February 7, 2007
Ethical Corporation magazine
Companies need the incentive of prosecution, fines and reputational risk to tackle bribery more effectively. The abandoning of a probe into BAE Systems’ dealings in Saudi Arabia shows a lack of will to deal with these issues, says Alexandra Wrage.
For years, the UK Serious Fraud Office had been looking into payments by BAE Systems, a major domestic defence firm, to members of the Saudi royal family in connection with a huge contract known as al-Yamamah.
The ongoing deal was largely for Tornados, Hawks and, later, Eurofighter Typhoons. People were taken into custody, offices were raided, and a vast slush fund, lavish gifts and all-expenses-paid travel had come to light. The allegations were startling.
This was the first significant investigation of bribery initiated by the SFO and it put Britain on its way to establishing a reputation for being serious about enforcement. The investigation gathered momentum when it looked like the SFO would gain access to Swiss bank accounts and finally get answers to the “who received what and when did they get it?” questions, those smoking guns of a bribery investigation.
But in mid-December last year, after a representative of the Saudi government reportedly threatened to end diplomatic ties with the UK, terminate the lucrative al-Yamamah deal and curtail co-operation on anti-terrorist efforts, the SFO ended the investigation.
The Saudi government, which essentially is the Saudi royal family (or the House of Saud), appears to have panicked and pulled out the big guns. The UK government folded at once. The “public interest,” we are told, demanded that the SFO shut down the investigation. But the interests of the public, the UK government, the House of Saud or even of BAE were not well served by this capitulation.
It is difficult to imagine what interest of the people trumps their interest in the rule of law. The interest of the British government is not served when it is seen to bow to foreign princes in a commercial scandal.
How can representatives of the UK possibly attend the anti-bribery conferences of the world, pound the table and credibly demand that other countries take this issue more seriously? Clearly the House of Saud puts its narrow interests first, and has proved it is willing to use oil money and anti-terrorism enforcement as chips in its defence. Allies will question whether such fickle friends can be depended upon in the long run.
Even the interests of BAE Systems are ill served by this decision. Of course share prices jumped as the immediate threat of prosecution retreated, but this scandal has harmed the company’s reputation and now this “resolution” has cost BAE the opportunity to vindicate itself.
Case not closed
Moreover, the legal risk is not now in the past as far as the company is concerned; the matter is not closed. There is no international law or convention to prevent another country’s enforcement agency from investigating this matter, and the US Department of Justice has already shown it is ready to go far beyond borders to enforce US laws. It recently investigated and fined Norway’s Statoil for conduct that the Norwegian government had already punished.
And there are obvious jurisdictional links: BAE has offices in the US and some of the questionable gifts and hospitality were allegedly provided there. That is more than enough for US prosecutors.
Tony Blair’s government should not have caved in. It sold out its commitment to the enforcement of the laws and it bought shallow and transient relief from pressures that ultimately were healthy for the business community.
The Saudi royals could have weathered this investigation. It is not even clear that an absolute monarchy like the House of Saud can be guilty of accepting bribes; the monarchy is already entitled to all that its country has. Instead, their belief that they can bully foreign governments and escape with impunity has been confirmed.
And now the business community will wait to see the impact of this decision. Will UK companies dismiss the issue of bribery as lightly as their government has? And will the large and growing number of companies devoting time, staff and money to anti-bribery compliance be able to justify the cost when the risk of prosecution for non-compliance seems remote?
Alexandra Wrage is a lawyer and president of Trace International, a non-profit membership association that pools resources to provide anti-bribery compliance services for multinational companies and their commercial intermediaries. Her book on bribery and extortion will be published by Praeger later this year.