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Tuesday, 21 December 2010

Judge questions SFO evidence in BAE case

Judge questions SFO evidence in BAE case

The Serious Fraud Office (SFO) suffered another blow to its reputation after a High Court judge questioned evidence and terms of a plea bargain brought in a corruption probe into BAE's $40m (£25m) radar deal with Tanzania.

"My overriding feeling is that you cannot sentence with this evidence," Mr Justice Bean said. "The proposition that the Crown cannot prove to criminal standard that corrupt payments were made is one thing. To say that those payments were not properly used is another.

"There is a big gap." The SFO's deal with BAE involved the company paying a £30m fine after pleading guilty to failing to keep proper accounting records. The accounting records relate to $12.4m paid to a "marketing agent" in Tanzania, Shailesh Vithlani, to facilitate an air traffic control deal with the country. As part of the deal BAE admitted that there "was a high probability that part of the $12.4m would be used in the negotiation process to favour BAE".

Victor Temple QC for the prosecution replied. "It is not our position to establish the work Mr Vithlani did with the money. It is not part of the Crown's case that any payments made were improperly used." The evidence put before the court established a trail of payments made via offshore companies to Mr Vithlani. Roughly 97pc of the $12.4m fee was paid to a British Virgin Islands company described by BAE as a "covert" company. The balance was paid to a company called Merlin registered in Tanzania and described by BAE as "overt". Both companies were controlled by Mr Vithlani. 

The court heard covert agents were hired by BAE in a number of circumstances; when it was illegal to employ them overtly; because of tax implications arising from the agent making undeclared payments to third parties; or to avoid "embarrassment and press interest" due to large fees being paid. 

The normal limit on payments to covert agents was 20pc of the price of a contract. Because Mr Vithlani's fee was 30pc it was personally authorised by BAE's then chairman Sir Richard Evans. Mr Justice Bean also questioned the terms of a widespread indemnity agreed between BAE and the SFO to preclude certain further prosecutions relating to the case.

Although sentencing was held over until Tuesday morning, the case represents another significant blow for the SFO. Through cases such as BAE and earlier this year Innospec and Robert Dougall the SFO has tried to establish a precedent for plea bargaining in UK law. In the Dougall corruption case Judge Bean, the same judge sitting in the BAE case, turned an agreed suspended sentence into a prison term. A £12.7m fine agreed with chemical company Innospec was branded "inadequate".