Friday, 5 August 2011


House of COMMONS
International Development Committee
Financial Crime and Development
Tuesday 19 July 2011
Bob Keen, Philip Bramwell and Lord Cairns
Richard Alderman
Rt Hon MR Alan Duncan MP, Rt hon Lord McNally, Joy Hutcheon, Phil Mason and ROSEMARY DAVIES
Evidence heard in Public Questions 1 - 140
Oral Evidence
Taken before the International Development Committee
on Tuesday 19 July 2011
Members present:
Malcolm Bruce (Chair)
Hugh Bayley
Richard Burden
Pauline Latham
Jeremy Lefroy
Chris White
Mr Michael McCann
Anas Sarwar
Examination of Witnesses
Witnesses: Bob Keen, Head of Government Relations, BAE Systems, Philip Bramwell, Group General Counsel, BAE Systems, and Lord Cairns, Chair, Advisory Board on Tanzania.
Q1 Chair : Can I bid you good morning and thank you for coming to give evidence before the Committee? As you know, we are looking into the wider context of financial crimes and the implications of the Bribery Act, but specifically the issue of the Tanzanian contract for air traffic control systems. First of all, could you introduce yourselves for the record?
Bob Keen: Thank you Chairman. My name is Bob Keen, and I am the head of Government Relations for BAE Systems.
Philip Bramwell: My name is Philip Bramwell, and I am the Group General Counsel of BAE Systems.
Lord Cairns: I am Simon Cairns, Lord Cairns. I have taken on the role as the Chairman of the Independent Committee to advise on the distribution of the funds in question.
Q2 Chair : I will start by saying that BAE is a British company that pleaded guilty to an offence in the UK relating to improper record-keeping or improper accounting. Can you explain why this should result in what appear to be reparations of £29.5 million being paid "for the benefit of the people of Tanzania", and indeed what calculation was made to establish the loss the people of Tanzania suffered as a result of what appears to be just a book-keeping offence?
Bob Keen: On the basis of the settlement that we reached with the Serious Fraud Office, the company, in discussion with the SFO, considered it appropriate to make a payment for the benefit of the people of Tanzania, based on the fact that the settlement referred to an offence that related to a contract in Tanzania. The quantum was discussed in negotiations with the Serious Fraud Office; I will ask Mr Bramwell to say a word about the quantum.
Philip Bramwell: The quantum from the company’s perspective bore no relation to the value of the contract in Tanzania, which at the economics of the time was around £24.5 million. Instead it was in relation to: the investigation that had been going on for some time by the SFO; the quantum of the US settlement; and the differential factor of circumstances underpinning the US settlement on the one hand, and the UK settlement on the other. The amount of £30 million was arrived at as a component part of the global settlement of investigations on both sides of the Atlantic.
The second issue, of how that money should be applied, was a separate issue. There was no consideration given to reparation to any one group of people, and particularly not in relation to this contract.
Q3 Chair : Mr Justice Bean said he was "astonished" at the claim made by BAE that they were not corrupt. He said it was "naïve in the extreme" to believe that.
Philip Bramwell: Mr Justice Bean chose to draw an inference from the evidence put before him, which was not invited by the Serious Fraud Office, and certainly with which the company does not agree.
Q4 Chair : That basically is because it was a plea bargain, was it not? You pleaded guilty to a lesser charge because you had an agreement with the SFO.
Philip Bramwell: No, I do not think it was a plea bargain in that sense. It was a settlement that reflected the facts and the evidence available to the Serious Fraud Office and the company.
Q5 Chair : So in response to a simple book-keeping error, British Aerospace, in its magnanimity, decided to give £29.5 million to the people of Tanzania?
Philip Bramwell: No, I do not think I would characterise it that way. I should say that it is not British Aerospace-that company ceased to exist in 2000. I would instead say that BAE Systems, as part of a global settlement with both the SFO and the DOJ, paid an amount of £30 million to the Serious Fraud Office, or was willing to do so. The issue then arose as to whether or not the best use of those funds was to go to the UK Treasury or to be applied elsewhere.
Chair : We will come back to that.
Q6 Hugh Bayley: Was the decision to vire part of the penalty from the form of a fine to a payment to benefit the people of Tanzania first proposed by the Serious Fraud Office or by your company?
Philip Bramwell: We tried hard to recollect in a long and complex negotiation who first suggested that. I think on balance we cannot be certain whether it was proposed by the SFO or initially by the company in the middle of that negotiation. All I can say usefully is that we agreed that that seemed like a good thing to do.
Q7 Hugh Bayley: It is nevertheless clear that the company made the offer as a mitigating factor in order to reduce the size of the fine that was going to be imposed on it.
Philip Bramwell: No, actually that was not the intent.
Q8 Hugh Bayley: With great respect, it is what the Director of the SFO and your company jointly said in the joint sentencing submissions. Perhaps you should remind yourself of what you said at that time.
