LONDON (AP) -- A British judge on Tuesday sentenced defense contractor BAE Systems PLC to pay a fine of 500,000 pounds ($775,000) for failing to keep proper accounts of payments made to an adviser in Tanzania.
The payments were made in connection with the sale of a military radar system in 1999. BAE agreed in February to plead guilty to a single offense in a deal with the Serious Fraud Office, which in turn waived its right to investigate any other conduct by BAE before this year.
Justice David Bean, in a ruling which sharply criticized both BAE Systems and the Serious Fraud Office, said "there was a high probability" that some of the payments were used to favor BAE in negotiations, and it was impossible to determine whether they were lawful.
BAE, the judge said, "did not want to know the details" of how their adviser, Shailesh Vithlani used the money.
"The victims of this way of obtaining business, if I have correctly analyzed it, are not the people of the U.K., but the people of Tanzania," Bean said.
"The airport at Dar-es-Salaam could no doubt have had a new radar system for a good deal less than $40 million if $12 million had not been paid to Mr. Vithlani."
Bean suggested that individual officers of BAE Systems, including its then chairman who personally approved Vithlani's contract, might have been charged with offenses, and he chided the prosecuting agency for agreeing not to investigate any other activities of BAE before this year.
Sentencing followed BAE's agreement with the Serious Fraud Office in February to plead guilty and pay penalties of 30 million pounds, most of it as a charitable payment to Tanzania. The British fine will be deducted from that amount. BAE was also ordered to pay 225,000 pounds toward the cost of prosecution.
"In the decade since the conduct referred to in this settlement occurred, the company has systematically enhanced its compliance policies and processes with a view to ensuring that it is as widely recognized for responsible conduct as it is for high quality services and advanced technologies," BAE said in a statement.
At the same time in February, BAE announced a settlement with the U.S. Department of Justice in which the company agreed to plead guilty to one criminal charge of conspiring to make false statements in regulatory filings from 2000 to 2002.
The U.S. agency said BAE "knowingly and willfully failed to create mechanisms to ensure compliance with ... legal prohibitions on foreign bribery," and that it had made a series of payments to shell companies and third party intermediaries.
On March 1, it was sentenced to pay a fine of $400 million.
The Tanzania radar contract negotiations were started by Siemens Plessey Electronic Group, which was acquired by BAE Systems in 1998. Siemens Plessey had retained Vithlani, a Tanzanian marketing adviser, to assist in negotiations.
BAE subsequently entered into agreements which guaranteed 31 percent of the contract proceeds, or $12.4 million, to two companies -- EnversTrading Corp. and Merlin International Ltd. -- controlled by Vithlani.
"Although it is not alleged that BAE PLC was party to an agreement to corrupt, there was a high probability that part of the $12.4 million would be used in the negotiation process to favor British Aerospace Defense Systems Ltd.," a BAE subsidiary, Bean said in his written decision, quoting the settlement with the Serious Fraud Office.
"The payments were not subjected to proper or adequate scrutiny or review. Further, British Aerospace Defense Systems Ltd. maintained inadequate information to determine the value for money offered by Vithlani and entities controlled by him."
The judge said he was surprised that the Serious Fraud Office had agreed in February to take no further action regarding BAE's past conduct.
"The U.S. Department of Justice did not do so in this case: it agreed not to prosecute further for past offenses which had been disclosed to it," Bean said.
There was indeed a high probability that Vithlani used the money to secure a contract for BAE, the judge said.
"Otherwise, it is inexplicable, on the material before me, why the payments to Mr. Vithlani's companies exceeded $12 million; and even more inexplicable why 97 percent of that money should have been channeled via Red Diamond, an offshore company controlled by BAE, and paid to Envers, another offshore company controlled by Mr. Vithlani."
While it was not possible to determine what Vithlani did with the money, Bean said "it seems naive in the extreme to think that Mr. Vithlani was simply a well-paid lobbyist."
"I also accept that there is no evidence that BAE was party to an agreement to corrupt," Bean added. "They did not wish to be, and did not need to be. The fact that money was paid by them to Red Diamond, by Red Diamond to Envers and by Envers to Mr. Vithlani placed them at two or three removes from any shady activity by Mr. Vithlani."
