Brownβs Saudi dilemma
Last night received a subpoena from the requesting all relevant information on its Β£40bn contract to supply military equipment to Saudi Arabia.
You would think that would be hugely embarrassing for BAE, given all the allegations that have been made about sleaze and bribes connected to this deal, known as the Al Yamamah contract.
But actually it's a much bigger headache for the Government.
In fact, it will be Gordon Brown's first big diplomatic dilemma as prime minister.
Why? Because the contract was between the British and Saudi governments, not between BAE and Saudi.
BAE was only the contractor.
So it will be a decision for the , not BAE, whether to disclose the details of the deal.
The Saudi government has made it clear over many years that it regards the contract - which allegedly involved payments of hundreds of millions of pounds to Prince Bandar, a member of the Saudi Royal family - as highly confidential.
That's why it put pressure on the British government to stop an investigation into it by the last year.
So the Saudis will not be overjoyed that the Department of Justice is apparently taking up where the Serious Fraud Office left off.
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There are two possible reasons for the US deciding to do this.
The first is that they want to damage BAe and the second is that they believe this will encourage BAe to acccelerate their decision to shift their HQ to the USA.
This should alert everyone to the potential dangers of US ownership of the London Stock Exchange. The US actively enforces US law outside of its territory to enhance its national interests. Perhaps the UK Government should reciprocate by demanding details of Boeing/Lockeed/Raytheon deals around the world over the last 20 years!
The 1977 Foreign Corrupt Practices Act in the US is much tougher than anything we have in this country. It was enacted after the Lockheed bribery scandals of the 1960s and 70s. George Bush will undoubtedly be disconcerted that his junior partner is coming under scrutiny but it would be much more difficult for him to call off the probe than it was for Tony Blair to push aside the Serious Fraud Office inquiry in the UK
One of the ironic possibilities is that BAE executives could be extradited to the US without any prima facie evidence against them, thanks to the one-way 'anti-terrorism' treaty signed by David Blunkett three years ago in Washington. A very special relationship indeed.
Actually Dick, if you look at the history of prosecuting corruption this is par for the course for the US. Whereas the UK SAYS it is against corruption but does very little that will tackle the issue.
I am not a great fan of many of the US's current policies, but this deserves praise.
As for the US believing that "this will encourage BAe to acccelerate their decision to shift their HQ to the USA." How? I would have thought that it would be more likely to make BAe wary of using US banks in future so that they could continue to hide behind the British Government.
> So the Saudis will not be overjoyed
> that the Department of Justice is
> apparently taking up where the
> Serious Fraud Office left off.
In recent years, Ministers have been very unsuccessful with their tampering. More often than not, things backfire badly and the actual outcome of their decisions is very different to their desires. Iraq stands out like the Blackpool Tower, of course, but on this occasion tampering in the Serious Fraud Office investigation has turned out to be worse than futile. The government got all the bad press for sacrificing British principles without actually doing anything effective, because the yanks are going after them now. A double downside.
For the sake of our long term reputation, we have to hope that the definitive truth comes out in America. We, as a nation, canβt be seen to act disgracefully in our dealings and we must make an example of those caught doing so. To be a force for good in the world, we need our business community to be firing on all cylinders. It is not helpful when they are suspected of corruption, ridiculed and possibly barred from large market segments. In short, we either need no tamperers, or far more skilful ones!
What is interesting is indeed how the government will handle this. If Lord Golsmith thought for one minute that stopping the SFO enquiry on the grounds of it being 'not in the public interest', surely he was being naive at best, and attempting to pervert the course of justice at worst..?
Clearly the Americans are smarting about the fact that they didn't get this lucrative contract, despite them being, in their view, the automatic front runners. Now, because these alleged payments were made through an American bank, they feel they can pounce - and surely this was always going to be the case, sooner or later..?
Tony Blair as Middle East envoy..? Hmmm....
Well done to the ΒιΆΉΤΌΕΔ and Guardian newspaper for attempting to bring morals into the world of arms dealing. Good use of the licence fee. I hope the deal falls through, the UK loses Β£billions, 1000s lose their jobs and the Americans pick up the business and the ΒιΆΉΤΌΕΔ & Guardian can stick their liberal PC noses in the air and feel right smug that they helped.
