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Richard L. Cassin Publisher and Editor

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Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


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Entries in Serious Fraud Office (242)

Tuesday
Jul292008

Distasteful But Not Illegal, Say The Lords

The House of Lords ruled today that the Serious Fraud Office didn't break the law when it stopped its investigation into bribery allegations involving BAE Systems and Saudi Arabia.

In April this year the High Court in London slammed the SFO's decision. In its appeal to the Lords, however, the SFO argued that then-director Robert Wardle was justified in shutting down the investigation because of national security concerns. Wardle said he believed the Saudi threats to stop sharing anti-terrorism intelligence with the U.K government put British lives at risk.

All five law lords hearing the case agreed that the SFO acted lawfully. One of the Lords, Baroness Hale, said it was "extremely distasteful that an independent public official should feel himself obliged to give way to threats of any sort." Nevertheless, she said, the SFO's Wardle didn't break the law. And Lord Bingham said Wardle "was confronted by an ugly and obviously unwelcome threat." But because he believed British lives to be at risk, his action in stopping the investigation was justified.

The High Court in April rejected the SFO's argument that it was powerless to resist the Saudi threats. "So bleak a picture of the impotence of the law invites at least dismay, if not outrage," the court said. It added that to give in so easily "merely encourages those with power, in a position of strategic and political importance, to repeat such threats, in the knowledge that the courts will not interfere with the decision of a prosecutor to surrender."

U.S. authorities are continuing their investigation of BAE's sales to Saudi Arabia.

BAE has denied breaking any laws.

View our prior posts about BAE here.

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Thursday
Jul102008

Heading For The Hammock

It's the weekend again. Good thing. We need (and deserve) some rest. What serious mind, after all, wouldn't be exhausted pondering how Tampa Bay can be one and a half games clear of the Red Sox? Strangely, our spouse seems to hold no opinion on the subject. So in our household the burden of the American League East falls entirely on our shoulders.

Still, we managed to cover some new ground this week. Iraq's civil suit against those implicated in the oil-for-food scandal caught our eye. And we noted the appeal to the House of Lords by Britain's Serious Fraud Office. We're not sure if the bigger scandal there involves BAE and Prince Bandar or the SFO itself.

What else? Oh yes -- we were wowed by the D&O Diary's trend-spotting. Looks like FCPA-inspired civil litigation is the next big hazard in the lives of our already-pummeled corporate leaders.

Meanwhile, we're waiting for the DOJ to deal with Panalpina. The global logistics firm may have stretched "facilitating payments" well beyond the current legal definition -- and in the process caused compliance headaches for practically everyone in the oil-and-gas services sector.

Siemens' hopes for a quick resolution in the U.S. of its massive corruption problems have now evaporated. Our first post about that company was back in September 2007, an eon ago in the life of a blog.

Speaking of eons . . .

Aon Corporation -- the giant insurance broker -- disclosed back in November 2007 an internal investigation into possible violations of the FCPA. When it self-reported to the DOJ it also agreed to toll the statute of limitations. So we guess no one's in a big hurry to wrap up that one.

The orthopedic device makers are waiting to learn their fate with the FCPA. We first wrote about the investigation by the DOJ and SEC into the group's overseas sales practices in October 2007. That post was also our first mention of John Ashcroft's appointment as a compliance monitor in a domestic bribery case for Zimmer Holdings.

The revelation that Mr. Ashcroft might take home $52 million from the appointment prompted our favorite blog editor emeritus, Prof Peter Henning, to note in his '07 Thanksgiving Day message: That's not a bad payday, and Zimmer -- like every other company that enters into a deferred or non-prosecution agreement -- can hardly object to the fees lest it look uncooperative and bring down the wrath of the U.S. Attorney's Office. So much to give thanks for this Thanksgiving.

Well, with the FCPA backlog still growing, we could keep at this for a long time. But our thoughts must now return to more weighty matters. That's right -- the mystery of the American League East.

Enjoy the weekend.

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Monday
Jul072008

The Lords Hear From The SFO

Yesterday the Serious Fraud Office asked the House of Lords to overturn April's High Court ruling that the SFO broke the law when it dropped its corruption investigation of BAE Systems.

