Contents

BAE: Company overview 2

Global Standings

Allegations

Analysis of BAE’s corrupt involvement in:

Saudi Arabia 2

Chile 3

Czech Republic 3

Qatar 4

Romania 4

South Africa 5

Tanzania 5

Conclusion 6

Reference 7

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 BAE’s long standing corruption scandals and The British
Government.

BAE was recently named the largest arms manufacturer in the world. This place
was usually taken up by American companies in the past. BAE Systems employs over
107,000 people worldwide and has its presence in more than 100 countries. The
company specializes in manufacturing arms for the air, naval & land forces. They also
provide technical support in the fields of advanced electronics and security information
technology. Despite the recession, the company managed to rake in £ 22.4 billion for
the year 2009. The BAE credits its operational framework and effective business
management systems for its performance. BAE’s major ‘home market’ consists of
countries like Australia, India, Saudi Arabia, South Africa, Sweden, United Kingdom &
the United States of America. They also have global business development offices in
most of these countries with the addition of countries like Korea, Bahrain, Singapore,
Poland, Turkey etc. BAE- Texas was awarded a $ 629 million contract by the US army
to develop mine resistant vehicles. The BAE Systems has been dubbed as a “Tax
Haven” by critics in the past. £498 million was paid as tax to the British Government in
the year 2006 alone. (http://www.oef.com)

The amount of money that exchanges hands via the BAE Systems is definitely
noteworthy. It is because of this that the company has been embroiled in various
allegations on bribery and corruption in the past. The involvement & the silence of the
British Government are questionable, since the actions taken against the BAE systems
have hardly encouraged fair practices. The Serious Fraud Office (SFO) had been
investigating corrupt business practices in countries like Chile, Romania, Saudi Arabia,
South Africa, and Tanzania and most recently in the USA. (http://www.guardian.co.uk)

Saudi Arabia (1985-2008)

The BAE was involved in the Al Yamamah arms deals in Saudi Arabia since
1985. The deal involved selling Tornado & Hawk jets to Saudi Arabia. It also included a
commitment to training and maintenance contracts. The BAE is known to have earned
£43 billion in 20 years through these transactions. The UK Government was paid for by
up to 600,000 barrels of crude oil per day. (http://news.bbc.co.uk)

The BAE systems have been under investigation on this deal sighting corruption
and bribery charges in order to secure contracts. They have been accused of
maintaining ‘Slush funds’ of £ 60 million for entertaining Saudi Royals by the SFO. The
UK National Audit Office (NAO) was also involved in the investigation. Interestingly, the
reports were never published, making it the only NAO report to be withheld. The

2
Ministry of Defense further claimed that the sensitive data would harm UK’s commercial
interests. The Saudi Government pulled out of the deal to buy Euro fighter jets from
BAE upon being investigated by the SFO on the slush funds. Following this, the SFO
mysteriously dropped its investigation altogether on BAE sighting the need to safeguard
national & international interests. The SFO also had a credible witness to the slush
funds incidents. Edward Cunningham, an employee of BAE Systems provided evidence
on the same to the SFO. The SFO notified Sir Kevin Tebbit, permanent secretary at the
Ministry of Defense, However the matter was suppressed for two years before the
report was leaked to the Guardian in UK. (http://www.guardian.co.uk)

The SFO’s decision to drop the investigation was challenged by the Corner
House and the Campaign Against Arms Trade (CAAT). The SFO and the British
Government had apparently decided to discontinue the allegations following threats by
the Saudi Government to pull out of the fight against terror. The High Court ruling in
April 2008 pointed that the British Government was guilty of caving in to political
pressure and manipulating laws. The SFO was granted an appeal against the High
Court ruling in the House of Lords. On the 30 th of July the House of Lords passed the
verdict in favor of the SFO. The House of Lords emphasized that the British
Government and the SFO had not acted unlawfully and that it was indeed a matter of
safeguarding national security. (http://news.bbc.co.uk)

Chile, 1989-2005
In a report published by the Guardian in 2005, it was revealed that BAE had been
secretly paying out money to the tune of £1 million to General Augusto Pinochet, the
former dictator of Chile. The Chilean director has been under investigation on
allegations of murder, torture & tax evasions in Chile since his rise to power. Augusto
Pinochet had arranged an artillery rocket deal with BAE in 1989. BAE also had a
contract with Chile to refurbish its Howitzers with new barrels.

BAE extended its hospitality to the General in London at a time when the others
were trying to get him arrested over mass murder and other allegations leveled against
him. The General was paid £14 million pounds in commission, most of them from Arms
manufacturing companies like that of BAE. BAE has been paying its commission
through the off shore Red Diamond trading routes, which does not appear in BAE’s
published accounts. (http://www.guardian.co.uk)

Czech Republic, 2004

This matter concerns that of Czech Republic leasing Gripen fighter jets from the
BAE for £400 million in 2004. The Czech Republic were at the same time, pressurized
to buy a much larger fleet of Gripens at a total worth of £ 1 billion which eventually

3
failed. Tony Blair had personally flown to the Czech Republic to persuade them on this
deal. The BAE were in joint venture with the Swedish manufacturer, Saab at that time. A
Swedish source had identified that £ 4 million were secretly being offered by BAE as
bribes to some influential agents related to the Czech political establishments. Three
agents were recognized in this fiasco and were known to have promised bribes and
some of them even completed the transaction. Similar off shore accounts were used as
in the case of Chile to complete these transactions and were tracked by the US
Department of Justice. Despite enough evidence against them, the BAE continued to
resist and deny its hand in these allegations. (http://www.guardian.co.uk)

Qatar, 1998-2002
This includes the involvement of the UK conservative defense minister, Michael
Portillo to persuade Qatar into signing up with BAE for £500 million arms deal. Qatar
had been previously relying on France for its arms. The deal revolved around 40
armored cars and other military supplies that were delivered in 1998. Following this deal
Michael Portillo was appointed non executive director of BAE. A “commission” payment
of £ 7 million was awarded to the Qatari foreign minister, Sheikh Hamed in 1998 for
arranging the deal. Even though this issue was brought to light in the parliament later
on, the matter was suppressed by both the Qatari & British Governments. Offshore
accounts were used yet again to receive this payment by the Sheikh.

