Serious Fraud Office and BAE contest judicial review application

CAAT and The Corner House submitted their application on 26 February 2010 for a judicial review of the Serious Fraud Office decision to make a plea bargain settlement with BAE Systems and to drop "conspiracy to corrupt" charges against a BAE former agent. This outlined the Facts and the Legal Grounds for requesting the review.

Serious Fraud Office: Summary Grounds for Contesting the Claim

On 12 March, the Director of the Serious Fraud Office responded with his version of the facts and grounds to contest the judicial review application.

Evidence and press release

He states that, at the time the settlement was made with BAE on 5 February 2010, he had not in fact concluded that the SFO had sufficient evidence to convict the company in the courts in connection with BAE's alleged offending in its Eastern European and Tanzanian deals.

In particular, he admits "with hindsight" that the SFO's press release of 1 October 2009 stating that the SFO intended "to prosecute BAe Systems for offences relating to overseas corruption . . . in Africa and Eastern Europe" (para. 7) "overstated" the stage of its investigation and decision-making as to prosecution, even though he had been advised that the SFO had a good case (para. 10).

Corporate liability

The SFO Director states that in late January 2010, lawyers advised him that "it might be difficult to prove corporate liability" in Eastern Europe for "the principal offences under consideration", reportedly corruption offences (para. 11). To prove corporate liability, UK anti-bribery legislation at the time (1906 Prevention of Corruption Act) required evidence that senior BAE executives -- a "controlling mind" -- were involved in the alleged corruption.

Double jeopardy

Given that BAE had entered into a plea settlement in the US concerning the Eastern European allegations, the SFO Director stated that it could be difficult for the SFO to prosecute the company because BAE could invoke "the principle of double jeopardy" -- someone cannot be prosecuted twice for the same crime on the same set of facts. Given the US agreement, moreover, he believed it was not now in the public interest to prosecute BAE in the UK for the Eastern European alleged offences (para 13).

Although the Director states (para. 6) that "there has been a significant degree of cooperation between the DOJ [US Department of Justice] and the SFO in the conduct of their respective investigations", it seems that the SFO knew nothing about the US BAE settlement until the DOJ informed the SFO on 29 January that it was imminent (para. 12) in respect of Eastern European offences. This left the SFO one week to make a settlement of its own with BAE.

Individual prosecution or plea bargain?

The Director assessed that it was in the public interest to drop the 29 January charges against a former BAE agent, Count Mensdorff, because continuing would have meant BAE would not agree to the SFO settlement in which BAE would plead guilty not to corruption but to accounting irregularities in its deal with Tanzania.

He states that, during the UK plea discussions, on 4 February (the day before the UK and US settlements were announced), "BAe requested an undertaking from the SFO that in any future prosecutions (to which BAe was not a party) the prosecution would not allege that the company was guilty of corruption." He concluded that without this undertaking, BAE would not agree to the plea settlement (para. 18, italic emphasis added).

The prosecution of Count Mensdorff, or any one else being investigated in connection with BAE's Eastern Europe transactions, would require such an allegation. The SFO Director therefore "took the view that it was in the public interest to give the undertaking to BAe" to enable the Tanzania plea agreement. As a result, the SFO withdrew the charges against Count Mensdorff.

Commercial consequences for BAE

The Director states that under the EU's Public Sector Procurement Directive 2004, "a conviction for an offence of corruption would have had the effect of debarring BAe for tendering for public contracts in the EU," a consequence that he believes "could have been a disproportionate outcome" (para. 14.5). He asserts that, when deciding whether or not to prosecuts, a Director ought to take into account "the commercial consequences of prosecution and conviction on a company and its employees" (para. 26).

BAE Systems Summary of Grounds of Resistance

In press reports on this judicial review application, a BAE spokesperson is quoted as saying that the judicial review decision is "a matter between the two campaign groups and the SFO." Nonetheless, the company submitted its own legal response on 12 March outlining why the courts should refuse permission for the judicial review.