The case involves BAE's alleged secret payments of £1 billion to the former Saudi ambassador to the United States, Prince Bandar bin-Sultan. The payments were allegedly made when BAE was trying to sell jet fighters to the Saudi government.

In late 2006, the SFO was about to gain access to Swiss bank accounts that may have shown where BAE's payments went. The Saudis threatened to end anti-terrorism cooperation with the U.K unless the SFO stopped its investigation. The High Court in April criticized the government's capitulation as illegal and blasted the Saudi threats. "No one within this country or outside," the court said, "is entitled to interfere with the course of our justice."

Yesterday the SFO's lawyer told the Lords that Robert Wardle, who was then the SFO's director, was "convinced that Saudi Arabia was not bluffing." By December 2006, the lawyer said, Wardle believed the "danger was now both very grave and imminent." Because Wardle's decision was based on national security and not on commercial considerations, the lawyer said, the SFO was justified in stopping its investigation.

Public interest groups are arguing that the SFO's action contravened its charter and Britain's commitments under the OECD's anti-corruption convention.

The hearing before the Lords is continuing.

Whatever happens in London, the U.S. Justice Department is conducting its own investigation. The DOJ wants to know whether BAE and Prince Bandar violated the Foreign Corrupt Practices Act and anti-money laundering laws.

In May this year, the DOJ turned up the heat. BAE's chief executive Mike Turner and director Nigel Rudd were detained at U.S. airports. Authorities apparently copied information from their laptop computers, cell phones, and papers before letting them leave. The DOJ has also reportedly served subpoenas on other BAE employees in the U.S.

In November 2007, according to the U.K.'s Guardian, the DOJ obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The paper reported that Peter Gardiner had boxes of invoices allegedly detailing payments made by BAE to members of the Saudi royal family. Gardiner was flown by FBI agents to Washington in August 2007 to give testimony there. He traveled via Paris to avoid British attention, the paper said.

There's no evidence that BAE is co-operating with the DOJ's investigation. In fact, a Times Online article in May this year quoted a former DOJ official as saying that the recent heavy-handed behavior of U.S. authorities indicated "a severe lack of cooperation by BAE."

BAE and Prince Bandar have denied breaking any laws.

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Thursday
May222008

The Highest Roller In Town

Does it ever pay to stonewall the Department of Justice in an FCPA investigation? We're asking because of an item that ran in the May 21st edition of the U.K. Times Online (available here). It described the DOJ's detention of BAE's ceo and a director as they travelled separately through the Houston and Newark airports last week. The DOJ, investigating alleged corrupt payments to Saudi officials, reportedly searched and copied information from their laptops, phones and briefcases, then let the men continue traveling. In the Times piece, Joshua Hochberg, the former head of the DOJ's group responsible for Foreign Corrupt Practices Act prosecutions, explained "that the recent heavy-handed behaviour of investigators indicated 'a severe lack of cooperation by BAE'."

Is a "severe lack of cooperation" a viable legal strategy -- for BAE and its personnel, or for any company facing an FCPA investigation? Does being non-cooperative and recalcitrant ever serve the best interests of a corporation? When dealing with the FCPA, does ordering company employees and agents to keep quiet and stay away from the DOJ ever enhance a company's defensive position?

The questions aren't merely academic. In most criminal investigations, corporate targets have some options to consider. They can decide to force the government to do the hard work of uncovering evidence. That's their right. Defendant's don't have to testify against themselves, and the government's burden to prove guilt beyond a reasonable doubt is a safeguard for corporations too. At its criminal trial, an accused company can sit mute and force the government to make its case.

But the FCPA doesn't work like a typical criminal statute. Companies facing FCPA charges don't go to trial. They can't withstand the withering publicity -- the front page stories around the world of their alleged international public bribery. They usually can't risk being banned from U.S. government contracts, or losing their export licenses -- which can happen based on mere allegations of FCPA offenses. And anyway, their chances at trial are exremely bleak. With the application of respondeat superior, once a company employee admits to violating the FCPA, the company is guilty as a matter of law. That's the rule in most U.S. circuits that have considered the question. It doesn't matter if the guilty employee held a low rank or was violating company policy. The employee's guilt is still imputed to the company. So one bad apple really does spoil the barrel.

