BAE Systems: trouble in the skies over Saudi

We're in Top Gun territory, aren't we?

If you like, yes. BAE Systems is the UK's biggest arms dealer, and was formed in November 1999 with the merger of British Aerospace and Marconi Electronic Systems, the defence arm of The General Electric Company. The company is the successor to many iconic aircraft and defence electronics companies.

So how are they getting on then?

It's in the danger zone, as it happens. BAE Systems is involved in several major defence projects, including the F-35 Lightning II, the Eurofighter Typhoon and the Royal Navy future carriers. However, it has been a bad few weeks for the business, which is now the subject of an anti-corruption probe by the US Department of Justice.

Corruption? And an arms firm? You must be joking...?

This is serious stuff. BAE faces allegations that it ran a fund to help it win plane and military equipment orders from KSA, in an agreement that dates back to the 1980s and the US$85bn al-Yamamah deal that supplied Tornado jets and other military equipment to KSA.

What do you mean ‘a fund'? Who were they paying?

There are allegations that BAE made payments worth around US$2bn over a number of years to Prince Bandar, a leading member of Saudi Arabia's royal family. The company was subject to a probe last year, but the investigation was halted, officially on the grounds that it might pose a threat to the UK's national security.

For their eyes only?

Quite. It's all very hush-hush, and of course unrelated to the fact that BAE has just won a contract for the sale of 72 Eurofighter Typhoon aircraft, worth over US$6bn, to Saudi. All a Ministry of Defence spokesman would say was that "the report remains sensitive. Disclosure would harm both international relations and the UK's commercial interests."

I'll keep my mouth shut. So what does all of this have to do with the US?

According to press reports, the Department of Justice became interested because BAE used the US banking system to transfer regular payments to accounts controlled by the prince. Thanks to that, prosecutors have decided that BAE can be investigated under the Foreign Corrupt Practices Act.

And what's Prince Bandar saying about all this?

He's furious, and denies receiving improper payments. BAE are indignant too: a spokesman said that it was "committed to meeting the highest ethical standards in its dealings with others, and doesn't tolerate unethical behaviour or attempts to improperly influence decisions". There will be no official inquiry, but BAE has announced it will hold an independent review of its business practices.