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Saturday, 6 February 2010

BAE, BAE, black sheep

So it turns out that BAE Systems is to pay more than $400m in penalties to settle bribery allegations in settlement of US and British corporate corruption cases. The company will pay most of that in the US.

In the UK and plead guilty to a minor Companies Act accounting record offence and pay a £30 million fine, but will largely avoid the sort of criminal record that would make it ineligible for for further government contracts.

All this is not too surprising, as I blogged last year. For the simple fact dear reader is that the UK government is one of BAe's biggest customers and it is a 2 way street, because BAe is the largest manufacturer in the UK. As is well recorded elsewhere the relationship is very close and works for the mutual benefit of both. Not only does BAW supply the MOD with whatever defence systems it needs, but it also supplies the UK government with employment and investment.

To give an example, back in the days when BAE was directly involved in the production of Airbus civilian aircraft, a very close friend was invited to a meeting by the then DTI to act as their consultant during a discussion of a request from BAE for grant funding and soft loans to support the manufacture of wings at BAE's factory near Wrexham. The BAE personnel made their pitch listing the spin off benefits from such an investment, followed by the likely costings and the pay off from the project.

So first question from the consultant is "You told us all about the costs and the payback from the A380, but what is the value of all of the spin-offs?" At which point, the DTI man taps the consultant on the shoulder and tells him not to give BAE a hard time because the DTI were going to give them the money anyway. At which point the consultant asks why he is being paid £600 an hour to listen to the pitch from BAE?

The simple answer is that it is all an elaborate exercise to cover up the two-way relationship between BAE and the government. The government gets its arms and some UK employment and in return BAE got the occasional cash sweetener and a blind-eye turned towards dodgy overseas deals, particularly the 25% commissions on Saudi projects, some of which would flow back into the UK in the pockets of Denis Thatcher or the Wafic Said Business School, and sometimes BAE thought they could get the government to pull a few strings on their behalf such as the sale of aircraft to Iran, which needed US export licenses for the engines.

So we have to see the BAE £30 million fine in the context of a broader relationship and assume that the £30 million which landed up in the UK government's pocket (which might be considered unjust enrichment because it was the tax payers of other countries that got stitched up) will find it's way back to BAE through further sweetheart deals and favours.

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