Companies are sitting ducks in FCPA cases, and their people are vulnerable too. Let's face it, what director, officer or executive responsible for compliance wants to risk his or her hide because an assistant sales manager in Mongolia decided sui generis to grease some government palms? In other words, it's all downside risk to fight the DOJ in an FCPA case. So instead, companies cooperate, knowing a "good" outcome -- usually involving a deferred prosecution agreement -- is only possible when the DOJ is on their side.

If fighting isn't an option, if cooperating is the only way to salvation, then the DOJ ends up holding all the cards. Its decision to investigate and charge a corporation becomes paramount. There won't be a trial where lawyers can argue, raise defenses, challenge the witnesses' credibility, and implore the jury to dish out justice. Instead the process will start and end with the DOJ itself. Yes, there are grounds to criticize the prosecutors' omnipotence in FCPA cases. But for now that omnipotence is a fact of life that has to be faced. Why, then, would a corporation under investigation for alleged FCPA offenses thumb its nose at the prosecutors? What's to be gained?

Instead of fighting, the path forward has been for accused companies to work with the DOJ, to investigate the facts cooperatively, to self-disclose the results, to take remedial action, and to hope the DOJ will be willing to defer the prosecution if the company keeps its nose clean. But that's not what BAE is doing. Why not?

Well, in the U.K., BAE has been protected. The Serious Fraud Office -- responsible for investigating and prosecuting high-level overseas public corruption -- opened a file on the company but closed it in 2006 under irresistible pressure from the Blair government. The High Court in March this year ruled that the SRO couldn't legally drop the investigation, but the government is now appealing that decision to the House of Lords. In the U.K., BAE may yet keep its secrets. So is the company also betting that its U.K. protectors will prevail against U.S. prosecutors as well? That the Western Alliance will be unwilling to press the case and embarrass Saudi Arabia -- a key security ally and OPEC's largest exporter?

We don't know what's going on inside BAE. It has denied doing anything illegal. So all we really know is that the company isn't playing by the usual rules. Instead of making peace with the DOJ, it's flipping the feds an awfully rude gesture. Does that mean BAE has a legal strategy that relies on an ultimate savior, such as the man in the White House? If that's true, what happens if the strategy doesn't work? What happens if BAE ends up in the hands of the Department of Justice like every other company facing FCPA allegations? In that case, BAE and its leaders will have lost an enormous bet, and life will never be the same.

View prior posts about BAE here.

Monday
May192008

U.S. Prosecutors Detain And Search BAE Leaders

The Justice Department escalated its politically explosive investigation into BAE Systems' role in the $2 billion bribery scandal involving alleged illegal payments to former Saudi ambassador to the United States, Prince Bandar bin-Sultan, in return for the sale of jet fighters to the Saudi government.

BAE confirmed today that chief executive Mike Turner and director Nigel Rudd were detained by U.S. officials when they landed last week at Houston's George Bush International Airport. They were later released and allowed to leave the country. Reports say U.S. authorities confiscated and copied information on the executives' laptop computers, cell phones, and papers. The DOJ has also reportedly served additional subpoenas in the U.S. on employees of BAE Systems PLC and BAE Systems Inc. The DOJ's investigation centers on alleged violations of the Foreign Corrupt Practices Act and money laundering.

Britain's Serious Fraud Office dropped its investigation of BAE in 2006. The High Court last month ruled that the SFO acted illegally when it shut down the investigation, but allowed the SFO to appeal the decision to the House of Lords. That appeal is pending. Evidence in the High Court showed that Prince Bandar threatened to stop Saudi Arabia's cooperation with the U.K. on counter-terrorism unless the SFO ended its investigation. The High Court strongly criticized the government's capitulation. It said, "No one within this country or outside, is entitled to interfere with the course of our justice."

View prior posts about BAE here.

Tuesday
May062008

The Woolf Report Tells No Tales

The message in our inbox yesterday said: You may find this interesting if you haven't seen it already. It's the Woolf Committee Report on BAE -- released this morning. It's breathtaking in the extent to which they have focused stubbornly on the future and avoided a meaningful review of past conduct. I know that was the basis upon which the committee was formed, but it's difficult to imagine how future conduct can be determined without past wrongdoing explored.

