U.S. Investigates Saudi Deal for British Arms

The United States Justice Department has started a formal corruption investigation into business conducted by BAE Systems, Europe’s biggest weapons maker and a supplier to the Pentagon, the company announced Tuesday.

BAE said it had learned from the Justice Department that the investigation was under way “relating to the company’s compliance with anticorruption laws, including the company’s business concerning the Kingdom of Saudi Arabia.”

The announcement comes six months after Britain’s Serious Fraud Office abruptly halted a fraud inquiry into the so-called Yamamah weapons deal of 1985, under which BAE agreed to supply Tornado jets and other military equipment to Saudi Arabia. Continuing that inquiry would have threatened thousands of British jobs and affected diplomatic and intelligence ties with Saudi Arabia, a principal ally, the British government argued in December.

But since then, the British news media have reported new allegations relating to secret payments as part of the weapons deal, and some lawmakers have called for a reopening of the investigation.

The new inquiry by the United States government into the practices of a major British military contractor could put the new government of Gordon Brown, who is expected to succeed Tony Blair as British prime minister on Wednesday, in an awkward position.

The Department of Justice investigation “creates uncertainty and with uncertainty comes a poorer share performance,” said Colin Campbell, an analyst at SG Securities in London.

BAE stock fell 8 percent, to £4.08 a share, on Tuesday.

BAE Systems had repeatedly denied any wrongdoing in the past and earlier this month set up an independent commission to examine its current business practices in an effort to rebuild trust among customers, investors and employees. A spokesman for BAE declined Tuesday to comment further on the American investigation.

The investigation comes at a time when BAE Systems is trying to expand in America, where its customers include the United States Army and Navy.

BAE Systems generated about 44 percent of its 2006 revenue in the United States, and is among the largest foreign suppliers to the Pentagon.

In May, BAE Systems agreed to buy Armor Holdings, the largest maker of armor for Humvees, for $4.14 billion to supply the Pentagon with armored vehicles used in Iraq and Afghanistan; the purchase is subject to Washington’s approval.

The British Broadcasting Corporation and The Guardian newspaper earlier this month reported that BAE paid more than $2 billion into bank accounts in Washington operated by Prince Bandar bin Sultan, who for many years was the Saudi ambassador to the United States, as part of an arms deal in the 1980s.

Prince Bandar denied the reports and said earlier that the allegations were not true and “grotesque in their absurdity.” He and BAE have argued that it was a government-to-government agreement and that none of the bank accounts belonged to him or to BAE.

source:www.nytimes.com