Evidence and the law

This response asserts several times that the SFO had no or limited evidence of BAE's corrupt activity in the deals under investigation. Even if it had evidence against individuals, however, BAE claims that the SFO could not have brought a successful corporate prosecution for corruption because of how UK legislation aimed at preventing bribery is worded -- even though BAE also states that it was not provided with "formal disclosure of the SFO's case against it" (para. 16).

BAE's Grounds of Resistance declare that:

"BAE's principal submission is that there was no realistic prospect of being convicted of corruption or any related offence . . . [because] the SFO had no, or limited, evidence of any corrupt activity and no evidence against any sufficiently senior employee to allow conviction of the company." (para. 25)

"There was . . . no basis upon which the SFO could properly have concluded that there was sufficient evidence to fix BAE as a corporate body with criminal liability for the acts of its employees, even assuming those acts to have been corrupt." (para. 43)

"This conclusion is fatal to any charge of corruption against BAE, even if any corrupt activity were identified. Unless an identified individual's conduct, characterisable as criminal, can be attributed to a company, a company cannot, on the present state of the common law, be liable for an offence of corruption." (para. 44)

BAE also states that if the SFO had prosecuted, "BAE's position would have been that it was not a crime under English law to offer a corrupt payment to foreign agent who had a foreign principal, for example, an official working for a foreign government" (para 19).[1]

Public interest

BAE, the subject of the SFO's criminal investigation, also stresses that "the Director was obviously entitled, indeed, bound to take into account broad public interest considerations beyond those identified in the Code for Crown Prosecutors" and proceeds to hypothesise as to what "these are likely to have included", encompassing "the effect of a prosecution on BAE, its employees and shareholders".

Attorney General consent

BAE emphasises the need for the Attorney General (who is responsible for all criminal prosecutions brought by the state and is the Government's chief legal adviser) to consent to any SFO decision to prosecute the company [2] -- and goes on to summarise "the legal issues . . . the Attorney General would have been entitled to take into account" in making a decision on consent.

Although the SFO had not in fact requested this consent, BAE details what it "would have submitted to the Attorney General . . . had it been necessary to do so", outlining why consent should not be given (para 14) -- lack of evidence (even though the SFO would not have asked for consent unless it believed it had the evidence).

Detrimental effect on BAE's shareholders

BAE concludes by arguing "that permission [for a judicial review] ought to be refused because of the detrimental effect which reopening the investigation would have on BAE's shareholders" (para 60)

"Should this application for judicial review be allowed to proceed the orderly market in BAE's shares will be called into question and loss may be caused to those who purchased shares in good faith following the announcement on 5 February. This provides an additional reason why the court ought to refuse permission." (para 62)

CAAT and The Corner House reply

Lawyers acting for both groups submitted to the court a Reply to both of these Summary Grounds on 17 March 2010.

On the SFO Director's Grounds, our reply queried his claim that his 1 October 2009 press release meant he only intended "to continue the investigations" when it stated that the SFO intended to seek the Attorney General's consent (to prosecute BAE), and thus had the evidence to proceed. Our Reply stated that for the SFO Director to have made this announcement on any other basis would have been misleading to the public, the Attorney General, and even BAE and its shareholders.

"In light of the Defendant's awareness of its public role, it is extremely unlikely that it [SFO] would have taken such a step. It is noteworthy that no attempt was made at any stage to correct or clarify the press release." (para. 8)

As to evidence in January and February 2010, our Reply noted that the SFO Director maintained that the prosecution of Count Mensdorff could not go ahead because it would have involved the prosecution making allegations of corruption against BAE Systems.

