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Summary

BAE Systems: case study

UK-based aerospace and defence company with global operations that faced multiple allegations of bribery, notably in contracts between Saudi Arabia and the UK, giving impetus to the campaign for the UK Bribery Act.

The Al-Yamamah arms deal between the UK and Saudi Arabian governments spanned three decades and was worth over £43 billion. The first Memorandum of Understanding signed in 1985 included the procurement of 72 Tornado aircraft, other equipment and extensive maintenance and support contracts to the Royal Saudi Airforce. The final contract agreed in 2007 was for the supply of 72 Eurofighter combat aircraft. BAE Systems acted as the prime contractor on the deals. The Saudi government paid for arms by transferring a reported 300,000 barrels of oil per day to a dedicated account managed by the UK Ministry of Defence.

While the first allegations of corruption around the deal emerged in the Middle Eastern press in the mid-1980s, in the UK the issues came to public prominence in 2003. An investigation by two journalists at The Guardian, based initially on documentary research in the National Archives, revealed substantive concerns of corruption in the Al-Yamamah contracts. This included allegations that up to £6 billion may have been paid to agents and intermediaries on the contracts, commonly disguised using companies in offshore financial centres.

The investigation identified Prince Bandar bin Sultan Al Saud, son of the then Saudi Defence Minister, as a key beneficiary of the commissions. It also described a £60 million slush fund operated by BAE Systems to entertain Saudi officials on foreign visits. Employees from a travel agency, Travellers World, later made allegations that funds were used to provide cash, luxury gifts, holidays and prostitutes to Saudi officials overseeing the contracts. Investigators have estimated that the price of the contracts was inflated by 32 per cent to generate funds for commissions.

The UK Serious Fraud Office (SFO) began investigating the deals in 2004 but their work was abruptly brought to a halt in December 2016 after intervention by the then-attorney general and then-prime minister Tony Blair. Although national security reasons were cited as the rationale for dropping the investigation, the closure of the investigation also took place in the context of final negotiations for the 2007 sale of Eurofighter jets.