We didn't lose our aircraft industry in the 70's by doing business in this way. When selling things used to kill people one should always go by the book & conduct oneself properly. A great British world leading company like BAe need to be taught a lesson by the Notting Hill pansies in the media.
As stated by me in a previous comment some weeks ago the British Government was privvy to the financial 'arrangement' regarding Al Yamamah. Whether or not the US anti-trust laws can be outmanoeuvered also remains to be seen.
I absolutely agree with you Dennis.
The US should, and usually is, widely criticised for interfering in mattters around the world, but this is one of the few times that the US should be praised.
President Bush though, would have had very little to do with this. I think this is indicative of the moral and legal heights the US could achieve with someone remotely sensible in charge of the country. The US's anti-corruption laws (and their competition laws) are, or should be very effective. The problem is that Mr Bush and his big business friends are not going to be brought to justice for corruption which seems a tad hypocritical. But nevertheless, I applaud the Dept of Justice,
I only sincerely hope that Mr. Brown does not bow to Saudi pressure to withold the details of the contract. It would the beginning of a very slippery slope.
Having worked on sales and marketing consultancy assignments in the Gulf States, North and West Africa in the 1980's, the American companies I dealt with in oil services and computer industries all paid commissions to agents and in many cases, "Dash", or plain bribes to officials. Where does this Holier than thou approach by the Americans spring from?
What is the difference between commission to a legitimate agent and a bribe?
This is an absolute farce, I find it particularly ironic that one of the most corrupt countries is hurling abuse at possibly it's only ally. The main reason for this attack is the US is smarting over the loss of a very lucrative contract to the British, get over it and move on. The rest of the World does business with hospitalities therefore so must we to survive. If Bae had failed to win this contract the company would have gone under taking thousands of jobs with it, donβt forget how much the Government made in Tax revenue from this for which every man woman and child in Britain benefited from.
The Dept of Justice is getting involved because they perceive the US defence industry as the victim in all of this. This action is purely based on national interests and not moral grounds. The US wants to flex its muscles and intimidate foreign defence contractors so that they are more wary in future of making payments to sweeten up buyers. The US deserves no praise for this course of action.
If the roles were reversed can you ever imagine the US government co-operating with an investigation. I donβt think so. This is a big test for Brown to show that he wonβt bow down to Washington. This sort of incident is further proof that the so called βspecial relationshipβ is a myth.
The hypocrisy here from the Americans is unbelievable; I donβt think anyone who knows anything about the defence industry doesnβt know that American firms also 'pay bribes'; give out 'gifts' and use various other ways of securing deals. The only reason they are investigating BAE is that they are hoping that by placing a cloud over BAE they can take business away from a British firm and gain it for American firms.
This is one of those times that I envy the US system, there's a lot of checks and balances that we don't have, whereas Blair was able to just 'magic' the inquiry away.
Dennis/Ryan
You're both being somewhat naive. The US is not doing this because they're signed up to some moral crusade they're doing it simply to try gain a commercial advantage.
If BAe becomes a US company then the incentive to haul over the coals fades away. If it doesn't then they will take pleasure in discrediting it.
That said I agree their rules on competition rules work well - but generall in their favour..
Anti corruption rules here though I do agree need tightening up a lot..
Who would be a BAe shareholder today? The very fact of the investigation, let alone the outcome, gives ammunition to all the members of Congress that lobby on behalf of their constituents. It would be a poor lobbyist that didn't claim that BAe is unfit to tender for US Governemnt contracts, at least until the results of the enquiry are known. So much for the rush to the USA, including the intended purchase of the Armor group.
So what has all this got to do with the Americans, well none
unless you factor in the fact they beleive they should be the primary defence supply the middle east, that they want to globally dominate the defence markets by blackening the name of BAE. Less they forget where their JSF program would be if BAE pulled out of that in response.
The fact of the matter is that this was a government to government deal BAE was just a contractor. How many US defence contracts have been won with sweetners over the years ???
Dick - I agree totally with your intepretation of the motives behind the US action.
