BAE to Pay $446 Million to Settle U.S., U.K. Charges (Update2)

Feb. 5 (Bloomberg) -- BAE Systems Plc, Europe’s biggest defense company, agreed to pay almost $450 million in fines to resolve six-year-old bribery and fraud investigations by U.K. and U.S. prosecutors.

BAE will pay $400 million to the U.S., and plead guilty to one count of conspiring to make false statements in connection with regulatory filings, the London-based company said today. BAE also agreed to pay a penalty of 30 million pounds ($46 million) in the U.K for not keeping proper records of payments.

The settlements resolve years of probes into the company’s business dealings in countries including Tanzania, South Africa and the Czech Republic. The U.K. Serious Fraud Office scrapped a investigation into BAE in 2006 over bribes allegedly paid to win deals in Saudi Arabia after then-prime minister Tony Blair said charges might harm relations between the two countries, posing a threat to national security.

“This is very good news,” said Nick Cunningham, an analyst at Evolution Securities in London. “In the context of BAE, the fine represents two months of free cash flow, which in terms of costs is far less than has been implicitly discounted in the share price.”

BAE rose 5.4 pence, or 1.6 percent, to 345.9 pence in London trading.

Future Contracts

BAE Chairman Dick Olver said the company won’t lose U.S. government contracts as the single guilty plea doesn’t relate to its local business.

“The United States Department of Justice has gone out of its way to confirm that they believe that the company is in good standing,” Olver said.

The specific allegations of failing to keep accurate accounting records mean the company will also still be able to bid for public procurement contracts in Europe, lawyers said.

“BAE has agreed to plead guilty to charges that are not corruption charges, which is critical to its ability to secure future government contracts,” said Nick Benwell, a London-based fraud lawyer at Simmons & Simmons.

The SFO dropped a case against Alfons Mensdorff-Pouilly, a BAE lobbyist who was charged last week with paying bribes to officials in three countries to secure contracts for Saab AB’s Gripen fighter jets. BAE marketed the plane for the Swedish company in some nations until 2005.

Harald Schuster, Mensdorff-Pouilly’s lawyer in Vienna, wasn’t immediately available to comment today.

‘Damning Indictment’

British politicians criticized the U.K. portion of the settlement, saying that the U.S. case included references payments to an official in Saudi Arabia.

“It is a damning indictment of the political interference by the British government that the Americans have secured admissions by BAE on Al-Yamamah while we allowed them to get away with it,” said Norman Lamb, a U.K. opposition lawmaker from the Liberal Democrats. “I’m deeply concerned that there are very serious allegations of corruption that are not being pursued.” Al-Yamamah refers to the Saudi Arabian contracts.

This is the first time BAE has admitted publically to a crime in connection with its payment of undisclosed commissions to third parties as part of its international arms sales business, according to a U.S. Justice Department official who spoke on condition of anonymity.

‘Draw a Line’

The $400 million fine would be one of the largest imposed against a defense contractor for violating U.S. criminal law, the official said.

“This gives us an opportunity to draw a line on the past and create security for our shareholders and the people who work for us around the world,” Olver said on a conference call.

The U.S. accused BAE in court documents of falsifying information and failing to disclose commissions paid to get arms deals. The British company made payments of more than 135 million pounds and $14 million to so-called market advisers, funds that weren’t properly accounted for, the Department of Justice said in the court filing.

The SFO agreement concentrates on Tanzania, where BAE, in connection with a radar system, made commission payments to a marketing adviser and failed to accurately record such payments in its accounting records.

“Tanzania was by far the smallest of the contracts being investigated,” said George Brown, a London-based litigator at Reed Smith LLP. “If I were BAE, I’d be pretty pleased with this settlement.”

Olver said the final fine assessed by a U.K. court will likely be lower than the 30 million pounds BAE agreed to pay, and the company will make up the difference in the form of a charitable donation to Tanzania. The U.S. settlement also requires court approval.

The investigation surrounding the Tanzania case stretches back to a contract originally won by BAE in 1997, and none of the managers responsible remain with the company, Olver said.

The SFO had been seeking to file charges against BAE to resolve allegations it paid bribes in eastern Europe and Africa to win contracts. BAE had been under investigation in the U.K. since November 2004, and in the U.S. since the middle of 2007.

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net; Justin Blum in Washington at jblum4@bloomberg.net; Caroline Binham in London at cbinham@bloomberg.net