BAE Systems failed to co-operate with an investigation into thousands of alleged violations of US rules for military exports, the state department said as it reached a historic $79m civil settlement with the UK defence contractor.

The deal on Tuesday marks an end to BAE’s 14-month entanglement with US officials over allegations – some but not all of which have been acknowledged – that it routinely failed to report payments and commissions it paid in order to facilitate defence transactions from the late 1990s to 2007.

BAE agreed to pay a $79m civil penalty – the largest in state department history – although that could be reduced by $10m if the company maintains compliance standards. Last year, BAE paid a $400m fine after pleading guilty to corruption-related fraud and false statement charges by the Department of Justice.

As a result of that criminal plea, the state department also considered whether to ban BAE exports of military items from the US. In a complex manoeuvre, the state department issued the ban and then rescinded it, saying it was satisfied with changes BAE made to senior management and its board of directors.

Subject to case-by-case review, three BAE subsidiaries – including two that are no longer in business and one that has been folded into BAE’s Saudi Arabian unit – will be denied permission to export US-controlled items.

The deal does not apply to BAE Inc, the company’s US subsidiary, which accounts for more than half of the parent company’s revenue. That is because the US unit was not a part of the criminal wrongdoing.

While the conclusion of the probe was welcome news to the company, it ended on a bitter note, with the state department lambasting BAE for its failure to
co-operate, including giving “incomplete responses” to requests for information and
relevant records.

“These various factors were substantially responsible for the incomplete nature of the investigation, and the inability of the department to assess fully the potential harm to US national security,” the department said in a public letter that laid out what it believed BAE did wrong.

The letter said the department had identified 2,591 violations of the Arms Control Act and International Traffic in Arms regulations over a 10-year period, but that the company had disclosed only three of those violations.

“All other remaining violations were … identified by the department during its investigation,” the letter stated.

BAE on Tuesday told the Financial Times that its compliance with the UK’s Official Secrets Act, which covers the disclosure of classified information by government contractors, had prohibited it from co-operating fully.

It said of the accusation that it committed more than 2,000 violations: “It is an estimate and we wouldn’t accept that as accurate.”

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