Our correspondent is a fine compliance professional with one foot in Washington and the other in London, so we took the warning seriously. That is, we lowered our expectations. But even so, the report was disappointing. Not only does it avoid dealing with anything historical or factual, but it also never says that public corruption is wrong. That it's a crime that always cheats a national treasury somewhere, perverts the marketplace, and victimizes the citizens. There was none of that.

Instead, the report from the 75-year-old former lord chief justice, who was commissioned in June 2007 by BAE at a wage of £6,000 a day, says over-and-over that BAE's reputation is hurt when the company is caught doing bad things, and that damage to its reputation is in turn bad for its business. Beyond that, the report's action items could have been cut-and-pasted from compliance boilerplate -- creating an impression that the Woolf Committee (Lord Woolf, Philippa Foster Back, Sir David Walker, Dr Richard Jarvis and Douglas Daft) either didn't actually speak with anyone who works at BAE, or didn't find anything they said notable enough to be repeated.

The Guardian, meanwhile, posted a short list of provocative questions that remain unanswered:

· Did BAE set up a secret offshore subsidiary called Red Diamond to handle worldwide cash for arms deals?

· Did the company pay 31% "commission" into a Swiss account on a sale to the African state of Tanzania?

· Did BAE employ Count Alfons Mensdorff-Pouilly, previously caught up in a bribery scandal, as its undercover agent in central Europe?

· Did it provide exotic holidays and prostitutes to the entourage of the head of the Saudi air force?

· Did it pay £1bn to Saudi agents including Wafic Said, and another £1bn to Saudi Prince Bandar? To every question about what BAE may have actually done, Woolf's answer was the same: "We weren't given the job of looking at the past."

The Guardian also reminded readers that BAE "still faces criminal investigations in London, Washington, Dar es Salaam, Bucharest, Prague, Berne, Budapest and Johannesburg, over continuing multi-million pound arms contracts. Last month Woolf's former colleague, Lord Justice Moses, ruled that the abandonment of the Serious Fraud Office investigation into BAE had betrayed the rule of law. Moses said there had been an 'abject surrender' to threats when the SFO, under pressure from BAE, from the then prime minister Tony Blair, and from Prince Bandar, agreed to drop investigations into the Saudi payments."

(As an aside, we're not often on common editorial ground with the Guardian. But its enterprise and leadership on the BAE story show why the somewhat offbeat, trust-controlled newspaper has a reputation for courageous reporting. In the movie, "The Bourne Ultimatum," an investigative report in the Guardian that mentions Jason Bourne is important to the plot and ultimately leads to the assassination of the fictional reporter. )

The Corner House, one of the public-interest campaigners that won the BAE court case against the Serious Fraud Office, called the Woolf inquiry "an interesting academic exercise. . . BAE should have saved its £1.7m spent on the committee and adopted instead accepted best practice: namely, to employ a law firm as an independent investigator to go through all its internal emails and documents in order to make adequate disclosure to the law enforcement authorities. . . . If BAE is serious about breaking from the past, it needs to show that it is fully cooperating with all the current investigations by law enforcement officers in the UK, US and Switzerland."

As for our disappointment, we always try to be realistic about public corruption. We know bribery is the second oldest profession and won't disappear anytime soon. The temptation in business to take shortcuts via well-placed bribes to government officials is powerful. When people fall, as they sometimes will, they and their approving employers deserve punishment. Once punished, though, they also deserve another chance -- assuming there's at least some recognition of wrongdoing ("mistakes were made"). That, after all, is the path to rehabilitation and to a full restoration of corporate citizenship.

The Woolf Committee Report is available here.

Thursday
Apr242008

U.K. Government Appeals BAE Decision

The U.K. government is appealing the High Court's ruling that the Serious Fraud Office broke the law in shutting down an investigation into BAE's sale of jet fighters to Saudi Arabia. Pending the appeal to the House of Lords, the SFO will not reopen the investigation. The High Court panel of Lord Justice Moses and Mr. Justice Sullivan gave the government permission to challenge their judgment because the case raises crucial issues. As reported by the Guardian (here), Lord Justice Moses said: "This is a paradigm case that goes to the way this country is governed and to its constitutional principles."

View prior posts about BAE and the SFO here.