The payments were made in connection with the sale of a military radar system in 1999. BAE agreed in February to plead guilty to a single offense in a deal with the Serious Fraud Office, which in turn waived its right to investigate any other conduct by BAE before this year.
Justice David Bean, in a ruling which sharply criticized both BAE Systems and the Serious Fraud Office, said "there was a high probability" that some of the payments were used to favor BAE in negotiations, and it was impossible to determine whether they were lawful.
BAE, the judge said, "did not want to know the details" of how their adviser, Shailesh Vithlani used the money.
"The victims of this way of obtaining business, if I have correctly analyzed it, are not the people of the U.K., but the people of Tanzania," Bean said.
"The airport at Dar-es-Salaam could no doubt have had a new radar system for a good deal less than $40 million if $12 million had not been paid to Mr. Vithlani."
Bean suggested that individual officers of BAE Systems, including its then chairman who personally approved Vithlani's contract, might have been charged with offenses, and he chided the prosecuting agency for agreeing not to investigate any other activities of BAE before this year.
Sentencing followed BAE's agreement with the Serious Fraud Office in February to plead guilty and pay penalties of 30 million pounds, most of it as a charitable payment to Tanzania. The British fine will be deducted from that amount. BAE was also ordered to pay 225,000 pounds toward the cost of prosecution.
"In the decade since the conduct referred to in this settlement occurred, the company has systematically enhanced its compliance policies and processes with a view to ensuring that it is as widely recognized for responsible conduct as it is for high quality services and advanced technologies," BAE said in a statement.
At the same time in February, BAE announced a settlement with the U.S. Department of Justice in which the company agreed to plead guilty to one criminal charge of conspiring to make false statements in regulatory filings from 2000 to 2002.
The U.S. agency said BAE "knowingly and willfully failed to create mechanisms to ensure compliance with ... legal prohibitions on foreign bribery," and that it had made a series of payments to shell companies and third party intermediaries.
On March 1, it was sentenced to pay a fine of $400 million.
The Tanzania radar contract negotiations were started by Siemens Plessey Electronic Group, which was acquired by BAE Systems in 1998. Siemens Plessey had retained Vithlani, a Tanzanian marketing adviser, to assist in negotiations.
BAE subsequently entered into agreements which guaranteed 31 percent of the contract proceeds, or $12.4 million, to two companies -- EnversTrading Corp. and Merlin International Ltd. -- controlled by Vithlani.
"Although it is not alleged that BAE PLC was party to an agreement to corrupt, there was a high probability that part of the $12.4 million would be used in the negotiation process to favor British Aerospace Defense Systems Ltd.," a BAE subsidiary, Bean said in his written decision, quoting the settlement with the Serious Fraud Office.
"The payments were not subjected to proper or adequate scrutiny or review. Further, British Aerospace Defense Systems Ltd. maintained inadequate information to determine the value for money offered by Vithlani and entities controlled by him."
The judge said he was surprised that the Serious Fraud Office had agreed in February to take no further action regarding BAE's past conduct.
"The U.S. Department of Justice did not do so in this case: it agreed not to prosecute further for past offenses which had been disclosed to it," Bean said.
There was indeed a high probability that Vithlani used the money to secure a contract for BAE, the judge said.
"Otherwise, it is inexplicable, on the material before me, why the payments to Mr. Vithlani's companies exceeded $12 million; and even more inexplicable why 97 percent of that money should have been channeled via Red Diamond, an offshore company controlled by BAE, and paid to Envers, another offshore company controlled by Mr. Vithlani."
While it was not possible to determine what Vithlani did with the money, Bean said "it seems naive in the extreme to think that Mr. Vithlani was simply a well-paid lobbyist."
"I also accept that there is no evidence that BAE was party to an agreement to corrupt," Bean added. "They did not wish to be, and did not need to be. The fact that money was paid by them to Red Diamond, by Red Diamond to Envers and by Envers to Mr. Vithlani placed them at two or three removes from any shady activity by Mr. Vithlani."
