It looks as though BAe are likely to end up before the beak because the SFO want to go after them for paying bribes to other parties to close sales. BAe's practice is not new but nor is it exceptional. I have heard for years how aircraft manufacturers have paid off powerful people in customer organisations or governments.
In BAe's case, not only did their defence division consistently overcharge for aircraft so that commissions could be paid to introducers, but similar things happened at theuir civil aircraft division and at other manufacturers. In the mid-1990's Air Lanka was buying so many Airbus A340's that it couldn't really afford that the export credit agencies queried what was going on and the management of the airline was contracted out to Emirates. Lockheed had its famous incident with Prince Bernhard, and Boeing agreed to a US consent decree in the 1970's following allegations it paid $52 million in bribes to foreign governments. Boeing admitted no wrongdoing, but said it wouldn't do it again. They didn't fool anyone.
The standard mark-up for Saudi deals is 25%. It doesn't matter what yu are selling to them. 25% goes in commissions to the royal family and their agents. So much simpler than running a customs service, and it pays for business schools in Oxford.
But that doesn't make it right. I remember once meeting the Indian Minister of Tourism and Railways about financing $500 million of rolling stock, and was surprised that no sooner had I got back to my desk than his brother called me from India to discuss the real terms of the deal. It can't have taken more than 2 minutes to pass on my phone details. Needless to say that deal didn't proceed. Another time I spent several fruitless months trying to find aircraft for Royal Nepal Airlines to replace their only planes, Boeing 757's leased from Citibank, whose lease was due to terminate, replacement aircraft being sorely needed for external communication and tourist dollars. Sadly no deal went through because politicians and local royalty all had their hands out and a few years later they were all gone after some political upheavals.
If the West wants to stop corruption in third world states, they should agree to do so multilaterally, rather than letting their companies pay lip service to their own laws and then subverting them by setting up structures with agents, sales commissions, introductory fees, offset agreement etc. And governments should play there part by ensuring that there is no export credit finance for any corrupt deals. It beggars belief that government can lend money secured on equipment sold to a foreign country and not understand where every penny of the purchase price they financed has gone.
The approach taken by the SFO is wrong-headed. In some cases (e.g. the Middle East) there is no question of the recipient doing anything illegal because that is the way they frame their laws. Elsewhere UK government agencies will have had a hand in financing the deals, either through export credits or through aid. Will they be brought to book as an accessory? And possibly more importantly in BAe's case, a conviction may keep them out of US government work, whilst American firms with the same level of culpability will be allowed to continue.
In view of the amount of money that the government has channelled into BAe in the form of defence contracts and Airbus development costs, is it wise to penalise the firm? My guess is that if BAe is found guilty and fined £1 billion, the cost will be passed back to tax payers in the next large defence contract.
4 comments:
1. I find it astonishing that British firms should be held to account here, over business practices in other countries. It should be a matter for the countries concerned, not us
2. The biggest corruption racket in the world is going on in the US. It is called campaign funding
All major countries have laws on bribery and corruption, but they are rarely applied when selling overseas, As I have already mentioned, governments usually support these sales with credit guarantees - OK, not for the Saudis who pay in cash - so how do they not see all the parties involved?
I am confused.
Government handing over money to encourage business = a sweetener.
Companies hands over money to encourage business = a bribe.
In the latter case the Government get a tax benefit. In the former we pay higher taxes.
So who really is guilty?
A cynical view JMT, but you have a point, not least because the government even hands over grants to BAe effectively to bribe the electors in parts of the country where BAe have factories.
I was once hauled into meetings between BAe and the DTI, paid hundreds of pounds an hour as the DTI's outside adcisor, over funding for the development of wings for the Airbus A380, including about £50m to go to Broughton near Wrexham.
After the BAe presentation I asked what I thought were penetrating questions, only to be tapped on the shoulder by the DTI man, who said: "Don't give them a hard time, we are going to give them the money anyway."
At which point I asked why the tax payer was paying hundreds of pounds for me to be in the meeting.
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