Wal-Mart’s Victims Part VII: The Path Forward

After a brief end-of-the-semester hiatus we’re picking back up our series on Wal-Mart’s victims.  And we’re less than half-way through.

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New book tells the story of global corruption and enforcement

The temptation when writing about corruption is to focus on statistics and policy details instead of people -- both the victims and the heroes.

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What, Then, Are Conflict Minerals?

Under the SEC's new 356-page conflict minerals rule, reporting companies must now disclose their use of tantalum, tin, gold, or tungsten mined in the Democratic Republic of the Congo or a contiguous country.

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To Mexico, from Nigeria, via Kazakhstan: On the Trail of a Great Idea (Final Installment)

Andy Spalding suggests that if the Wal-mart investigation results in significant civil or criminal fines or disgorged profits, some portion of those monies be used to benefit the people of Mexico.

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SFO, BAE Help Educate Millions Of Kids

The U.K.'s Serious Fraud Office said today that BAE Systems will pay about £30 million to fund educational projects in Tanzania.

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Trouble For BAE's U.K. Plea Deal

A judge in London today refused to approve BAE's plea agreement to end its long-running bribery case and insisted on calling witnesses to testify about possible corrupt payments in Africa.

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Did EU Rules Ruin BAE's Settlement?

The British press in September reported (here) that BAE Systems -- the U.K.'s biggest defense contractor -- had been given until the end of the month by the Serious Fraud Office to settle bribery charges related to sales in Africa and Eastern Europe or face prosecution. When the deadline passed with no settlement, the BBC reported the two sides couldn't agree, among other things, "on what BAE would admit." We may now know why they couldn't agree.

The Times said Friday BAE's admissions could lead to an EU ban:

Insiders told the Times that one of the major obstacles to a settlement is a European Union law on bribery that states that European governments must not give work to companies found guilty of corruption. The EU directive means that a criminal conviction could ruin BAE, which employs more than 100,000 people and is the biggest supplier to the British Armed Forces. Most experts believe that a financial settlement will be reached that will mean BAE admitting lesser charges not covered by the EU rules.

When BAE's settlement talks broke down in September and the SFO announced it would seek prosecution, British MP Sir Menzies Campbell hinted at the problem with the EU. He told Sky News: "The company is the principal contractor in the programs for the Eurofighter, the aircraft carriers and Joint Strike Fighter, and many other significant procurement projects. These developments have a considerable impact on all of these projects."

The Times and others say BAE may yet settle with the SFO. Both sides want to reach a compromise that may include a large fine but avoid criminal prosecution, saving BAE's business in Europe and elsewhere. 

A resolution like that would resemble settlements the U.S. Justice Department routinely reaches in Foreign Corrupt Practices Act enforcement actions. It uses plea arrangements and pre-trial agreements to avoid prosecuting corporations for antibribery offenses. That in turn allows them to continue doing business with the U.S. government and others.

Some commentators are critical of the American approach. But we've defended the practice:

[T]he DOJ is understandably reluctant to hit corporations head on. The Arthur Andersen prosecution in the aftermath of the Enron scandal demonstrated the catastrophic consequences that can result from a corporate felony charge. For Andersen it was an instant death sentence, even though the firm was later exonerated. That's why the DOJ has since adopted a softer approach to FCPA and other white collar offenses. It offers companies that want to cooperate alternatives in the form of negotiated settlements.

The Justice Deparatment, meanwhile, is reportedly still investigating BAE's payments of about $2 billion to Saudi Prince Bandar bin Sultan. The SFO dropped that investigation in 2006. But is the DOJ moving slowly because of the EU rules? Is there concern a typical Justice Department settlement might also lead to an EU ban on BAE? Is the DOJ having trouble harmonizing its practices with the SFO and the EU?

Lots more will be said and written about this in the coming weeks and months. Stay tuned.

How BAE Got Caught

Investigative reporters may be disappearing from newsrooms everywhere, but they still have an important role to play in holding institutions and people accountable for overseas bribery. Rob Evans of the U.K. Guardian contributed an essay to TI's Global Corruption Report 2009 here. It's about how he and David Leigh broke the BAE story. Their investigation wasn't quick or easy, and not many news organizations these days would have let the story play out the way the Guardian did. But the paper supported its reporters and with time and luck (which came in the form of a couple of well-placed whistleblowers) one of Britain's biggest commercial scandals made it into public view.