Philip Bramwell: My recollection, and I was present at the negotiations, was that it was a settlement that we were paying to the SFO. What we could not do was prejudge or in any way fetter the sentencing discretion of the court. We were aware of other settlement discussions that had gone on and we were anxious to make sure that we had an amount of money, which was paid by way of settlement, from which a fine would be assessed. Until such time as the court was able to assess that fine-
Q9 Hugh Bayley: If I may interrupt you, in this document, which your company has put its name to as it is a joint sentencing submission, under the heading "Mitigating Features" it says that the company has agreed to make a voluntary payment "for the benefit of the people of Tanzania". At the time you were in front of a judge in the court you accepted that the payment was intended to be a mitigating factor.
Philip Bramwell: Are you referring to the transcript of the hearing or the joint sentencing submission to the Crown Court?
Hugh Bayley: No, I am talking about the sentencing submission itself.
Philip Bramwell: If that is what was actually said in court, and that is what it says there, plainly, I do not dissociate myself from that. What was said in court subsequently by legal counsel on behalf of the company in mitigation was that the company sought, through making this payment, an opportunity to restore its reputation.
Q10 Hugh Bayley: Could I ask why your company paid Mr Vithlani 31% of the contract price?
Philip Bramwell: That was our contractual obligation having acquired Siemens Plessey radar company in 1998. The overall level of commission was actually reduced.
Q11 Hugh Bayley: But it was reduced to 31%, was it not?
Philip Bramwell: Yes.
Q12 Hugh Bayley: So the 31% figure is accurate is it not? It was reduced from 40% to 31%. What were you buying with the sum of £12 million-can you remind the Committee what the sum was?
Philip Bramwell: Ultimately it was £12 million, yes.
Hugh Bayley: What were you buying with that money?
Philip Bramwell: Complete in-country marketing representation.
Q13 Hugh Bayley: It says in the submission the Director of the SFO made to the court that the contract was for the provision of various services as required by your company, with regard to activities in Tanzania, including, if required, advice for financial and commercial aspects of doing such business. Is it normal to pay a £12 million commission for representation in a foreign country?
Philip Bramwell: I think that would depend on the length of programme and whether or not a company would at that time have a representation. It is certainly not something the company would do today.
Q14 Hugh Bayley: It says here that British Aerospace accepted, as part of their plea, that "there was a high probability that part of the $12.4 million would be used in the negotiation process to favour British Aerospace Defence Systems Limited". What does that phrase mean, "to favour"?
Philip Bramwell: To promote, to lobby and to do all that could be done in the competitive process to secure the contract for British Aerospace as it then was.
Q15 Hugh Bayley: Did the lobbying include payments being made to third parties?
Philip Bramwell: It did not.
Q16 Hugh Bayley: So what did Mr Vithlani use the $12.4 million for?
Philip Bramwell: As we have said in the company’s most recent submission of evidence, Mr Vithlani received no retainer of any description. He alone assumed the risk of representing the company for a long period of time; there were seven years where he was without payment of any commission at all. I do not think the company today would invest that much risk in any one individual.
Q17 Chair : Would you be allowed to, given the Bribery Act?
Philip Bramwell: I do not think the Bribery Act itself would prohibit it, but the company’s own procedures would say that paying that level of commission is not something that we as a company believe we can responsibly do in this day and age.
Q18 Chair : Mr Justice Bean said that it was "naïve in the extreme" to think Mr Vithlani was simply a well-paid lobbyist. He said, "There was a high probability that part of the $12.4 million would be used in the negotiation process to favour British Aerospace Defence Systems Limited". What did that mean, "used in the negotiation process to favour"?
Philip Bramwell: I can only refer you to the SFO’s own case; I know Mr Alderman is appearing before you. The SFO was very clear before the court that it was no part of its case that any corrupt payments had been made in connection with this contract. After five years of investigation that was its factual conclusion.
Q19 Chair : That was the SFO’s case; the judge did not accept that.
Philip Bramwell: The judge chose to draw an inference at the time, which was no part of the SFO’s case and which the company does not accept. There were five years of investigation of this contract and the company provided, as we said in our evidence, many thousands of pages of documents in support, and that was the conclusion of the SFO.
Q20 Hugh Bayley: What evidence did you require Mr Vithlani to provide you with about where this money went?
Philip Bramwell: We required Mr Vithlani to enter into a contract that, amongst other things, had provisions making clear as to what his role was in support of marketing activities of the company and representation over the seven-year period prior to the contract and the 12-year totality of his representation. This had explicit business conduct requirements prohibiting the payment of bribes in any way.
Q21 Hugh Bayley: Is Mr Vithlani being investigated by the Tanzanian authorities?
Philip Bramwell: I am afraid we have no way of knowing that; it is a question you would need to direct to the Tanzanian authorities.
Q22 Hugh Bayley: Finally I wanted to ask what measures British Aerospace has put in place to prevent a repetition of this kind of event.
