £ 1 billion which eventually



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failed. Tony Blair had personally flown to the Czech Republic to persuade them on this

deal. The BAE were in joint venture with the Swedish manufacturer, Saab at that time. A

Swedish source had identified that £ 4 million were secretly being offered by BAE as

bribes to some influential agents related to the Czech political establishments. Three

agents were recognized in this fiasco and were known to have promised bribes and

some of them even completed the transaction. Similar off shore accounts were used as

in the case of Chile to complete these transactions and were tracked by the US

Department of Justice. Despite enough evidence against them, the BAE continued to

resist and deny its hand in these allegations. (http://www.guardian.co.uk)

Qatar, 1998-2002

This includes the involvement of the UK conservative defense minister, Michael

Portillo to persuade Qatar into signing up with BAE for £500 million arms deal. Qatar

had been previously relying on France for its arms. The deal revolved around 40

armored cars and other military supplies that were delivered in 1998. Following this dealMichael Portillo was appointed non executive director of BAE. A ³commission´ payment

of £ 7 million was awarded to the Qatari foreign minister, Sheikh Hamed in 1998 for

arranging the deal. Even though this issue was brought to light in the parliament later

on, the matter was suppressed by both the Qatari & British Governments. Offshore

accounts were used yet again to receive this payment by the Sheikh.

It was in British Governments self interest that this issue was never brought to

light. Britain would definitely have to maintain its diplomatic stance with Qatar, an oil rich

country. It also proved to be helpful to them in their war against terror which involved the

invasion of Iraq from Qatar. After being dropped of all charges the Sheikh invested mostof his money back in London where he bought 300,000 shares in Sainsbury¶s as well as

an extravagant spends on luxury flats in Hyde corner amounting to £100 million.

(http://www.guardian.co.uk)

Romania, 2007

This involves the unusual decision of the Ministry of Defense to de-commission

two of its anti submarine frigates, HMS London & HMS Coventry. The ships were

constructed at a price of £250 million and sold off to BAE at scrap value of just £

100,000 each. BAE later entered into a deal with Romania to sell & refurbish theseships at £ 116 million. Romania paid for them with a loan extended by Deutsche Bank

and guaranteed by Britain¶s Export Credit Agency (ECGD). The agent by the name of

Barry George was paid £ 7 million in commission for fixing the deal. However upon

investigation by the ECGD, BAE admitted on paying only 1% instead of 7%.



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Barry George was married to a Romanian, who had ties with the old communist

regime. They had been caught up in allegations over fraudulent practices earlier in

1999. The subsequent investigations and raids in 2007 in Barry George¶s residence and

office revealed no links of payments being made to Romanian officials.

(http://www.guardian.co.uk)

South Africa, 2007

This involves BAE¶s deal to provide 52 Hawk Trainer aircrafts & Anglo Swedish

Gripen fighters to South Africa at £1.6 billion. It was later known that the price of the

Hawks was twice as that offered by an Italian company. The South African defense

minister, Joe Modise is said to have disregarded this variance and the deal had gone

through.

Commissions to the tune of £112m were made through secret off shore

accounts. Most of which, as the SFO later came to find, were through BAE¶s RedDiamond company front. Upon investigation BAE claimed that no political links were

involved in the deal. However, a close inspection revealed payment ties with the adviser

of the defense minister and Berkshire based arms dealer, John Bredenkamp. As

always, the SFO tried to investigate the allegations of corruptions before being dropped

off due to non co-operations by the concerned authorities. (http://www.guardian.co.uk)

TANZANIA, 2001

BAE set up a deal with Tanzania in 2001 to supply military air traffic control

system. Being one of the poorest countries in the world, Tanzania had paid a

significantly large sum of money, considering that it had hardly any military aircrafts to

justify the deal. Moreover, the deal was blocked 10 years earlier by the World Bank &

UK¶s Department for International Development. By 2001, not only the technology a

decade old, but the technology was also too expensive and inadequate for use in civil

aviation (As published in the reports by International Civil Aviations Organization)

Clare Short, the secretary of state for International Development was always

suspicious of corruption. In the same year she had signed a £35 million grant for

children¶s education in Tanzania. She insists that the money was used to finance the

deal mentioned above. An investigation in 2007 revealed that an agent had been paid £

7.5 million for the Tanzanian deal yet again through the Red Diamond front.

(http://news.bbc.co.uk)



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Conclusion

The US Department of Justice found BAE guilty (2010) on many counts in

different countries, notably in Saudi Arabia for bribery and corruption to gain contracts.

BAE was fined $ 447 million by USA for arms deals violations & £ 30 million in UK to

SFO towards the Radar deal in Tanzania in 1999. This is the largest fine imposed by

the SFO till date. The payment of the fines may have put an end to the long standing

scandal that ensued over allegations of corruption both in BAE & the British

Government. (http://www.heraldscotland.com) However, the payment of these fines

does not put an end to the injustice that the poor people of Tanzania and other such

countries have suffered.

It is evident that the BAE has enough Government backing to this effect. Tony

Blair¶s involvement in South Africa, Tanzania, and Czech Republic are just some of the

published sources to this point. BAE System¶s auditors, KPMG are currently under

scrutiny. BAE Systems continues to deny most of the charges it did not confess against.

The top officials of the Ministry of Defense in UK were wined & dined 52 times in 3

years. Was this done without the knowledge of the British Government? Why does the

BAE System still operate secretly (no longer so) under the Red Diamond Trading front?

Is the $ 447 million fine justified for its past short comings?

The BAE continues to flourish, most often than not with the help of its corruptpractices, undoubtedly supported by the British Government. These practices should

definitely not be condoned & a much stringent measure should be taken against such

companies. The British Government must mend it ways. (http://www.guardian.co.uk)



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References

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y

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British Aerospace (BAE) Systems,UK: The Ethical standpoint .

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