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The Lords Hear From The SFO

Yesterday the Serious Fraud Office asked the House of Lords to overturn April's High Court ruling that the SFO broke the law when it dropped its corruption investigation of BAE Systems.

The case involves BAE's alleged secret payments of £1 billion to the former Saudi ambassador to the United States, Prince Bandar bin-Sultan. The payments were allegedly made when BAE was trying to sell jet fighters to the Saudi government.

In late 2006, the SFO was about to gain access to Swiss bank accounts that may have shown where BAE's payments went. The Saudis threatened to end anti-terrorism cooperation with the U.K unless the SFO stopped its investigation. The High Court in April criticized the government's capitulation as illegal and blasted the Saudi threats. "No one within this country or outside," the court said, "is entitled to interfere with the course of our justice."

Yesterday the SFO's lawyer told the Lords that Robert Wardle, who was then the SFO's director, was "convinced that Saudi Arabia was not bluffing." By December 2006, the lawyer said, Wardle believed the "danger was now both very grave and imminent." Because Wardle's decision was based on national security and not on commercial considerations, the lawyer said, the SFO was justified in stopping its investigation.

Public interest groups are arguing that the SFO's action violated its charter and Britain's commitments under the OECD's anti-corruption convention.

The hearing before the Lords is continuing.

Whatever happens in London, the U.S. Justice Department is conducting its own investigation. The DOJ wants to know whether BAE and Prince Bandar broke any U.S. laws, including the Foreign Corrupt Practices Act and anti-money laundering rules.

In May this year, the DOJ turned up the heat. BAE's chief executive Mike Turner and director Nigel Rudd were detained at U.S. airports. Authorities apparently copied information from their laptop computers, cell phones, and papers before letting them leave. The DOJ has also reportedly served subpoenas on other BAE employees in the U.S.

In November 2007, according to the U.K.'s Guardian, the DOJ obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The paper reported that Peter Gardiner had boxes of invoices allegedly detailing payments made by BAE to members of the Saudi royal family. Gardiner was flown by FBI agents to Washington in August 2007 to give testimony there. He traveled via Paris to avoid British attention, the paper said.

There's no evidence that BAE is co-operating with the DOJ's investigation. In fact, a Times Online article in May this year quoted a former DOJ official as saying that the recent heavy-handed behavior of U.S. authorities indicated "a severe lack of cooperation by BAE."

BAE and Prince Bandar have denied breaking any laws.

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Full post as published by The FCPA Blog on July 07, 2008 (boomark / email).