A controversial government decision to drop its investigation into BAE Systems’ saudi defence contracts has raised questions about quashing corruption versus national security, writes Cameron Timmis




Defending its controversial decision to drop the investigation into BAE Systems’ defence contracts in Saudi Arabia, the Serious Fraud Office (SFO) stated ‘no weight has been given to commercial interests or to the national economic interest’.



In doing so, the SFO clearly had in mind article 5 of the Organisation for Economic Co-operation and Development’s (OECD) anti-bribery convention. The convention, ratified by the UK in 1998, states: ‘Investigation and prosecution of the bribery of a foreign public official… shall not be influenced by considerations of national economic interest, the potential effect upon relations with another state or the identity of the natural or legal persons involved.’



Instead, the SFO claimed, the decision was based on ‘the need to safeguard national and international security’. This was spelled out by the Attorney-General, Lord Goldsmith, who told Parliament that ‘serious damage’ would have been caused to UK-Saudi intelligence and diplomatic relations had the investigation continued. BAE Systems has always denied any wrongdoing.



Can national security concerns exempt a government from its obligations under the treaty as the SFO (and Attorney-General) maintain? Addressing this point in the House of Lords, former Bar Council chairman Lord Brennan, for the government, argued: ‘I cannot imagine that a convention entered into using the phrase “national interest” must implicitly include national security in that phrase.’



Anti-corruption campaigners take a different view. Last month, two pressure groups, The Corner House and the Campaign Against Arms Trade (CAAT), launched a legal challenge to the decision, arguing that dropping the investigation was in clear breach of article 5 of the convention, was therefore unlawful and should be quashed. According to Leigh Day & Co solicitor Jamie Beagent, who is advising the campaign groups, ‘there are no explicit exclusions from article 5’ in the OECD convention; he describes the justification on national security grounds as ‘fallacious’.



The proceedings have been delayed because of a related dispute concerning an email that was leaked to BAE, containing confidential legal advice intended for CAAT. Leigh Day subsequently made a successful application for a Norwich Pharmacal order compelling BAE Systems to reveal the source of the leak.



The OECD is also perturbed by the decision to drop the investigation. At a recent session of the organisation’s working group on bribery, which monitors the implementation of the treaty in member countries, the group declared that it had ‘serious concerns’ over whether the decision was consistent with the treaty and will be considering ‘appropriate action’ when it reconvenes later this month. OECD Secretary-General Angel Gurria stressed that the credibility of the convention ‘depends on its implementation and enforcement by the countries that are signatories to it’.



Khawar Qureshi QC, an international law specialist, who has represented the SFO on several large-scale corruption matters, says the decision is likely to be seen as a ‘disappointing confirmation that the reach of the rule of law is being held back where political considerations are deemed to apply’.



He suspects that the legal challenge is ‘unlikely’ to succeed if the decision to drop the investigation was based on ‘clear and cogent evidence of a real risk to national security’. However, he observed that that national security ‘can’t just be invoked’ as a justification: ‘It has to be evidenced.’



To anti-corruption campaigners such as Transparency International (TI) UK, the decision to drop the BAE probe is indicative of a long-running failure by the UK government to tackle seriously the investigation of alleged bribery of foreign public officials. This failure has been clearly highlighted, it says, by the OECD working group in its two monitoring reports, the first (phase 1) on the implementation of the treaty, the second (phase 2) on the application of the treaty.



In the phase 2 report, published in 2005, the UK was harshly criticised, among other things, for the lack of any prosecutions under the legislation, the ‘limited expertise in any one agency and lack of specialisation’, and ‘no specific funding for foreign bribery cases’.



‘It concluded we were failing woefully,’ says Jeremy Carver, an international law consultant at City law firm Clifford Chance and trustee board member of TI UK.



Some of these concerns have been addressed recently. For example, in June 2006, the government announced the creation of new task force on international corruption, led by a joint City of London and Metropolitan police team, and appointed International Development Secretary Hilary Benn, as ‘ministerial champion’ for international anti-corruption. Yet it remains the case that to date no prosecutions for overseas corruption have been brought by the SFO; according to the SFO’s latest figures, there are currently ten ‘active’ investigations into such cases.



Another concern of the OECD working group that has not been addressed is what it describes as ‘the complexity and uncertainty’ of the UK’s anti-corruption laws. Following a damning verdict in the phase 1 report, the government belatedly introduced part 12 of the 2001 Anti-terrorism, Crime & Security Act, creating, for the first time, a specific offence of bribery for individuals and companies overseas.



However, according to Mr Carver, this was no more than a stop-gap: ‘Part 12 was designed just to cover our nakedness… it wasn’t terribly good, it wasn’t satisfactory and it didn’t solve the basic problems of messy law. The government acknowledged it wasn’t the right place for it and would replace it with a proper Bill.’



However, the government’s resulting effort, a Corruption Bill published in 2003, was short-lived, scrapped by the Home Office after strong criticism from a joint parliamentary committee of MPs and peers. According to Mr Carver: ‘It had been drafted in a way that no one would understand – no business person, judge or jury... it was not fit for purpose.’



Although the government launched another consultation on the Corruption Bill in December 2005 (which ended in March 2006), so far no new bill has been published. Fed up with the lack of progress, last year TI instructed parliamentary agents to draft its own Bill.



Previously, says Graham Rodmell, head of corporate and regulatory affairs at TI, efforts to draft a Corruption Bill were ‘hung up’ on issues such as the definition of bribery and the principal/agent relationship. ‘We are convinced that it is possible to describe bribery in a way everybody can understand it,’ he says.



This Bill has received some parliamentary time under the ten-minute rule procedure and is to have a second reading in the House of Lords next week. ‘We would love the government to adopt our Bill, and urge them to do so, but we have found no appetite in the Home Office for comprehensive legislation,’ says Mr Rodmell.



Others support attempts to modernise the law. Eoin O’Shea, a barrister at City firm Simmons & Simmons, who advises companies and governments on issues of corruption, took part in the more recent consultation on the Corruption Bill. In particular, he welcomes attempts to rationalise the existing common law offences of corruption, but warns ‘an over-theoretical approach might be counterproductive’.



‘It’s a bit like defining dishonesty… defining what is or isn’t corrupt behaviour in exact language, though possible, is difficult,’ he says. ‘But in practice, when you are faced with a specific situation, most juries should not have difficulty understanding what is and what is not corrupt.’



Speaking after the decision to drop the BAE investigation, Lord Goldsmith attempted to reassure critics that the UK was committed to pursuing corruption by UK companies overseas. ‘The clear message is that no company is above the law,’ he said.



Given the government’s record during the last few years, anti-corruption campaigners are yet to be convinced of this. ‘On the one hand, they are going around saying corruption is one of the major issues which needs to be addressed, is vital to the war on terror and steering the good governance agenda,’ says Nick Hildyard of The Corner House, ‘but on the other hand, when it comes to prosecutions, there hasn’t be one.



Certainly the UK compares poorly against the US, which has launched numerous prosecutions against international companies under its Foreign Corrupt Practices Act. The fact that one of these was a UK company sends a warning to all. In 2004, the UK and US subsidiaries of Swiss company ABB each agreed to pay a fine of $5.25 million (£2.7 million) after pleading guilty to charges by the US Department of Justice that they paid more than $1 million in bribes to secure oil contracts in Nigeria.



Mr O’Shea says that if the UK government does not have the appetite to pursue corruption among UK companies, the US does. He says: ‘The Americans have gone after non-American companies very frequently in the past and they will do so in the future.’



Cameron Timmis is a freelance journalist