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U.S. fines BAE $79 million over arms-control breaches

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Britain’s BAE Systems Plc agreed to pay up to $79 million in U.S. government fines for more than 2,500 alleged breaches of rules governing military exports, the State Department said on Tuesday.

The civil settlement is the biggest in the department’s history. It ends long-running corruption investigations into the company, Europe’s biggest arms maker by sales, on both sides of the Atlantic.

The department cleared BAE’s fast-growing U.S. unit and its subsidiaries of all charges against the parent company, based in Farnborough, outside London.

But it said a lack of full cooperation from the parent had left it “unable to assess fully the potential harm to U.S. national security” from the unauthorized resale of U.S. weapons and technology know-how to more than a dozen countries.

The U.S. subsidiary, BAE Systems Inc, accounts for about 52 percent of the company’s worldwide sales and is among the Pentagon’s top 10 suppliers. It operates a separate export compliance program under a special security pact that governs its dealings inside and outside the United States.

The State Department said it found a total of 2,591 BAE arms-control breaches after the parent company’s criminal conviction last year for violations of the U.S. Arms Export Control Act and International Traffic in Arms Regulations, which frame U.S. arms-control laws.

For instance, the department said, BAE failed to get a required U.S. nod to engage in “brokering activities” involving U.S. systems or sub-systems incorporated on the EF-2000 Eurofighter Typhoon. Since 1998, BAE has marketed or exported the fighter to Australia, Czech Republic, Greece, Netherlands, Norway, Poland, Saudi Arabia, Singapore, South Korea, Austria, Denmark, Japan and Switzerland, the department said.

Beside unauthorized brokering of U.S.-supplied arms and services, the alleged breaches of U.S. law included failure to register as a broker; failure to file mandated annual reports; causing unauthorized brokering; failure to report the payment of fees or commissions associated with arms deals; and failure to maintain records involving controlled transactions.

The State Department, in a “proposed charging letter” made public on its web site, described the violations as “systemic, widespread and sustained for more than 10 years.”

BAE also failed to cooperate fully for the 14 months since the criminal pleadings set the stage for the parallel civil investigation, the department said. It followed the global settlement announced in February 2010 of criminal cases brought by the U.S. Department of Justice and Britain’s Serious Fraud Office.

Under its agreement last year with the Justice Department, the company pleaded guilty to one charge of conspiring to make false statements to the U.S. government and paid a fine of $400 million. In London, BAE pleaded guilty to one charge of failing to keep records of payments made to a marketing advisor in Tanzania and paid about $50 million.

The cases grew from criminal investigations into arms deals in Saudi Arabia, Tanzania, Sweden, the Czech Republic and Hungary.

The State Department said it is releasing an administrative hold it imposed, after the criminal conviction, on license applications by the parent company to export U.S.-origin arms and services.

But it declared a policy of presumptive denial on three BAE subsidiaries “because of their substantial involvement in activities related to the conviction.” The units’ export license requests would be approved only if they were determined to be in the U.S. national interest.

The department identified these as BAE Systems CS&S International, Red Diamond Trading Ltd and Poseidon Trading Investments Ltd.

BAE, apparently referring to this, said a limited number of its UK-originating exports would be subject to “enhanced administrative review.” This was not expected to hurt current or future exports, it said.

The parent company’s settlement with the State Department will have “zero impact” on the U.S. unit’s ability to carry out its business plan, John Suttle, a company spokesman, said in a teleconference.

Phil Finnegan, director of corporate analysis at the Teal Group aerospace consultancy, said BAE needed to make such an agreement because it is heavily reliant on the U.S. arms market, the world’s most lucrative.

“BAE must continue to be in a strong position with the U.S. government so it can win new contracts and expand through its continuing stream of U.S. acquisitions,” he said.

Under the four-year term of its consent deal with BAE, the State Department agreed to consider suspending $10 million of the new fines to offset the cost of improved export control compliance measures.

Shares in BAE, which have risen 3 percent in 2011, closed down 0.6 percent at 337.2 pence on the London Stock Exchange.

Via NewsDaily

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Written by Nokgiir

May 18, 2011 at 12:08 am

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