However, I would venture that the US doesn't really do competition - the majority of their major industries are heavily protected e.g. pharmaceuticals, agriculture etc. The preferred business model for US corporations is to buy up their competition and dominate their particular market sectors.
For goodness sake get real! The Al Yamamah contract was signed over twenty years ago between the governments of UK and Saudi Arabia. BAE (or British Aerospace as it was then) were paid by the MOD from the proceeds of the sale of barrels of oil provided by KSA in return for the provision of the best military aircraft available at the time. Basically, as the Saudi royal family own everything in Saudi Arabia including (and particularly) the oil then surely they can do anything they like with it? If they buy an aircraft for ten barrels, then 10 aircraft would be 100 barrels - but with quantity discount at 10% they would get them for 90 barrels. So the Saudi royals get to have 10 aircraft and 10 spare barrels of oil. But it's their oil anyway so what's the problem? They are just getting the planes cheaper!
Is the US doing this because it sees it as the correct thing to do or because it is worried that there is an aircraft out there that can out perform one of its own???
The US and abiding international law!
Two words Guantanamo Bay. The US as ever are happy to preach to the rest of the world about abiding by International protocol. What about the hundreds of human rights abuses committed by the US imprisoning people without charge in military detention facilities.
In the spirit of true US enterprise do as I say not as I do!
Let me see...BAe employ thousands of people directly, with tens of thousands more in the supply chain. But wait! All those incomes, mortgages and pensions are somewhere up north and not in the south of England. So that's OK then, carry on complaining.
What's interesting about this is it happened in the 80's. It just so happens that in the mid 1980's Ronald Reagan on insistence from Margaret Thatcher ( who said she wouldn't sign important treaties unless he did so )stopped a US judicial enquirey into British Airways and the price fixing which put Skytrain out of business. He is the only sitting president to do so. He did it on the grounds of national security! Maybe Brown should ask Bush something similar!
Lets all applaud the ΒιΆΉΤΌΕΔ, The Guardian and other moral crusaders while they destroy the last major British Defence Company, put Tens of thousands of British tax payers out of work and drag the name of Britain through the international gutter.
We are about to allow Britainβs only Military Aircraft and Warship builder left in the country to be financially destroyed by the US Government, The same country that defends it's own defence industry vigorously (Ask yourself why the British TSR2 project was cancelled in favour of the Inferior US F-111), The same country that refused to assist investigations after dozens of British Troops were killed by trigger happy incompetent US Pilots during both Gulf Wars - OK, Lets do what we Brits do best - Find fault with what we are good at then do our level best to destroy it, We Brits donβt need enemies, we do a better job ourselves.
The US is the most corrupt country in earth. This is the most hypocritical action I can imagine. The UK government should be very tough with the US on this and make it clear that the alliance is finished if this continues.
This is typical US character. They are simply looking at damaging BAE as a company to support their narrow minded goals of growing the major US corporations. Any attempts at US to dislodge BAE in saudi im sure is fuelled by someone like Lockheed in order to get that market back to a US prime. Why else would the US justice department suddenly have decieded to even think about this case? It has nothing to do with them. I wonder how cooperative the US government would be in disclosing information to the SFO regarding LM its transactions to governments like Iraq and Iran about weapons it has sold through US contractors?
Justin...... Thank you.
Of course we don't do competition either now. We do sell it to someone overseas or don't do it at all.
I just heard Rob't Peston say on the World Service news that the US Justice dep't is separate from the political administration and is known for its independence from politics.
I was shocked. I listened closely for sarcasm or possibly a punchline....
In the past, perhaps, there was an independent DoJ but not now. Mr. Peston should take a closer look at the goings-on in the Attorney General's office, for example, where business as usual is politics. GOP politics. Call it corrupt, a tool for a corporate plutocracy, authoritarian drones from a two-bit bible college, or whatever-you-want, but don't call the US Justice Department divorced from Republican political shennanigans.