Here's part of what Rob Evans had to say:

. . . My experience of working with David Leigh on the Guardian investigation that led to the exposure of the BAE Systems scandal in the United Kingdom is illustrative of the challenges that journalists face in investigating corruption. The articles we wrote prompted the Serious Fraud Office (SFO) to launch an investigation into allegations that BAE Systems, the United Kingdom's biggest arms company, had paid bribes to win contracts from Saudi Arabia and other governments. Tony Blair's government eventually stepped in and stopped the SFO from completing its investigation into the allegations in December 2006. . . .

The investigation into BAE System's payments began in late 2002. Over three days in June 2003 the Guardian published articles into alleged bribery in the Czech Republic, India, Qatar and South Africa. A few weeks later whistleblower Edward Cunningham contacted the Guardian with new allegations of a slush fund that BAE Systems was using to bribe and "sweeten" Saudi officials connected to a huge arms contract. Cunningham spoke out because he was appalled by what he had seen. Those articles in September 2003 reported that BAE Systems was allegedly providing prostitutes, sports, cars, yachts, first-class plane tickets and other inducements. . .

During our investigation we faced a number of challenges. One of the most acute was the difficulty in penetrating the banking system to find out how BAE Systems had made its allegedly corrupt payments. The money flowed from the United Kingdom to the tax haven of the British Virgin Islands to Switzerland and onwards - to the Czech Republic, Romania, Qatar, Tanzania, South Africa and Chile. . . . As the number of investigations expanded around the world, so did the leaks, and slowly a picture of the payments began to emerge. We were working with reporters in other counties who were better placed to find out what was going on in the investigations in their countries and share information with us.

. . . Journalists aiming to expose corruption also need to be persistent. They need time to dig around -- to go and see people who may have information, to look through archives, read long reports to retrieve vital pieces of information buried deep within them, and so forth. Often reporters are prevented from doing this, however, as the media owners are far more interested in celebrity stories, or their next set of profits. For many editors, exposing the dry details of how improper payments have been laundered through bank accounts is, quite simply, less exciting than Britney Spears' latest antics. Many people believe that reporters are now being given less time to investigate stories over an extended period. This is a problem that afflicts reporters in developed countries, and it is even more so for journalists in developing countries. . . .

Read all our posts about BAE here.
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SFO To Request Prosecution Of BAE

The U.K.'s Serious Fraud Office announced today that it intends to seek the Attorney General's consent to prosecute BAE Systems for offenses relating to overseas corruption. The agency said it will submit its request to the Attorney General "when the SFO considers it is ready to proceed." The SFO's statement (available here) said its decision "follows the investigation carried out by the SFO into business activities of BAE Systems in Africa and Eastern Europe."

The Times said the contracts investigated by the SFO involved "sales of aircraft in South Africa and the Czech Republic, purchases of two frigates in Romania, and radar equipment for air traffic control in Tanzania."

On September 5, the U.K. Mail reported that BAE -- the U.K.'s biggest defense contractor -- had been given until the end of the month by the Serious Fraud Office "to avoid a criminal trial for paying bribes." The BBC said today that the SFO "has been in long negotiations with BAE but these broke down after the sides could not agree on what the firm would admit or the fine it should pay. . . the SFO wanted to strike a deal that would involve BAE pleading guilty to charges of corruption and agreeing to pay a substantial sum in compensation -- between £500 million and £1 billion -- however no deal was done."

BAE's sales to Saudi Arabia will not be part of the request for a prosecution. The SFO dropped an investigation in December 2006 into allegations the company bribed members of the Saudi Arabian government in exchange for the sale of Typhoon jet fighters. The SFO said it had to stop the investigation after Saudi Arabia threatened to end anti-terrorism cooperation with the British government.

The U.S. Justice Department, meanwhile, is reportedly still investigating BAE's payments of about $2 billion to Saudi Prince Bandar bin Sultan. He was formerly ambassador to the United States and some of the payments allegedly passed through U.S. bank accounts he controlled.

Attorney General Baroness Scotland has final approval over BAE's prosecution. The case, according to the BBC, would be brought under the 2001 Prevention of Corruption Act and be decided by a judge without a jury. "It will take several weeks to prepare the papers for the Attorney General," BBC's report said, "and it is possible that the sides could still reach an agreement in that time."

BAE has 32,000 employees in the U.K. and about 105,000 worldwide. "The company is the principal contractor in the programs for the Eurofighter, the aircraft carriers and Joint Strike Fighter, and many other significant procurement projects," member of parliament Sir Menzies Campbell reportedly told Sky News. "These developments have a considerable impact on all of these projects." He said a decision to prosecute BAE could also give "protective" U.S. politicians an excuse to stop British firms getting contracts on the other side of the Atlantic.
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