February 5, 2010 8:12 pm

BAE chairman regrets its ‘shortcomings’

BAE Systems insisted it would be business as usual in the US and Europe, despite agreeing to admit to criminal charges in Britain and America on Friday.

The company said the pleas did not relate to accusations of corruption or bribery. While admitting the company regretted “its shortcomings”, Dick Olver, BAE chairman, repeatedly sought to distance the group from the wrongdoings. He noted the last offence took place in 2002.

Despite the embarrassment of the settlement – BAE had repeatedly denied any wrongdoing in the past – as well as the financial penalty, industry observers said they expected any material impact on future contracts to be minimal.

Crucially, the company’s settlement with the US Department of Justice excludes BAE’s North American subsidiary, BAE Inc, which is the arm that contracts with the Pentagon. BAE Inc has a special security agreement with the US government that restricts the UK company’s influence and control over day-to-day activities and management of its US arm.

Mr Olver also noted that both agencies, the US DoJ and the UK Serious Fraud Office, had acknowledged the company’s “fitness” in the US and said they were prepared to make statements to other nation states on the same basis.

The settlement, he said, “allows us to draw a very heavy line under the legacy historical issues”, he said. “We are pleased to see the uncertainty being removed for our stakeholders, our staff and our shareholders.”

As part of its agreement with the DoJ, BAE has agreed to appoint “a monitor”, to be approved by the DoJ, to sit on its marketing adviser compliance panel, which tracks its marketing activities.

Defence watchers in the US said that while the company’s admission of making false statements to the US government in connection with certain regulatory filings and undertakings were serious and disappointing, they should not impede its business in the US.

Loren Thompson of the Lexington Institute in Washington, DC, said: “From a practical level the Pentagon needs to do business with BAE. There are only so many places it can go to buy armoured vehicles for example. The industry is so integrated now, it is probably in everybody’s interest, including BAE’s competitors’, for the case to be settled.”

Rob Stallard, analyst at Macquarie Securities in the US, played down the ramifications: “Like any defence contractor the bigger issues are the state of the budget . . You have got a slowing US defence budget, the investment accounts coming under pressure, the military can’t afford all the programmes that they would like to buy.”

BAE’s shares were up 1.59 per cent to 345.90p in late afternoon trading in London. “The fine is not trivial. We are relieved, but not amused,” said one analyst.

Mr Olver said it would account for the fines in its 2009 results, due to be published later this month.

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