The state visit, the first by a Saudi monarch in 20 years, was no exception, with much of the storm centering on controversial financial ties linking the British military contracting giant, BAE Systems, to Downing Street and the desert kingdom. The leader of one major British political party boycotted King Abdullah’s visit while protesters turned out for his ceremonial carriage ride to Buckingham Palace. Much of the debate turns on the fact that BAE made billions of dollars in clandestine and questionable payments to Saudi royals over the last 20 years as part of an $80 billion contract to supply the kingdom with advanced fighter jets and other military hardware. While the investigation of BAE’s business practices has followed a circuitous path in Britain, it has recently gained independent momentum in the US, where the Justice Department is now investigating the company.

BAE generates nearly half its revenue in the United States, and it recently acquired a major supplier of armored Humvees used by American forces in Iraq. American officials who were granted anonymity because they were not authorized to speak publicly about the matter said the Justice Department is examining whether BAE violated domestic laws banning international bribery and money laundering. Accounts in Switzerland, the Caribbean and elsewhere are involved, and, like Britain, the US has a strategic relationship with the Saudis that the investigation threatens. Although the cast of players in the BAE story is unusually broad — it includes Saudi royals like Prince Bandar bin Sultan, the kingdom’s former ambassador to the United States, as well as Tony Blair, the former British prime minister — the investigation is but one in a bounty of cases that the Justice Department recently started under a once-obscure law called the Foreign Corrupt Practices Act (or FCPA).

Lawyers, prosecutors and corporate executives in the United States and abroad say they are closely watching the BAE investigation because it offers a test of how aggressively anti-corruption initiatives will be pursued globally, particularly in countries like Britain and Japan that have resisted enforcing such efforts. „The BAE case is a watershed moment,” says Mark Pieth, who oversees anti-bribery efforts for the OECD „Large multinationals in many countries have come to us and told us that.” For BAE, the fact that billions in payments to Prince Bandar and his relatives might be considered bribes means more than just the potential imposition of heavy fines. It may also mean, analysts say, that BAE executives potentially could go to prison and the company might find itself barred from doing business with the United States government.

The taint of bribery scandals in emerging markets could also have bruising financial implications for BAE. In regions of the world where bribe-taking has long been baked into business transactions — East Asia, the former Soviet Union, Africa and Latin America, for example — legal investigations could make the company vulnerable as those areas become more desirable for military contractors looking for new clients. For companies that have not adapted to the new legal landscape, the consequences are becoming more serious. This year, Baker Hughes, the oil services company, paid a record $44 million fine after admitting that it had bribed officials in Kazakhstan, Angola, Russia, Nigeria and elsewhere.

The British High Court recently ordered a full judicial review of Blair’s decision not to pursue the BAE investigation. Meanwhile, the Justice Department’s BAE investigation has benefited from cooperation by law enforcement agencies elsewhere in Europe, according to people with direct knowledge of the inquiry. A decade ago, such cooperation would have been impossible because many European governments considered corporate bribery tolerable — and in the case of Germany, even made it tax-deductible, as „schmear gelt,” or „grease money.” Since then, German authorities have become particularly aggressive in pursuing possible corruption violations, as illustrated through their continuing investigation of Siemens AG, the German industrial conglomerate.

Although some American companies once actively lobbied to water down the FCPA, arguing that it made it hard to compete overseas, many corporations here have now thrown their weight behind it in the belief that it can be used to prevent competitors from indulging in bribes. So anti-corruption efforts in the United States are now gathering legal steam. „There has been a dramatic increase in the resources dedicated to enforcing the law by the Justice Department and the FBI, and even more important, a strong public commitment to compliance as well as enforcement,” says Peter B. Clark, who oversaw FCPA prosecutions at the Justice Department from the enactment of the law in 1977 until his retirement two years ago.

