Friday, February 4, 2011

One Year Since The FCPA's Darkest Day

One year ago today, the DOJ filed a criminal information (here) against BAE Systems plc.

The first paragraph of the charging document stated that BAE was "the largest defense contractor in Europe and the fifth largest in the United States as measured by sales."

The information alleged that BAE served as the “prime contractor to the U.K. government following the conclusion of a Formal Understanding between the U.K. and the Kingdom of Saudi Arabia (“KSA”)” in which BAE sold several Tornado and Hawk aircraft, “along with other military hardware, training and services,” to the U.K. government, which sold the material and services to the Saudi government. The information refers to these frequent arrangements as the “KSA Fighter Deals.” In connection with these deals, the information alleges that “BAE provided substantial benefits to one KSA public official, who was in a position of influence regarding the KSA Fighter Deals (the “KSA Official”), and to the KSA Official’s associates.”

According to the indictment, BAE “provided these benefits through various payment mechanisms both in the territorial jurisdiction of the U.S. and elsewhere." For instance, the information alleges that BAE “provided support services to [the] KSA Official while in the territory of the U.S.” and that these benefits “included the purchase of travel and accommodations, security services, real estate, automobiles and personal items.” The information alleges that a single BAE employee during one year submitted over $5 million in invoices for benefits provided to the KSA Official.

Yet, BAE was not charged with violating the FCPA.

Rather, BAE was charged with one count of conspiracy for “making certain false, inaccurate and incomplete statements to the U.S. government and failing to honor certain undertakings given to the U.S. government, thereby defrauding the United States …”. Among the false statements BAE made to the U.S. government was its commitment to not knowingly violate the FCPA.

365 days ago I wrote (here) as follows:

"Transparency, corporate accountability, and indeed a criminal justice system all suffered setbacks today. The FCPA suffered a black-eye as well and one would be right to ask, "what the heck is going on here!"

Interesting twists and turns followed.

One month later (see here), BAE announced yesterday that Michael Chertoff, President Bush's former Secretary of Homeland Security, joined its board. Since 2005, BAE has received over $200 million in Department of Homeland Security contracts.

September turned out to a strange month.

The DOJ blessed BAE's monitor, a person per the plea agreement that shall have “sufficient independence from [BAE] to ensure effective and impartial performance of the monitor’s duties.”

Yet, the monitor blessed by the DOJ was a lawyer in a U.K. law firm that represented BAE and a law firm that represented the Saudi official who was the alleged recipient of the improper payments given rise to the enforcement action that required the monitor in the first place. (See here).

As Bruce Carton, writing for Compliance Week noted (here), "perception-wise, at least, I would think that a monitor who is not employed by a law firm that has multiple clients involved in the underlying alleged conduct would be a far 'cleaner' choice."

Then a few weeks later (see here) the FBI, the same agency that assisted in the investigation of BAE’s conduct giving rise to the February 2010 enforcement action, awarded a $40 million information security contract to a BAE entity. This contract was merely the most noteworthy of the millions of dollars in government contracts BAE entities have received in the last 365 days.

Every time I hear the DOJ say that bribery "will not be tolerated," that it will hold "accountable" those who corrupt foreign officials, that it will "vigorously pursue violations of the FCPA, and that it will apply a “consistent, principled approach” in prosecuting cases ... I think of the FCPA's darkest day and its aftermath.

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