"This strongly suggests that there was evidence available to show corporate liability, or such allegation could not legitimately have been made in Count Mensdorff's case." (para.10)

The Count's prosecution was dropped because the SFO Director believed it was in the public interest to get BAE's agreement to a plea bargain rather than to continue prosecuting a former BAE agent. Our Reply stated that we did not accept that "protection of this plea bargain was a legitimate decision in the public interest". "An allegation of corruption against BAE Systems in the proceedings against Count Mensdorff would only be of assistance to a proper prosecution of BAE Systems." (para 20)

Our Reply also pointed out the following:

"It is noteworthy that any concern that BAE Systems might have about such an allegation being made is inconsistent with its stance that is prosecution for such an offence had no prospects of success." (para 21)

The implications and precedent set by his decision were also laid out:

"Permitting BAE Systems to pay a financial penalty in order to avoid a finding of corruption indicates that financial strength can provide impunity -- in short, that rich companies can buy their way out of criminal liability for their actions. This is particularly damaging in the context of a prosecution for offences related to corruption and is simply inconsistent with the [SFO Director's] duty to uphold the rule of law." (para 15)

"The [SFO Director's] role is to uphold the law, not to help companies avoid its consequences." (para. 17)

Concerning the double jeopardy principle, our Reply pointed out that:

"There is no explanation why the US prosecution was given priority over a prosecution in the UK, bearing in mind that BAE Systems is a company based in the UK and the allegations relate to activities emanating from the UK." (para 11.a)

"The charges against BAE Systems in the US were not of such a similar character to those that could be charged in the UK as to justify . . . the plea. It is noted that in the US proceedings BAE Systems pleaded guilty to offences of conspiring to make false, inaccurate and incomplete statements to US authorities and to file false export licences." (para 11.b) [These are not corruption offences.]

Although the SFO Director claims that BAE has "taken substantial steps to transform itself as an organisation" as a reason not to prosecute it, "BAE Systems' continuing failure to acknowledge its criminal behaviour, despite the guilty pleas entered in the US proceedings, is evident from the tone of its reply to this claim." (para. 18)

(The guilty pleas in the US related to assurances that the BAE gave the US government in 2000 that it was implementing a rigorous anti-bribery programme. Its assurances encouraged the US government to award BAE significant public military procurement contracts.)

As to BAE's Grounds of Resistance, our Reply stated that all its points about the need for Attorney General consent to prosecute BAE were irrelevant because the judicial review request is of a decision made before consent is requested. (para 23)

Responding to BAE's assertions about the impact on its shareholders, our Reply stated that:

"The clear implication is that the interests of those who speculate on financial markets should be given more weight than the interests of justice and the rule of law. In making a decision to invest, shareholders freely choose to take the risk that their investment may not bear fruit. It is not the task of the court to protect shareholders from such risks, most especially when to do so is contrary to the interests of justice and the rule of law." (para. 24)

[1]

It acknowledges that this defence would not be valid for offences committed after 14 February 2002 (when 2001 legislation came into effect making it clear that corruption offences could be committed in respect of foreign as well as domestic agents). But it claims that "it is plain that by far the greater part of the SFO investigation was concerned with conduct alleged to have taken place before 14 February 2002". Nonetheless, "even if overt acts were proved to have been committed after 14 February 2002, this would not of itself necessarily give rise to criminal liability of the part of BAE" (para 22).

But in preliminary court hearings in to prosecute Count Alfons Mensdorff in January and February 2010, the SFO told the courts that "from 2002 onwards, BAE adopted and deployed corrupt practices to obtain lucrative contracts for jet fighters in central Europe" in a "sophisticated and meticulously planned operation involving very senior BAE executives." David Leigh and Rob Evans, "BAE chiefs 'linked to bribes conspiracy'", The Observer, 7 February 2010.)

[2]

Once a prosecutor such as the SFO Director has decided that there is enough evidence to prosecute and that it is in the public interest to do so, s/he submits papers to the Attorney General requesting consent to prosecute, which may or may not be given. This requirement for Attorney General consent to prosecution was removed in the Bribery Act passed on 8 April 2010.