U.K. Plan to Return Cash to Bribery Victims May Fuel Corruption

Network News

X Profile
View More Activity
By Lindsay Fortado
(c) 2010 Bloomberg News
Wednesday, July 14, 2010; 12:00 AM

Europe's biggest defense contractor reached a deal this year with the U.K. Serious Fraud Office to end a five-year probe into whether it enticed Tanzanian officials to buy a radar system with payments. Under the proposed settlement, which needs a court's approval, the SFO will ask that most of the 30 million pounds BAE is paying go to Tanzania as the agency's director, Richard Alderman, pushes to return money to corruption victims.

The Tanzanian payouts would be the highest reparations sought by the SFO in three corporate-bribery cases it has pursued. The payments have been met with skepticism from lawyers and bribery watchdogs who say there is no way to ensure how the money will be used, or determine who the victims are.

"There is a grave danger that you're returning money to the very people that took bribes in the first place," said Mark Mendelsohn, the former chief of the fraud division at the U.S. Department of Justice. "The last thing one wants to do is fuel corruption in the name of fighting it."

Indentifying victims in corruption cases can be challenging, he said.

"Is it the people of the country whose government took payments? Often it is," said Mendelsohn, now a partner at Paul Weiss Rifkind Wharton & Garrison LLP in Washington. "Are the victims the shareholders of the bribe-paying company? Maybe, maybe not."

The SFO, which prosecutes complex fraud and corruption, will become part of the U.K. coalition government's planned economic crime agency in two years. Alderman, who may retire after the transfer is complete, has said compensating victims is a priority for the agency, which is scheduled to publish its annual report next week.

"Some of our cases involve British companies and artificially overpriced contracts for business overseas," Alderman said. Such contracts "in a developing country could have a negative impact on infrastructure development, education or humanitarian projects" hurting "ordinary people."

Since he joined the SFO as director in April 2008, Alderman has encouraged companies to self-report bribery in exchange for reduced penalties, which is how similar cases under the U.S. Foreign Corrupt Practices Act are handled.

In FCPA cases, the criminal penalties assessed are returned to the U.S. Treasury by law.

"Under the agreement with the Serious Fraud Office, the company will plead guilty to one charge of breach of duty to keep accounting records in relation to payments made to a former marketing adviser in Tanzania," BAE spokeswoman Lindsay Walls said in an e-mailed statement.

BAE Chairman Dick Olver has said the final fine assessed by a U.K. court is likely to be lower than the 30 million pounds agreed on, and the company will make up the difference in the form of a charitable donation to Tanzania. The investigation surrounding the Tanzania case dates back to a contract originally won in 1997.

Salva Rweyemamu, spokesman for Tanzanian President Jakaya Kikwete, declined to comment.


CONTINUED     1        >

© 2010 bloomberg.com

Network News

X My Profile
View More Activity