Court Cases, Manufacturing, MENA (Middle East & North Africa) - Written by on Tuesday, December 21, 2010 5:37 - 0 Comments

BAe Sentence: Our analysis

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BAe fined

This morning BAe was fined at Southwark Crown Court. We attended to hear the sentence handed down.

The Judge said he was not bound by any Plea Agreement and that any deal was conditional on the acceptance of the Judge presiding.  He noted that once Criminal Courts are involved control on the ultimate outcome is removed from the parties.  We made this point in our post yesterday when we spoke of crossing the criminal rubicon.

The outcome

BAe was fined £500,000 and ordered to pay £250,000 costs following its guilty plea in November to an offence under the now repealed Section 221 of the Companies Act 1985 (relating to failure to keep adequate books and records).

The impact of the £30 million SFO/BAe deal & moral pressure placed on the court

The Judge noted moral pressure placed upon the Court to ensure the fine it ordered was limited.

Importantly it was disclosed that under the deal between BAe and the SFO BAe agreed to pay reparations to the people of Tanzania in the sum of £30 million less any financial orders made by the Court.

The Judge noted that a larger fine would have meant depriving the people of Tanzania of the same amount.

Taking the view that the Tanzanian public had overpaid for the radar system (on the basis that they could have acquired one for much less had a payment of nearly US$13 million dollars not been paid by BAe to a third party to obtain the contract) the Judge plainly tempered the fine.

The fine will therefore be deducted from the £30 million BAe has already agreed to pay in reparations to the people of Tanzania under the deal with the SFO.

The net net

The outcome reflects the Plea Agreement that BAe reached with the SFO as part of its settlement with both the SFO and the US DOJ.

The SFO will be disappointed with the receipt of further judicial criticism but it and BAe will be pleased to have put this episode behind them.

As Richard Alderman, Director of the SFO said: “I am delighted that the Judge stressed the seriousness of BAE’s actions and that he recognised that the true victims were the people of Tanzania”.

Judicial criticism

While the Plea Agreement was essentially approved by the Mr. Justice Bean this was not before some judicial criticism.

The Judge said that the Plea Agreement had been loosely and hastily drafted (referring to terms in the agreement which were undefined) and noted that at the heart of the agreement is a deal that there will be no further investigations or prosecution for any of BAe’s conduct before February 2010.

The Judge commented that he was surprised to find such a blanket “indemnity” (as they are called in the UK) in the Plea Agreement noting that the US equivalent agreement was far narrower.

In summary

The sentence today marks the closure of a lengthy and controversial chapter for BAe and the SFO.  Notwithstanding the judicial criticism and the repeated declarations by the Courts that Plea Agreements do not bind them, in this case, Innospec, Mabey & Johnson and in Dougall, it is noteworthy that to all intents and purposes the agreement reached between the SFO and the defendants is ultimately approved by the Courts (although there have been a few hiccups along the way).

The UK position is nuanced and there is a large amount of legal wrangling to get the correct result but the outcome in this case is good news for business.  It demonstrates that deals can be reached with more certainty than some legal commentary would suggest.

We have always been of this view.  They are just a little complicated to put together!

Civil vs. criminal

While there can be no total certainty for corporates entering into a Plea Agreement in a criminal prosecution context the percentage chance of the agreed outcome at present, based on cases to date, is running at 100%!

A civil settlement offers potentially greater certainty since the court is not being asked to exercise its sentencing power but merely, in effect, to seal a consent order between the parties.  For a Court to go beyond this remit exercising its inherent discretion and jurisdiction would be truly exceptional.

All in all a good day for the SFO…

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