Monday
Apr212008

The Majesty of the Law

We admit to being stunned. Boggled, bowled over, dumbfounded, floored and flabbergasted (thanks, Roget's). We never expected the British High Court to disturb the U.K.'s somnolent status quo in the fight against international public corruption, by ruling that the Serious Fraud Office broke the law in dropping its investigation of BAE. After all, in the ten years since it became a party to the OECD Convention on Combating Bribery of Foreign Public Officials, Britain did not bring a single prosecution against overseas public bribery. Not one. History, as they say, was unanimous.

That's why we could write in December last year: "It's official. Britain's absence from the global war on public corruption is now a full-fledged scandal. Nearly ten years after the U.K. ratified the Anti-Bribery Convention of the Organisation for Economic Co-operation and Development (OECD), there hasn't been a single British prosecution. And as England shirks, its friends are both baffled and alarmed."

Other voices, we noted, had joined the chorus of condemnation. The Wall Street Journal said, "The OECD, which isn't prone to naming and shaming uncooperative member states took the unusual step of voicing 'serious concerns.' But that didn't move Mr. Blair, who warned the probe could harm relations with Saudi Arabia." The New York Times reported that during the OECD's recent tenth anniversary celebration of the Anti-Bribery Convention in Rome, its head, Angel Gurria, said "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. "

Who, then, could have predicted that on April 10, 2008, Lord Justice Moses and Mr. Justice Sullivan would reassert the authority of the U.K.'s independent judiciary? That they would reclaim for Britain and all common law countries the rule of law -- the simple idea that no man or woman is above the law -- an idea that shapes and preserves every great and not-so-great democracy on the planet.

The High Court's 46-page decision can be found here. It's a powerful, magisterial document, evidence of a court compelled at last to act as final arbiter of right and wrong -- to step forward, stand alone and draw a line in the sand. "No one," the court said, "within this country or outside, is entitled to interfere with the course of our justice." Strong words from officialdom in our politically correct, interdependent, terror-strickened world.

While the court's entire opinion is worthwhile, especially its brave conclusion, we particularly admire the Introduction. It is two parts John le Carré and one part Authorized Version. With simple but dramatic prose, it sets the tone for what's to come. It gives us character, place and plot -- and draws us into an irresistible detective story, where the search is not for the missing person or murderer or stolen jewels, but for . . . a legal principle.

Here's the Introduction:

1. This is the judgment of the court.

2. Between 30 July 2004 and 14 December 2006 a team of Serious Fraud Office lawyers, accountants, financial investigators and police officers carried out an investigation into allegations of bribery by BAE Systems plc (BAE) in relation to the Al-Yamamah military aircraft contracts with the Kingdom of Saudi Arabia. On 14 December 2006 the Director of the Serious Fraud Office announced that he was ending the SFO' s investigation.

3. In October 2005 BAE sought to persuade the Attorney General and the SFO to stop the investigation on the grounds that its continued investigation would be contrary to the public interest: it would adversely affect relations between the United Kingdom and Saudi Arabia and prevent the United Kingdom securing what it described as the largest export contract in the last decade. Despite representations from Ministers, the Attorney General and the Director stood firm. The investigation continued throughout the first half of 2006.

4. In July 2006 the SFO was about to obtain access to Swiss bank accounts. The reaction of those described discreetly as "Saudi representatives" was to make a specific threat to the Prime Minister's Chief of Staff, Jonathan Powell: if the investigation was not stopped; there would be no contract for the export of Typhoon aircraft and the previous close intelligence and diplomatic relationship would cease.

5. Ministers advised the Attorney General and the Director that if the investigation continued those threats would be carried out; the consequences would he grave, both for the arms trade and for the safety of British citizens and service personnel. In the light of what he regarded as the grave risk to life, if the threat was carried out, the Director decided to stop the investigation.

6. The defendant in name [the SFO], although in reality the Government, contends that the Director [of the SFO] was entitled to surrender to the threat. The law is powerless to resist the specific and, as it turns out, successful attempt by a foreign government to pervert the course of justice in the United Kingdom, by causing the investigation to be halted. The court must, so it is argued, accept that whilst the threats and their consequences are "a matter of regret", they are a "part of life".

