Something Doesn’t Add Up

May 18th, 2011

If companies were people and those who violated the laws were criminals, then BAE Systems would be a repeat offender.  Actually I’m not sure repeat offender even begins to cover it.  Here’s some background.

BAE Systems is a defense contractor with products and services for air, land, and naval forces, including electronics, intelligence, weapons, among many others.  It’s a British company, but over half of its $12 billion annual sales in its land and armaments business is with the United States. According to the Stockholm International Peace Research Institute, BAE is the largest armaments company in the world.

But BAE’s accomplishments seem all the more…noteworthy…given its colorful history.

In 2008 the Financial Times uncovered BAE paid £20 million to John Brendencamp, who was involved in supplying arms to the Zimbabwean army.  BAE made these alleged payments through a subsidiary in the British Virgin Islands, a secrecy jurisdiction.  The evidence strongly suggested these payments were in direct violation of the arms sanctions against Zimbabwe. At the time, BAE was under investigation in several other countries for bribery.

Just a year later the Sunday Independent revealed that BAE was legally shifting assets to Ireland, which is about 50% of the UK’s, to lower its tax bill. But here’s the best bit: what sort of entity was BAE using as the asset-shifting medium? A charitable trust.  For homeless people.

BAE was unable to provide details about the charitable trust’s activities, but noted “When dividend payments are due, or when residual funds become available under this financing … those funds will be paid to Arbutus Homeless Person’s Trust, which will then distribute them to its chosen charities.” At that point, no dividends had been paid.

Five years earlier, a small group of peace campaigners, called the Campaign Against Arms Trade (CAAT) accused BAE of espionage. Norway’s Ministry of Finance banned BAE from the Government Pension Fund because they develop central components for nuclear bombs. The defense contractor came under intense criticism for its development and sales of cluster bombs, which pose a huge threat to civilians because they contain “bomblets,” which don’t explode until much after the initial attack.

In 2010 BAE paid $50 million in fines to Britain for making payments to a government official in Tanzania. The same year, the company paid $400 to settle charges brought by the U.S. Department of Justice who claimed the company violated the Foreign Corrupt Practices Act (FCPA), which makes it illegal to pay bribes to foreign officials.

Listing all these transgressions, I’d get bored if I wasn’t so furious.

Today, the defense contractor agreed to pay a fine of nearly $80 million to settle an arms export controls case with the U.S. Department of State. It is the largest fine the Department has ever given. BAE faces 2,500 alleged violations, including: “unauthorized brokering of U.S. defense articles and services, failure to file annual broker reports, and failure to report the payment of fees or commissions.”

Something doesn’t add up here. BAE can make billions in contracts with the U.S. government, but at the same time hold a long, long (long!) list of violations of U.S. laws? Maybe $80 million seems like a big fine to the folks at State, but that’s chump change for BAE.

In a very recent article Nicholas Wagoner, a student at South Texas College of Law and Professor Drury Stevenson argue the SEC should use debarment from future government contracts, which is an allowable, but unused sanction for FCPA violations. “Debarment,” they reason “offers a far more potent deterrent than fines and penalties, as multinational contractors that conduct business with the U.S. are much less likely to view the sanction as merely a cost of doing business.”

So here’s my question. What about companies that have repeatedly paid for making bribes to foreign officials, spied on peace groups, sold weapons to dictators in violation of international sanctions, falsified government documents, and violated U.S. arms export controls? Can they get debarred?


Written by Ann Hollingshead

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