U.K. prosecutors plan to send as much as 30 million pounds ($45.7 million) from a BAE Systems Plc bribery-probe settlement to Tanzania, the country where officials took the payoffs, in an approach their U.S. counterparts reject.
Europe’s biggest defense contractor reached a deal this year with the U.K. Serious Fraud Office to end a five-year probe into whether it enticed Tanzanian officials to buy a radar system with payments. Under the proposed settlement, which needs a court’s approval, the SFO will ask that most of the 30 million pounds BAE is paying go to Tanzania as the agency’s director, Richard Alderman, pushes to return money to corruption victims.
The Tanzanian payouts would be the highest reparations sought by the SFO in three corporate-bribery cases it has pursued. The payments have been met with skepticism from lawyers and bribery watchdogs who say there is no way to ensure how the money will be used, or determine who the victims are.
“There is a grave danger that you’re returning money to the very people that took bribes in the first place,” said Mark Mendelsohn, the former chief of the fraud division at the U.S. Department of Justice. “The last thing one wants to do is fuel corruption in the name of fighting it.”
Indentifying victims in corruption cases can be challenging, he said.
“Is it the people of the country whose government took payments? Often it is,” said Mendelsohn, now a partner at Paul Weiss Rifkind Wharton & Garrison LLP in Washington. “Are the victims the shareholders of the bribe-paying company? Maybe, maybe not.”
The SFO, which prosecutes complex fraud and corruption, will become part of the U.K. coalition government’s planned economic crime agency in two years. Alderman, who may retire after the transfer is complete, has said compensating victims is a priority for the agency, which is scheduled to publish its annual report next week.
“Some of our cases involve British companies and artificially overpriced contracts for business overseas,” Alderman said. Such contracts “in a developing country could have a negative impact on infrastructure development, education or humanitarian projects” hurting “ordinary people.”
Since he joined the SFO as director in April 2008, Alderman has encouraged companies to self-report bribery in exchange for reduced penalties, which is how similar cases under the U.S. Foreign Corrupt Practices Act are handled.
In FCPA cases, the criminal penalties assessed are returned to the U.S. Treasury by law.
“Under the agreement with the Serious Fraud Office, the company will plead guilty to one charge of breach of duty to keep accounting records in relation to payments made to a former marketing adviser in Tanzania,” BAE spokeswoman Lindsay Walls said in an e-mailed statement.
BAE Chairman Dick Olver has said the final fine assessed by a U.K. court is likely to be lower than the 30 million pounds agreed on, and the company will make up the difference in the form of a charitable donation to Tanzania. The investigation surrounding the Tanzania case dates back to a contract originally won in 1997.
Former Attorney General
Tanzania said in 2008 that Andrew Chenge, attorney general at the time the radar contract was negotiated with BAE, was under investigation over his role in the deal and would step down as infrastructure development minister.
The agreement reached in February will be presented to a London court this fall. A U.K. court rejected efforts by anti- arms groups Corner House and the Campaign Against Arms Trade to block the deal. The groups said the penalty was too small.
“These entities are very good at deterring and punishing crime, I suspect they are much less good at determining the sensitivities around large payments,” said Alexandra Wrage, president of nonprofit anti-bribery group Trace International, referring to the SFO and the Justice Department.
The U.S., the world’s top prosecutor of bribery, has been criticized for making hundreds of millions of dollars from criminal penalties in such cases. BAE is paying $400 million in fines to the U.S. Treasury to resolve bribery allegations and pleaded guilty in federal court in March to making false statements and breaching U.S. laws on weapons exporting.
The SFO is seeking to set itself apart from the U.S. by returning money, Wrage said.
Shipping Money Back
“There’s a question over whether anti-bribery should be a profit center,” Wrage said. “But the alternative -- shipping money back to the bribe-takers -- is worse.”
There are more victims than just the citizens of the country involved, such as shareholders who lost value after a corruption scandal and competitors who lost contracts to bribe- paying companies, she said.
Alderman said in cases where reparations can be paid, making sure the money reaches victims “will need to be arranged on a case-by-case basis.”
Returning the money has proven difficult for the SFO as two countries have refused to accept it in another case.
In the first overseas corruption case the SFO prosecuted, closely held U.K. bridge builder Mabey & Johnson Ltd. agreed in 2009 to offer reparations of 658,000 pounds to Ghana and 139,000 pounds to Jamaica. Neither has taken the funds.
“They may not want to acknowledge that their officials were bribed,” Mendelsohn said of the countries’ refusal to collect. “Accepting the money may be seen as an admission of guilt, and there may be concern that it puts further pressure on the country to investigate and prosecute their own officials.”
In a case this year, a judge denied the SFO’s request that chemicals maker Innospec Inc. pay $5 million to the United Nations Development Fund for Iraq.