/from red-state Nebraska
Over the pat 8 years or so, BAE has invested about US$10bn in buying second and third tier US defense contractors. What has it invested in the UK in the same period? It has of course sold its stake in Airbus - so it could invest the profits in the USA! BAE long got rid of the absurdly outdated word 'British' in its company name and considers itself a 'tranatlantic' company, 38% of its revenues are generated in the US and it would probably be fully US already if it wasn't for HMG's 'golden share'. Almost every penny BAE gouges from the UK taxpayer for supplying second-rate, overpriced, late equipment is invested in the USA. People here saying the US DoJ should investigate US defense contractors should realise - THEY ARE!
As for the suggestion that US doing this so they can force BAE to become a US company - (i) they don't need to, it practically is already; and (ii) yeah, LockMart, Raytheon et al would really want another competitor in their home market.
I can hardly stop laughing long enough to type. Tonight on ΒιΆΉΤΌΕΔ World, it's nightly half hour broadcast on PBS television, ΒιΆΉΤΌΕΔ said the British government is hoping that President Bush will lean on the DOJ (Department of Justice) to quash its inquiry just the way the British did. Don't any people in Britain understand anything about America or what is going on here now? For one thing, the Attorney General of the United States is on the hot seat in Congress for the firing of prosecutors allegedly because they failed to prosecute Republican enemies and did prosecute Republican friends, at least that is the the suspicion and it leads straight to Carl Rove in the White House. Any pressure on the DOJ trying to influence this case would be instant ground for impeachment, you can be sure the Bush administration won't touch it with a ten foot pole. While it is true that the bribes if there were any cheated American firms out of large contracts they might have won and cost jobs in the districts of many of those on the Congressional Committees hearing the case against Attorney General Gonzalez, that is NOT why the prosecution is proceeding. It's because American banks were involved in what may have been a two billion dollar payoff. You can't sweep that under the rug, the integrity of the US banking system has had to be cleaner than Caesar's wife ever since the scandals of the great depression in the thirties in which the banks were heavily implicated. Banks in the US are very heavily regulated and the banks are closely watched. The questions will be what did the bankers know and what should they have known about payoffs, in other words did they smell a rat and not report it. You can bet that the British government, BAE, and the Saudis will get no quarter on this one. Saudi Arabia is held by many in the US and Congress as complicit in 9-11 and there is far more to implicate them than there was with Iraq's government. There is also no sympathy for anything to do with Europe. If they did it, it will come out and all hell will break loose. It doesn't matter either if it means Brown's government will fall, nobody here gives a fig.
The US government is corrupt right at the very top, Cheney and Rumsfeld have personally profited hugely from large stakes in companies awarded large contracts in Iraq. The cynical motives behind the BAE investigation are like twisting a dagger in the back of the UK, as it was the UK that legitimised and supported their unjustified invasion of Iraq.
As for all the tree huggers at the ΒιΆΉΤΌΕΔ and Guardian - wake up and smell the roses, if UK companies don't give the Saudis backhanders then they will do business with the French, Russians and the Americans who all will, and probably cover it up better than we can.
While I accept the points from some of the above that the US probably does have ulterior motives, that does not mean corruption should not be tackled. Western Governments love to impose conditions upon developing nations, a favourite at the moment is tackling corruption. How on earth can we try and force others to do what we refuse to do?
As for the US taking this forward because BAe is British, that is rubbish. They are very happy to prosecute Americans too (anyone remember ENRON?)
Here are just three examples of the US prosecuting (and jailing) its own ...
1) Randy Cunningham resigned from the House of Representatives on November 28, 2005 after pleading guilty to accepting at least $2.4 million in bribes and underreporting his income for 2004. He pleaded guilty to federal charges of conspiracy to commit bribery, mail fraud, wire fraud, and tax evasion. On March 3, 2006, he received a sentence of eight years and four months in prison and an order to pay $1.8 million in restitution.
2) Early this year when state senator, John A. Celona, was sentenced to 2 1/2 years in prison for using his public office for private gain, a federal prosecutor stunned Rhode Islanders by telling the judge that Celonaβs cooperation has spawned 14 βactive investigationsβ of 7 politicians and 7 corporations for possible influence peddling.
3) Finally, just days ago, Bruce Hopfengardner, a former Lieutenant Colonel in the United States Army Reserves was sentenced to 21 months in prison for his role in a conspiracy and money laundering scheme involving contracts in the reconstruction of Iraq.