7. So bleak a picture of the impotence of the law invites at least dismay, if not outrage. The danger of so heated a reaction is that it generates steam; this obscures the search for legal principle. The challenge, triggered by this application, is to identify a legal principle which may be deployed in defence of so blatant a threat. However abject the surrender to that threat, if there is no identifiable legal principle by which the threat may be resisted, then the court must itself acquiesce in the capitulation.

Thursday
Apr172008

The Week In Review

Friday's coming just in time. We've used up more than our alloted pixels this week, but it wasn't our fault. There was Jack Grynberg's riveting tell-all complaint against his former big-oil partners, fresh allegations of cover-up or neglect or both in Seimens' internal investigation, and rising outrage at the impotence of the law, courtesy of BAE, Prince Bandar, Mr. Blair and the Serious Fraud Office. Added to all that was the appearance of the Buy-Now button to the right, which garnered a million clicks (if we round up to the nearest seven-digit number).

So let's take a breather with . . . a few anecdotes. These, readers will understand, are never intended to trivialize corruption, but to expose it. Nor to belittle or embarrass anyone who has to make a living in a corrupt society.

-- A fellow from Azerbaijan said the public there complained about the "bribe cost" of drivers' licenses being too high. So the government sent its official anti-corruption team to hang out in the motor vehicle bureau. Result? Now you have to pay bribes to both the motor vehicle people and the anti-corruption squad...

-- The Saudi customs clerk showed the man his goods inside the fenced holding area. Instead of unlocking the gate, the customs clerk rubbed his thumb and finger tips together in the universal demand for baksheesh. The man emptied his pockets on the table in front of the clerk. When the clerk saw that all the money the man carried amounted to just $36, he yelled, "What are you, English?"

-- Back in Azerbaijan, it's common knowledge that people buy juicy government posts, and that the top customs spot at the airport is purportedly worth $200,000. Job seekers do their market research to determine what the rate of return on their investment will be, given normal corruption levels during their tenure.

That's it for this busy week. But if you've got a first-hand story or a second-hand anecdote, send it along by email here (anonymity guaranteed) or as a no-name comment to this post here. We won't publish the emails or comments now, but we'll share them (without attribution) from time to time.

Wednesday
Apr162008

SFO Chief Calls For US-Style Reforms

U.K.-based Ethical Corporation magazine has just released its 2008 anti-corruption special report. The 22-page publication (available by request here) is packed with Foreign Corrupt Practices Act compliance advice, descriptions of best practices from GE and others, and lots of news and analysis about enforcement trends.

It's all great content from this first-class publisher and compliance-event organizer (they draw a staggering 75,000 visitors a week to their website). But what caught our eye is managing editor John Russell's interview with U.K. Serious Fraud Office director Robert Wardle, who leaves his post at the SFO on April 21.

Wardle was interviewed before the High Court ruled last week that his decision to stop an investigation into BAE over the Al-Yamamah arms deal with Saudi Arabia was unlawful. He was criticized for his role by the High Court, which said: "It is the failure of government and the defendant [Wardle] to bear that essential principle in mind that justifies the intervention of this court."

In the interview, Wardle makes it clear that the U.K.'s anti-corruption effort needs to be reformed before it can be effective. That's apparent, given that the Serious Fraud Office, the U.K. body that investigates and, where possible, prosecutes U.K. companies or indi­viduals for corruption, hasn't brought a single prosecution after more than ten years of the U.K. having been party to the OECD Convention on Combating Bribery of Foreign Public Officials. How should the U.K. reform its anti-corruption efforts? By being more like the United States and its Foreign Corrupt Practices Act, Wardle says.

"[T]he UK should further emulate the US," Wardle says, "by making use of plea-bargaining agreements, which grant suspects in corruption cases a reduced sentence in exchange for their co-operation. He believes that there should be a specific accounting rule prohibiting companies from taking steps to cover up suspicious trans­actions, like the books and records provision of the FCPA. He explains: 'We would benefit if companies knew it would be a specific criminal offence to conceal bribes.' Wardle would also like to see UK companies face greater liability for crimes committed by their employees. 'We should be looking at making a company responsible when a reasonably senior manager has been responsible for the offence or the payments,' he says."

