BAE paid too little heed to ethics, says report



9.45am BST

* Sadie Gray, David Leigh and Rob Evans
* guardian.co.uk,
* Tuesday May 6 2008

The arms company BAE failed to pay sufficient attention to ethical standards, laying itself open to accusations of misconduct that have tarnished its reputation, Lord Woolf said today in a report.

BAE, which successfully lobbied to end a Serious Fraud Office inquiry into its multi-billion pound deals with Saudi Arabia, appointed the former lord chief justice to lead an independent committee in a review of current policies and practices.

"Critically, both the chairman and chief executive, in discussions with us, acknowledged that the company did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage," the report said.

"Combined with this was its acceptance of conditions which constrained its ability to explain the full circumstances of its activities.

"These contributed to the widely-held perceptions that it was involved in inappropriate behaviour. They recognise that, justly or otherwise, these perceptions have damaged the company's reputation."

Woolf's report, released on the eve of BAE's annual general meeting, is the latest element in the company's public relations strategy to try to move on from the worldwide bribery allegations against it, despite unresolved criminal investigations and litigation.





As well as running an £800,000 advertising campaign, the company has been paying Woolf £6,000 a day to head the review committee with a brief "to ascertain whether ... BAE's ethical standards are irreproachable". The committee's secretary, Richard Jarvis, is a civil servant, seconded from the Cabinet Office.

The committee did not investigate allegations relating to past conduct at the company. But it did recommend that BAE publish and implement a global code of ethical business conduct and carry out regular, independent audits of that conduct.

The firm had made "huge improvements", Woolf said. "The company had, like most companies in the past, just focused on the law. There were no ethical standards embedded in the company," he told the BBC's Today programme.

Meanwhile, political moves are being floated that could extricate BAE from corruption investigations in the US, in return for a financial settlement without admission of liability. According to senior sources close to the firm, a deal is not currently on offer in Washington, and BAE yesterday issued a "flat denial" that it had approached the US authorities.

But such a deal would be highly attractive to the British government and the arms company, according to informed sources. BAE needs a clean sheet in the US, where it is making more sales and considering appointing an American chief executive.

A deal would involve the Department of Justice in Washington agreeing not to disclose any evidence of corruption in BAE's sales to Saudi Arabia. BAE, which has always denied wrongdoing, said yesterday: "There has been no such approach by BAE Systems to the Department of Justice and any suggestion that there has is untrue, inaccurate and misleading."

The Woolf committee's activities have been criticised as window dressing. In the US, companies under investigation hoping for lenient treatment frequently commission rigorous outside investigation by firms of independent lawyers, and dismiss senior individuals found at fault.

The committee had no such role, although its defenders say it may help change the BAE culture. The committee had no power to investigate the bribery allegations, or penalise any wrongdoing.

One difficulty for Woolf in presenting this morning's report is that his former judicial colleagues, Lord Justice Moses and Mr Justice Sullivan, have accused BAE of benefiting from attempts to pervert the course of justice.

BAE successfully lobbied to end a Serious Fraud Office inquiry into its Saudi deals. The high court said the political pressure by BAE's associates to end the SFO inquiry was unlawful. The government is appealing against the ruling on grounds of "national security".

The government is refusing to cooperate with a formal US request to hand over evidence for the FBI's criminal inquiry into BAE's Saudi deals.

A former Liberal Democrat leader, Sir Menzies Campbell, said today that Gordon Brown should order the SFO to re-open its Saudi inquiry.

"These issues are not going to go away and it would be much better for the reputation of the United Kingdom if we were to take the step of reopening the investigation," he told the Today programme.