It was in British Governments self interest that this issue was never brought to
light. Britain would definitely have to maintain its diplomatic stance with Qatar, an oil rich
country. It also proved to be helpful to them in their war against terror which involved the
invasion of Iraq from Qatar. After being dropped of all charges the Sheikh invested most
of his money back in London where he bought 300,000 shares in Sainsbury’s as well as
an extravagant spends on luxury flats in Hyde corner amounting to £100 million.
(http://www.guardian.co.uk)

Romania, 2007
This involves the unusual decision of the Ministry of Defense to de-commission
two of its anti submarine frigates, HMS London & HMS Coventry. The ships were
constructed at a price of £250 million and sold off to BAE at scrap value of just £
100,000 each. BAE later entered into a deal with Romania to sell & refurbish these
ships at £ 116 million. Romania paid for them with a loan extended by Deutsche Bank
and guaranteed by Britain’s Export Credit Agency (ECGD). The agent by the name of
Barry George was paid £ 7 million in commission for fixing the deal. However upon
investigation by the ECGD, BAE admitted on paying only 1% instead of 7%.

4
 Barry George was married to a Romanian, who had ties with the old communist
regime. They had been caught up in allegations over fraudulent practices earlier in
1999. The subsequent investigations and raids in 2007 in Barry George’s residence and
office revealed no links of payments being made to Romanian officials.
(http://www.guardian.co.uk)

South Africa, 2007

This involves BAE’s deal to provide 52 Hawk Trainer aircrafts & Anglo Swedish
Gripen fighters to South Africa at £1.6 billion. It was later known that the price of the
Hawks was twice as that offered by an Italian company. The South African defense
minister, Joe Modise is said to have disregarded this variance and the deal had gone
through.

Commissions to the tune of £112m were made through secret off shore
accounts. Most of which, as the SFO later came to find, were through BAE’s Red
Diamond company front. Upon investigation BAE claimed that no political links were
involved in the deal. However, a close inspection revealed payment ties with the adviser
of the defense minister and Berkshire based arms dealer, John Bredenkamp. As
always, the SFO tried to investigate the allegations of corruptions before being dropped
off due to non co-operations by the concerned authorities. (http://www.guardian.co.uk)

TANZANIA, 2001
BAE set up a deal with Tanzania in 2001 to supply military air traffic control
system. Being one of the poorest countries in the world, Tanzania had paid a
significantly large sum of money, considering that it had hardly any military aircrafts to
justify the deal. Moreover, the deal was blocked 10 years earlier by the World Bank &
UK’s Department for International Development. By 2001, not only the technology a
decade old, but the technology was also too expensive and inadequate for use in civil
aviation (As published in the reports by International Civil Aviations Organization)

Clare Short, the secretary of state for International Development was always
suspicious of corruption. In the same year she had signed a £35 million grant for
children’s education in Tanzania. She insists that the money was used to finance the
deal mentioned above. An investigation in 2007 revealed that an agent had been paid £
7.5 million for the Tanzanian deal yet again through the Red Diamond front.
(http://news.bbc.co.uk)

5
Conclusion
The US Department of Justice found BAE guilty (2010) on many counts in
different countries, notably in Saudi Arabia for bribery and corruption to gain contracts.
BAE was fined $ 447 million by USA for arms deals violations & £ 30 million in UK to
SFO towards the Radar deal in Tanzania in 1999. This is the largest fine imposed by
the SFO till date. The payment of the fines may have put an end to the long standing
scandal that ensued over allegations of corruption both in BAE & the British
Government. (http://www.heraldscotland.com) However, the payment of these fines
does not put an end to the injustice that the poor people of Tanzania and other such
countries have suffered.

It is evident that the BAE has enough Government backing to this effect. Tony
Blair’s involvement in South Africa, Tanzania, and Czech Republic are just some of the
published sources to this point. BAE System’s auditors, KPMG are currently under
scrutiny. BAE Systems continues to deny most of the charges it did not confess against.
The top officials of the Ministry of Defense in UK were wined & dined 52 times in 3
years. Was this done without the knowledge of the British Government? Why does the
BAE System still operate secretly (no longer so) under the Red Diamond Trading front?
Is the $ 447 million fine justified for its past short comings?

The BAE continues to flourish, most often than not with the help of its corrupt
practices, undoubtedly supported by the British Government. These practices should
definitely not be condoned & a much stringent measure should be taken against such
companies. The British Government must mend it ways. (http://www.guardian.co.uk)

6
 References
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 Evans, R. (2010) Revealed: How BAE Systems wined & dined MoD top brass 52
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defence-hospitality [Accessed on 27-10-2010]

 Defense Aerospace (2010) BAE guilty but escapes court [Online] Available at
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 The Herald News (2010) Anger as BAE agrees deal to end corruption probe.
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