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BAE admits breakdown in accounts records



Enforcing anti-corruption law only against individual employees, smaller contractors and foreign rivals will not do. A better solution would be to get European agreement on making the procurement regime rather less savage for those who repent. The UK is getting its Bribery act together – "giving the companies a run for their money.

BAE Systems, the arms maker, admitted to a criminal accounting charge in a case that promises to throw rare light on the secretive network of agents it has used to sell weapons around the world.

Both the company and the Serious Fraud Office (SFO) agreed to a guilty plea, which would end an epic bribery investigation spanning four continents and more than six years.

BAE failed to keep sufficiently accurate accounting records between 1999 and 2005 over the sale of a radar system to Tanzania, a deal in which it used a local agent.

Anti-corruption campaigns
The case disclosed at times murky arrangements through which the company deployed agents to act on its behalf, often paying them through opaque tax havens.

Although the company always denied and did not admit guilt, in a separate agreement will pay $400m of penalties in the US.

The British deal - by far the most high-profile the SFO has yet struck with a company - has been attacked by anti-corruption campaigners as a weak outcome to a probe into billions of dollars of payments allegedly made over many years on BAE's behalf in Europe, the Middle East, Africa and Latin America.

BAE welcomed the chance to resolve the case. The company has said it has tightened up its use of agents after criticisms made in a 2008 review of its business ethics.

BAE is ranked to be the largest defence contractor in the world. The procurement regime already applies to its non-military products. Defence-related contracts will cease to be exempt from August 2011 when a new EU law comes into force.

Disqualification
Companies that take part in bidding for public contracts in European countries are liable to be excluded if they have ever been convicted of a crime involving "professional conduct" - a broad term that would definitely cover corruption.

Disqualification on this ground depends only on the company being convicted in an EU country, not on having committed the crime in Europe. The power to exclude, lies with the authority awarding the contract, thereby creating temptation to favour its national champion. Had BAE Systems been convicted of something worse than a minor accounting offence, it could have found its nearest export markets closed.

Plea bargain
The plea-bargain deal BAE Systems struck earlier this year with the UK's anti-corruption authority was designed to draw a line under the company's murky past. This may indeed be the judicial outcome of the deal. But the manner of its achievement leaves a sour taste. Justice has probably not been done; it has certainly not been seen to be done.

There is nothing wrong with using plea bargains to settle complex cases, but these must satisfy the requirements of justice. This means that defendants in such cases must own up to what they have done wrong. Immunity should be offered sparingly, with prosecutors reserving the right to single out officers for prosecution even if a settlement is reached with the company. The best way to change corporate conduct is to put individuals in the firing line. Fines must fit the crime and not be arbitrarily capped.

Bribery Act
There are grounds for hope. Britain has recently passed a bribery bill that would make it easier to prosecute cases such as the BAE one. The government is planning to replace the SFO with a new economic crime agency - hopefully with real teeth. On the evidence of the BAE case, these initiatives are needed.