Wardle ends his frustrating tenure at the SFO lamenting that U.K. companies still lack sufficient deterrents to bribing foreign public officials. He says: "One of the problems we have is that companies need to know that there is a price to be paid for corruption overseas."

Without doubt, American companies -- still waiting to see a level playing field for global anti-corruption enforcement -- will share Wardle's hope for long over-due reforms in the U.K.

Tuesday
Apr152008

All The News That Fits The Prince

Hurrays all around for the British High Court's ruling last week. It said the Serious Fraud Office broke the law last year when, under irresistible pressure from the Blair government, it dropped an investigation into alleged bribes from British defense contractor BAE to Saudi Prince Bandar. Whenever the rule of law wins a big one, which it surely did in London last week, there's something to cheer about.

The SFO's decision to stand down was a travesty. It seemed clear at the time that had the investigation continued, it would have confirmed that BAE secretly paid £1 billion to Prince Bandar in return for inside help selling Typhoon jet fighters to the Saudi government; that the money moved irregularly from American banks to accounts in Switzerland; and that the prince, who was once Saudi Arabia's ambassador to Washington, shared the largess with other Saudi officials. According to reports, the prince didn't bother to deny what had happened, only that neither he nor BAE had broken any laws -- notwithstanding British prohibitions on international public bribery, Swiss money laundering concerns, and the application of the U.S. Foreign Corrupt Practices Act.

While shutting down the investigation was a shocking development -- and although Mr. Blair said vaguely that the reason was the U.K.'s national security -- the case still seemed to be just the latest international corruption saga, albeit on a grand scale and played out in the public eye. But then in mid February this year, things took a sinister turn.

At a High Court hearing in London contesting the SFO's scuttling of the investigation, a two-judge panel, according to the Guardian newspaper, "heard unchallenged allegations that it was Prince Bandar, the alleged beneficiary of £1bn in secret payments from the arms giant BAE, who threatened to cut off intelligence on terrorists if the investigation into him and his family was not stopped. Investigators said they were given to understand there would be 'another 7/7' and the loss of 'British lives on British streets' if they carried on delving into the payments. The government argued . . . that these threats were so 'grave' and put Britain's security in such 'imminent' threat that the head of the Serious Fraud Office had no option but to shut down his investigation immediately."

It sounded way too . . . sensational, a silly plot twist in a B-movie where everyone in sandals is a bad guy. But last week Lord Justice Moses and Justice Sullivan confirmed the worst. The threats were real, they said; the U.K. government didn't dispute the facts. Speaking of the prince's message and the government's reaction to it, the justices said: "Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice. . . . So bleak a picture of the impotence of the law invites at least dismay, if not outrage."

The editors of the Wall Street Journal said this: "Mr. Blair has eloquently argued on other occasions that bringing democratic institutions to the Middle East is a vital part of fighting Islamic terrorism. In stopping the BAE case, his administration missed a perfect opportunity to show the Saudis that one of the foremost of these institutions is the rule of law -- and that neither justice nor human lives should be toyed with for expediency's sake."

The Journal's sentiment is right, of course, but it makes a molehill out of a mountain. This case is about a lot more than a missed opportunity to show the Saudis the benefits of the rule of law. It's about the enormous chasm that separates the West and one of its touted in situ allies in the war on terror. It's about oil-importing countries being vulnerable to political blackmail. It's about the agenda in Iraq and the region and whether any of it makes sense in light of the self-interests of the local regimes.

But coming back to our bailiwick, the British High Court said it will issue orders for action later. In the U.S., the Justice Department is running its own investigations into BAE and Prince Bandar, who incidentally has retained for his defense Freeh Group International, among whose partners are former FBI director Louis Freeh, former head of enforcement at the SEC Stanley Sporkin, and retired British High Court judge Sir Stephen Mitchell.

What will happen with this case in London and Washington in the coming months? We have no idea. But either we'll all discover along with the Saudis that the West does in fact have the political will to enforce the rule of law when it comes to international public corruption. Or we'll see, as the High Court lamented, a sad capitulation and the awful impotence of the law.

View prior posts about BAE and Prince Bandar here.