So the US does NOT just investigate and prosecute foreigners.
What has the business dealings of a company in the United Kingdom and the Kingdom of Saudi Arabia got to do with a third party i.e. the U.S. Justice Department ?
Are we to conclude that if we, the British, come to the conclusion that certain American companies 'May' have acted illegally - then we have the right to investigate the company and its personell ?
Or are we, as it seems, to become just another State ??
Whatever happened to our Sovereignty...
As a resident of Saudi Arabia, such activities unfortunately (at least from a western perspective) are the costs of doing business in the Kingdom.
In minor defence of both the British Government and BAE, I wanted to elaborate that the budgetary system of the Saudi Government vs the role of the Royal Family is very blurred, with the Governmental budget effectively being funded from the purse of the king directly.
In some ways, any purported 'bribe' can merely be seen as a further price discount to the Kingdom for the purchase of aircraft (though it clearly benefited a small cohort of the Royal Family).
As Prince Bandar himself stated, all payments were made to the Saudi Government (which has multiple interpretations, since the Royal Family can be construed as being the Government).
Whilst not wishing to condone such behavior within the Anglo-Saxon cultural environments, things are different outside of the US-Europe.
It is always difficult to evaluate the separation of ethics and cultural norms. In this instance, many journalists have taken the moral high ground without attempting to understand the challenges for doing business in such semi Feudal environments.
I would urge greater understanding before rushing to judgment.
The bae will never win any strong arm deal contracts any where on the planet with out paying pribes !!. The problem is that the outside world gets the impression that this is how britons make business anyway!!.no morals ,no law , poor services at unbelievable costs!! thanks to the guardian and the bbc for explaining why the bae is giving poor services at high costs around the glope.
I can only hope that Mr Brown does the right thing by British business and British jobs and makes it clear to the Americans that they have no jurisdiction over our business interests and points out the hypocrisy of their position. International business depends on hospitality, commissions, dash or whatever you choose to call it, and all nationalities play the game whether they are British, French or American.
If the rules of the game are to be changed, American suppliers can bribe foreign officials with the best of them. This is why I never trusted treaties like this, they open the gate for cheating which is difficult to catch. Personally I'm happy the Saudis bought British fighter jets instead of American. If it ever comes to war between Israel and Saudi Arabia, it will be much easier for the Israelis to shoot them down.
I cannot believe the hypocrisy of all this by the USA. I am at present working on a Aviation contract which we where forced to use an American company for one of our subsystems. This was due to the 1,000,000 dollar payment made by the American company to the Aircraft Manufacturer.I havenΒ΄t heard of the US probe into this multi billion dollar company.
In the late 1970`s the Then president of the US, Jimmy Carter, agreed the sale of F3 Phantom jets to the Shar of Iran. Then in 1979 there was a revolution and the Iranians had their hands on nice new fighter jets. Saudi Arabia is a dictactorship, run by the Royal family, with all political parties outlawed, and
has a very bad human rights record. Osama Bin Laden was born in Saudi and lived in Jeddah, Saudi has a large following of Al Qaeda, but this is held back because of the government killings, beatings and torture. What could possible go wrong!
BAE deserves all the trouble it gets. The same company sold torture instruments after it was supposedly made illegal to do so in the UK. The directors should have been jailed then.
It would be better to be a slightly poorer country then to support the Saudi royal family -organised criminal cutthroats- in their aquisition of weapons. How long will the Saudis be able to maintain their current position of power(before they have a Musselini ending) and should not we be thinking of transition to a modern democracy for the people of Saudi. If the Saudis claim the bribe is just a discount from one government to another are they equally prepared to accept the same personal responsibility for funding the Taliban. If I sent money to the Taliban I would be looking at years without trial in some prison camp.
Just because somebody else will do a mugging It doesnt mean that we should. Jobs at all costs is a very shortsighted policy.
Gordon Brown needs to step in and halt this activity, US hates good competition and will destroy all that gets in its way
So sweeteners are bad in international business (if you are not an American corporation) but invasion and destruction is a legitimate method to obtain lucrative contracts. .. but only if you are an American corporation .. thanks guys your the best ..