1 Introduction
Financial Crime
1. Financial crime is a general term which covers
unlawful activities ranging from improper book-keeping to bribery
and embezzlement. Financial crimes can cross national boundaries,
and the investigation and prosecution of such crimes often require
authorities in a number of jurisdictions to work together to bring
the alleged perpetrators before the Courts. One of the most prominent
financial crimes in recent years involved the sale of an air traffic
control system to the Government of Tanzania.
Case of Regina v BAE Systems PLC
2. BAE Systems PLC pleaded guilty to an offence
of failing to keep accounting records "sufficient to show
and explain the transactions of the company" contrary to
Section 221 of the Companies Act 1985, at the City of Westminster
Magistrates Court, on 23 November 2010. The case was committed
to the Crown Court for sentence. The offence related to payments
of $12.4 million made by two subsidiaries of BAE Systems PLC to
two companies controlled by a marketing advisor, Mr Shailesh Vithlani.
Mr Vithlani had originally been retained, by Siemens Plessey
Electronic Systems Ltd, which BAE Systems subsequently acquired,
to assist with the negotiation and sale of a radar system to the
government of Tanzania.
3. A guilty plea by BAE Systems PLC followed a settlement
agreement between the company and the Serious Fraud Office (SFO),
announced on 5 February 2010. The agreement included provision
for the company to make a payment of £30 million 'for the
benefit of the people of Tanzania less any financial orders imposed
by the Court'. In return, the SFO undertook to terminate all its
investigations into the BAE Systems Group and not to prosecute
or take civil proceedings against any member of BAE Systems Group
in relation to any matters they had investigated prior to the
date of the settlement.
4. In agreeing to the settlement agreement, the SFO
took account of an agreement between BAE and the United States
Department of Justice under which BAE agreed to pay 400 million
dollars as part of a global settlement covering offences in many
countries. A key point is that the SFO were effectively duplicating
the US investigations. Once agreement was reached in the USA,
the SFO would have found it very difficult to bring charges against
BAE in respect of those countries covered by the US settlement.
Tanzania was not part of the US investigations so a separate agreement
was possible between SFO and BAE.
5. The NGOs, Corner House and Campaign against
Arms Trade, made an application for a judicial review of the decision
by the SFO to make a plea bargain settlement with BAE Systems.
The application failed in the High Court on 24 March 2010, when
Mr Justice Collins refused to grant permission for a judicial
review. He considered that the Director of the SFO had applied
the guidelines on plea bargaining properly, and was unable to
see that the decision to limit the charge to one under section
221 of the Companies Act was unlawful.
6. The outcome of the judicial review application
meant that, when the case came before Mr Justice Bean at Southwark
Crown Court on 20 and 21 December 2010, his discretion was restricted
to deciding whether to accept the facts, agreed between BAE Systems
and the SFO, on which BAE Systems had pleaded guilty, and then
to the level of the fine he imposed on BAE Systems.. He could
not vary or set aside the settlement agreement between the SFO
and BAE Systems, and was unable to sentence for an offence for
which the prosecution had chosen not to charge.[1]
7. In his sentencing remarks, Mr Justice Bean noted
that, "although it is not alleged that BAE plc was party
to an agreement to corrupt, there was a high probability that
part of the $12.4 million paid to Mr Vithlani would be used in
the negotiation process to favour British Aerospace Defence Systems
(BAEDS)". He was sceptical of the suggestion that Mr Vithlani
was merely a well paid lobbyist using his time to hold legitimate
meetings with decision makers in Tanzania with no money changing
hands.[2] He stated that
"he could not, without hearing evidence, accept any interpretation
which suggested that what BAE were concealing by the section 221
offence was merely a series of payments to an expensive lobbyist".
He added that neither side sought to call evidence, although he
had indicated that he was prepared to grant an adjournment for
them to do so.[3]
8. Mr Justice Bean said that he proposed to sentence
on the basis that, by describing the payments in their accounting
records as being for the provision of "technical services",
the defendants were concealing from the auditors and ultimately
the public the fact that they were making payments to Mr Vithlani,
with the intention that he should have free rein to make such
payments to such people as he thought fit to secure the Radar
Contract for the defendants. The judge added that the defendants
did not want to know the details.[4]
After taking account of mitigating factors offered by counsel
for the defendants and the big payment agreed to be made for the
people of Tanzania in the settlement agreement, Mr Justice Bean
imposed a fine of £500,000 on BAE Systems PLC.
9. After the Court proceedings ended, various features
of the settlement agreement between BAE Systems and the SFO, and
related matters, began to attract critical comments. In particular,
there was increasing concern about BAE Systems' delay in making
payments for the benefit of the people of Tanzania.
The inquiry
10. Following the conclusion of Court proceedings
against BAE Systems and in the light of concern about the case,
we decided to conduct a brief inquiry into financial crime and
development looking both at the BAE Systems case and other matters
relating to financial crime, including general legal issues and
the Bribery Act 2010.[5]
11. We received submissions from 14 organisations
and individuals, including the SFO and BAE Systems, as well as
copies of an exchange of correspondence between the Secretary
of State for International Development and the Chairman of BAE
Systems PLC. We held one formal evidence session on 19 July with
representatives of BAE Systems PLC, the Director of the Serious
Fraud Office, the Rt Hon. Alan Duncan MP, Minister of State for
International Development and the Rt Hon. Lord McNally, Minister
of State, Ministry of Justice.
12. The report looks first at the BAE Systems PLC
payment for the benefit of the people of Tanzania in chapter 2.
Chapter 3 then considers issues relating to the legislation pertaining
to financial crimes. Government policies on transnational financial
crimes are discussed in chapter 4.
1 Sentencing Remarks made by Mr Justice Bean in the
case of R v BAE Systems PLC, paragraphs 6 and 7 Back
2
Sentencing Remarks made by Mr Justice Bean in the case of R v
BAE Systems PLC, paragraph 12 Back
3
Sentencing Remarks made by Mr Justice Bean in the case of R v
BAE Systems PLC, paragraph 13 Back
4
Sentencing Remarks made by Mr Justice Bean in the case of R v
BAE Systems PLC, paragraph 15
Back
5
The terms of reference of the inquiry are at Annex 1 Back
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