BAE Systems Settlement Closes Book On Long-Running Corruption Cases

Friday’s announcement that BAE Systems has settled long-running corruption cases with the U.S. Department of Justice and the U.K. Serious Fraud Office is very big and very good news for the world’s number-two military contractor. Press releases from both governments and the company obscured the full import of the settlement by downplaying the Saudi angle, but the reality is that the company can now close the book on a story that has dogged its future business prospects since it first won the lucrative Al-Yamamah contract in 1985. Investigation of whether improper payments were made in that transaction were so politically sensitive that British Prime Minister Tony Blair ended his country’s inquiry in 2006, only to see the matter re-opened by the U.S. Department of Justice the following year.

By pleading guilty to one count of relatively modest wrongdoing in each country and paying a hefty fine to the U.S. government, BAE effectively frees itself from concerns that had become a persistent drag on its business prospects and public image. The settlement makes clear that none of the senior executives implicated in the investigation are still employed by the parent company, and that its North American subsidiary never had a role in any wrongdoing. Had the findings been different, or had the investigation dragged on, it could have impeded the growth of the North American unit at a time when it is becoming the centerpiece of the whole BAE Systems enterprise.

The company can now move on to addressing more prosaic business concerns, such as its recent loss of contracts for military vehicles and the dearth of technical services in its business mix. These are significant concerns at a time when U.S. defense spending looks likely to plateau or fall in the years ahead. But they might have appeared far worse if the company continued to be dogged by allegations of corruption. Instead, BAE Systems can now look to a future in which the ill-advised actions of past executives no longer put it at a potential disadvantage vis-a-vis major competitors. And that isn’t necessarily bad news for those competitors, because many of them are also partners with BAE on programs like the F-35 Joint Strike Fighter and intelligence networks. More broadly, Friday’s settlement brings to an end the only major corruption cases currently pending against military contractors in either country, which is good news for a sector where critics never seem to take a day off.