The Justice Department is investigating whether British defense giant BAE Systems, which supplies Bradley fighting vehicles to the U.S. military and is becoming a major player in the U.S. defense industry, paid bribes to win contracts in Saudi Arabia, Chile and elsewhere, federal officials confirmed Thursday.
The Justice Department’s fraud section, with the FBI’s help, has begun a preliminary investigation to review allegations that the company conducted an ambitious campaign of payoffs to key officials to win contracts to sell fighter jets and other major weapons systems, according to several federal law enforcement officials familiar with the case. The key officials included Prince Bandar bin Sultan, former Saudi ambassador to the United States and a close Bush administration ally.
The probe will focus on whether the company, by allegedly using U.S. banks to make some of the payments, violated the Foreign Corrupt Practices Act, or FCPA, and U.S. money-laundering statutes. Those laws prohibit bribery in soliciting contracts and bar companies involved in such practices from the U.S. market.
Allegations that BAE has engaged in a systematic effort to bribe foreign officials over several decades have caused a sensation in Britain, and the opening of a U.S. front in the controversy could vastly expand its potential impact.
The Guardian newspaper in Britain reported Thursday that the Justice Department was preparing to open an investigation into BAE, and that it would cover its weapons sales to Saudi Arabia. One federal law enforcement official told The Times on Thursday that the probe had already begun, and that it was more extensive.
“It’s not just Saudi payments that are an issue here,” but BAE’s aerospace and weapons deals with numerous other countries, said the official, who spoke on the condition of anonymity, citing the sensitivity of the ongoing investigation. Authorities are “looking broadly; it’s a companywide thing.”
BAE confirmed last month that it faced investigations of its business dealings in Romania, South Africa, Tanzania, Chile, the Czech Republic and Qatar. The law enforcement officials said BAE-related payments in Argentina, the British Virgin Islands and other countries also would be examined.
BAE and Saudi Arabia have strenuously denied any wrongdoing. On Thursday, representatives of both told The Times that they had not been notified of a Justice Department investigation and that they could not comment on the allegations.
Formerly British Aerospace, BAE already is Europe’s largest defense company and is seeking to acquire a number of U.S. contractors to become one of the primary weapons suppliers for the Pentagon. Last month, it announced plans to buy U.S. armor systems specialist Armor Holdings Inc. for $4.5 billion; in June 2005 it bought U.S. land systems specialist United Defense Industries in a $4.2-billion transaction that made BAE Systems one of the top 10 U.S. contractors.
The investigation is in its early stages, according to the officials. At least one senior Justice Department official questioned the likelihood of a successful prosecution that would have to rely on uncooperative suspects and witnesses overseas, and, in some cases, alleged transactions dating back more than 20 years.
But the federal law enforcement official said the allegations against BAE were too serious for federal authorities to overlook.
A second federal law enforcement official familiar with the probe said prosecutors were gathering information to determine whether they had the proper grounds and evidence to move forward. “It’s not full-steam ahead, on the verge of prosecution,” the official said. “It is something that we are reviewing, to decide whether to move forward with it.”
Bandar, the powerful Saudi royal, was implicated in the widening British corruption scandal earlier this month, after the Guardian and the BBC reported allegations that BAE had secretly transferred up to $2 billion into bank accounts at the Saudi Embassy in Washington. The Guardian has also alleged that British Ministry of Defense officials actively colluded in the payments.
The alleged Saudi payments grew out of a 20-year, $86-billion deal under which Britain supplied the oil-rich gulf kingdom with 120 Tornado warplanes, Hawk training jets and other military equipment.
Documents cited in reports by the BBC and the Guardian indicate that BAE Systems made cash transfers to Bandar every three months for 10 years or more, drawn from a confidential account to which British government departments had access.
Britain’s Serious Fraud Office investigated BAE for several years but announced in December that it was shutting down its probe in the interests of “national and international security.” Prime Minister Tony Blair said the investigation would have led to the “complete wreckage” of the British-Saudi relationship.
The decision to end the probe prompted charges that Britain was attempting to shore up its negotiations to sell a new $20-billion fleet of BAE Eurofighter Typhoon jets to the desert kingdom.
Bandar has said payments made to Saudi accounts at Riggs Bank in Washington were not illegal “inducements” from BAE but legitimate financial transactions between Saudi officials, who also used the bank for their government accounts.
At least one other senior Saudi official -- Riyadh’s former ambassador to Washington and Britain, Prince Turki al Faisal -- also has been swept up in the controversy, as have senior government officials in other countries.
Riggs Bank, now defunct, also kept accounts for the late Chilean dictator Augusto Pinochet, and his relationship with a top bank official helped launch a federal investigation that contributed to the demise of the bank.
U.S. officials said the BAE probe was part of a gradual escalation of Foreign Corrupt Practices Act investigations that started in 1999, when combating corruption became a Clinton administration priority after World Bank warnings that it was the greatest impediment to global development.
U.S. anti-corruption efforts also are tied to the international Organization for Economic Cooperation and Development, which established a global anti-bribery treaty signed by most of Europe and several dozen other countries. The treaty requires signatories to investigate suspected bribes to government officials.
A top Justice Department official signaled in October that foreign-owned companies could be targeted by U.S. investigators, citing the case of a successful enforcement effort involving a Norwegian energy company that admitted to bribing Iranian officials.
“The department will not hesitate to enforce the FCPA against foreign-owned companies, just as it does against American companies,” Assistant Atty. Gen. Alice S. Fisher told an American Bar Assn. audience.
The disclosure that Britain had shut down its probe of BAE prompted one anti-corruption watchdog group, Transparency International, to request a meeting with Justice Department fraud prosecutors last December. At the meeting, group members asked whether U.S. authorities could investigate BAE and pressure London into reopening its review.
“They said that they would look into it, that they were concerned,” Nancy Boswell, president of Transparency International USA, said of the Justice Department officials. She added that U.S. concerns were discussed at two Organization for Economic Cooperation and Development meetings earlier this year.
Jeremy Zucker, an FCPA expert in the international trade practice at the Hogan & Hartson law firm, said a U.S. investigation was a logical next step.
“In recent years, the U.S. government has demonstrated an appetite for vigorous enforcement of FCPA violations,” he said.