Wednesday
Apr092008

British High Court Slams Decision To Drop BAE Investigation

The U.K. Guardian reports today (here) that the British High Court has ruled in scathing language that the decision by the Serious Fraud Office to drop an investigation into bribery allegations involving BAE Systems and Saudi Prince Bandar was improper. The court said it will issue orders for further action later.

For anyone new to this story, British defense contractor BAE Systems is accused of paying £1 billion to the former Saudi ambassador to the United States, Prince Bandar (who allegedly passed money to other officials), in return for help selling Typhoon jet fighters to the Saudi government. The Serious Fraud Office started an investigation but Prime Minister Tony Blair shut it down last year, citing national security. Meanwhile, the U.S. Department of Justice picked up the investigation and started gathering evidence about possible Foreign Corrupt Practices Act violations directly from British witnesses. Both BAE and Prince Bandar have denied violating any laws.

The SFO's decision to drop its investigation was challenged earlier this year in court by public interest groups. The High Court in London heard in mid February "unchallenged allegations that it was Prince Bandar, the alleged beneficiary of £1bn in secret payments from the arms giant BAE, who threatened to cut off intelligence on terrorists if the investigation into him and his family was not stopped. Investigators said they were given to understand there would be 'another 7/7' and the loss of 'British lives on British streets' if they carried on delving into the payments. The government argued . . . that these threats were so 'grave' and put Britain's security in such 'imminent' threat that the head of the Serious Fraud Office had no option but to shut down his investigation immediately."

In the lead up to February's High Court hearings, the Guardian almost single-handedly kept the story alive. Here are excerpts from today's report:

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In a stunning victory for the activist groups that launched the legal challenge, the two judges said Tony Blair's government and the SFO caved in too readily to threats by Saudi Arabia over intelligence sharing and trade.

In an often scathing judgement, Lord Justice Moses and Justice Sullivan rejected the SFO's argument that it was powerless to resist the Saudi threats.

"So bleak a picture of the impotence of the law invites at least dismay, if not outrage," they said.

"Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice."

To give in so easily, the judges said, "merely encourages those with power, in a position of strategic and political importance, to repeat such threats, in the knowledge that the courts will not interfere with the decision of a prosecutor to surrender".

Campaign Against Arms Trade (CAAT) and Corner House Research had sought a review of the decision by the SFO director, Robert Wardle, in December 2006 to drop the investigation into allegations of bribery and corruption over the £43bn Al-Yamamah arms deal, signed in 1985.

"No one, whether in this country or outside, is entitled to interfere with the course of our justice," Moses and Sullivan ruled. . . .

The judges ruled that the SFO decision was unlawful but made no formal orders for further action - something they will consider at a further hearing. It is believed the most likely course will be that the SFO will have to reconsider its decision.

They had harsh words for the attitude of the SFO and the Blair government in never even considering the option of telling the Saudis their threats would be ignored.

"No-one suggested to those uttering the threat that it was futile, that the United Kingdom's system of democracy forbad pressure being exerted on an independent prosecutor whether by the domestic executive or by anyone else; no-one even hinted that the courts would strive to protect the rule of law and protect the independence of the prosecutor by striking down any decision he might be tempted to make in submission to the threat."

At a two-day hearing in February, lawyers for CAAT and Corner House argued that the SFO dropped its investigation due to Saudi Arabian pressure that amounted to diplomatic blackmail.

Blair, the then prime minister, said the Saudis had privately threatened to cut intelligence cooperation over terrorism unless the inquiry was stopped.

The government did not dispute this version of events, the judges noted in their ruling.

They decided that Wardle "was required to satisfy the court that all that could reasonably be done had been done to resist the threat", and said: "He has failed to do so." . . .

David Leigh, the Guardian's investigations editor, said: "The Guardian unearthed and published the facts about BAE's dealings with Saudi Arabia as long ago as 2004. We passed our evidence to the SFO, who embarked on a long inquiry.

"Recently we also decided to name Prince Bandar as the recipient of £1bn from BAE. We are very pleased that today's high court judgment vindicates all the work the Guardian has done in the public interest to expose this scandal."

The judges were told Prince Bandar, a Saudi national security adviser allegedly involved in the bribery, was behind threats to hold back information about potential suicide bombers and terrorists. . . .

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View prior posts about BAE and Prince Bandar here.