According to top Justice Department officials, strengthening FCPA enforcement isn’t only about getting American companies to clean up their act or punishing foreign enterprises for breaking domestic laws. It is also part of an attempt to deal with the long-term impact that bribery has on emerging markets. „Corruption undercuts democracy, stifles economic growth and creates an uneven playing field for US companies overseas,” Fisher says. „We are facing transnational crime all over the place.”

In September, about 10 months after Blair quashed the BAE investigation in Britain, the company won a new contract to supply Typhoon jets to Saudi Arabia; the deal could amount to $60 billion over the next 25 years, according to trade publications. By the time Blair shut down the British investigation late last year, however, the Justice Department was already aware of BAE’s practices. As far back as July 2002, representatives from the State, Justice and Defense departments, as well as the CIA, sat down in Washington with senior British officials from the Ministry of Defense to complain about suspected bribery by BAE in Central Europe, the Persian Gulf and South Africa.

Sir Kevin Tebbit, then Britain’s permanent under secretary of the Ministry of Defense, rejected the suspicions as baseless. American officials who participated in the meeting later nicknamed him Sir Topham Hatt after a character in the Thomas the Tank Engine children’s series because of what they said was „his almost haughty disdain for the allegations of bribery involving BAE” and the manner in which he challenged them to detail evidence of wrongdoing. Tebbit, now retired, declined to comment and referred questions, about his interactions with American officials to his former employers in the Ministry of Defense. The ministry declined to comment. The meeting with Tebbit came after the United States Defense Department, along with the military contractors Lockheed and Boeing, formally withdrew from a competition to sell fighter aircraft to the Czech Republic in 2001.

A letter written by Lt. Gen. Tome H. Walters Jr., then head of overseas sales for the Pentagon, to the Czech foreign minister said that there was a „lack of transparency” in the negotiations. The letter also cited a conclusion by the US government that competition for the contract was not above board. The contract was subsequently awarded to BAE and its Swedish partner, Saab. In an interview, General Walters, now retired, said that the problems in the Czech Republic followed similar problems trying to sell American jets to the Hungarian government. BAE secured the Hungarian contract as well. American officials say they believe that the Hungarian and Czech governments were influenced by payments. They cite a CIA briefing during which they were told that BAE paid millions of dollars to the major political parties in Hungary to win the contracts there. BAE said it is unaware of any investigations of the company in Hungary. „BAE Systems has very strong policies and processes in place which it is clearly committed to communicating to its employees and advisers,” a spokesman said. „Any action which is unlawful, dishonest, harmful to others or otherwise against our policies, is unacceptable.”

Multinational companies competing in these countries are turning to law and accounting firms as well corporate investigators like Kroll to help them navigate through the FCPA’s regulations and to vet local partners in countries like China and Nigeria. PricewaterhouseCoopers has doubled the size of its FCPA practice over the past five years. Deloitte & Touche has mobilized in a similar way. It says that when it scrutinizes companies for possible bribery problems, it looks for such red flags as tuition payments for the children of government administrators, property purchases or rentals from foreign officials or their relatives, and payments in exchange for information about competitor’s activities. Lawyers with experience in FCPA cases say that gathering facts in such matters is never easy. Kevin T. Abikoff, a lawyer at Hughes, Hubbard & Reed, who has represented several companies accused of running afoul of the FCPA in Nigeria, says that large companies typically cut employees loose once they are charged with a crime. „It’s a rare person who says, ‘It was me; it’s my fault,’” he says. „There’s finger-pointing up, down and sideways.”

During the OECD anti-corruption meeting in Rome last week, which celebrated the 10th anniversary of the organization’s treaty outlawing international bribery, its head, Angel Gurria, said that national security concerns — the reason Mr. Blair gave for terminating the BAE investigation in Britain — „should not be used” as a reason for quashing bribery investigations. He also voiced concern that anti-corruption efforts were in danger of weakening. „Now I do not want to spoil the birthday party, but I do have to say that what we have achieved is still not good enough,” he added. „There will be big risks that countries will go back to doing ‘business as usual,’ including corruption. The only way to prevent this is to ensure that everyone plays by the same rules.” (full article) (nytimes.com)