Philip Bramwell: Thank you for that question. We have summarised, in our first tranche of evidence, the steps that we have taken over the past four years in the most recent refresh of the company’s policies. In 2007 we instituted a new Global Code of Conduct and at that time we terminated all of our existing international marketing adviser arrangements so as to reset them in accordance with new standards and new commercial terms. Shortly thereafter we commissioned Lord Woolf and a committee of experts to produce a report for the company on what steps it could take to ensure that the company achieved its aspiration of becoming publicly recognised as being a leader in business conduct. The committee reported the following year in May 2008 and made 23 recommendations, which the company had a year before it committed itself to implementing in full, irrespective of what they were. The committee also recommended that three years on from the publication of its report the company get an independent assessment of the extent to which the company had succeeded in implementing the 23 recommendations in full. That report was done by a company called the Ethical Leadership Group in Washington DC; it was a detailed and extensive view of the company’s actions in the intervening three years since the Woolf Report recommendations were made. The Ethical Leadership Group’s report, which is published on the company’s website, confirms that the company has indeed implemented in full the 23 recommendations.
Bob Keen: Could I just make one specific additional point? In relation to Lord Woolf’s report, he does make some specific comments about the company’s policies and processes towards the engagement of marketing advisers and he sets out the principles on which those engagements would be met, including some of the red flags, as the company describes it, which would prevent the engagement of advisers in the future.
Q23 Richard Burden: My colleague Hugh Bayley quoted from paragraph 24 of the Note for Opening at the Crown Court where it said that, "There was a high probability that part of the $12.4 million would be used in the negotiation process to favour British Aerospace Defence Systems Limited". However, it then goes on in paragraph 25 to say, "Accordingly, BAE has accepted that there was a high probability that the payments to Vithlani were intended to compensate him for work done in seeking to persuade relevant persons to favour BAEDS in respect of the radar project. It is not now possible to establish precisely what Vithlani did with the money which was paid to him." Does that paragraph just repeat the paragraph before or is it saying something else?
Bob Keen: It does re-emphasise what Mr Bramwell has already said, which is that our belief is that Mr Vithlani was operating in Tanzania seeking, in the way that business development people do in every walk of life, to persuade potential customers to acquire products and services from any particular company. So I think it was re-emphasising what Mr Bramwell has already said.
Q24 Richard Burden: Do you feel that Mr Vithlani was operating in a way that he would in any walk of life?
Bob Keen: What I was suggesting was that, as Mr Bramwell has said, he would be carrying out lobbying and other business development marketing activities in Tanzania.
Q25 Richard Burden: Why is the word "compensate" used? It follows on from the previous paragraph, and says there is a high probability that payments to Mr Vithlani were "intended to compensate him for work done".
Philip Bramwell: Compensation for work done is entitlement to reward under a contract for services performed.
Q26 Richard Burden: So when you get your fee from the company, do you describe that as receiving compensation?
Philip Bramwell: Yes.
Q27 Richard Burden: You do?
Philip Bramwell: So in the reports of a public company there is a directors’ compensation report.
Q28 Hugh Bayley: Could I just follow that up? If this was an entirely legitimate business activity common in any jurisdiction, to use your words, why on earth was this mentioned in the opening submission to the court as something particular and worth noting, and which the judge ought to be aware of? Surely this was in the document to suggest that something improper might have been done with that money.
Philip Bramwell: I think it is an important fact associated with this contract and with the payment to Mr Vithlani, the amount of which was extraordinary by reference to today’s standards. It is therefore only right that it should be brought before the court’s attention.
Hugh Bayley: Thank you. I take that as a yes.
Q29 Pauline Latham: Can you tell us how the figure of £30 million for potential reparations was determined? You said it was not broadly equivalent to the value of the contract to supply the air traffic systems, so would you say the figure of £30 million relates to any estimate of the amount of overcharging in the contract?
Philip Bramwell: No, no.
Q30 Pauline Latham: Where did £30 million come from?
Philip Bramwell: It was a negotiated sum, actually by reference to the $400 million paid to the United States Department of Justice in connection with the settlement as well. This was a wide-ranging negotiation about a global settlement, and the relative facts addressed on either side of the Atlantic, because there were some overlaps in the US and UK investigations, and the SFO was anxious to avoid a double jeopardy, double penalty situation, the company having settled on one set of facts, which included facts being investigated by the Department of Justice and therefore settled in Washington DC. On the UK side, the settlement therefore was covering different sets of facts-the remaining ambit, as it were, of the SFO investigation. So from the company’s perspective, that was how the number was arrived at during the settlement discussions.
Q31 Pauline Latham: Earlier you talked about paying it to the Treasury. You have not paid it to anybody yet: the Treasury, the Government of Tanzania, nobody. Why not?
Philip Bramwell: I have a service to ensure above all things that we take a responsible, measured and open approach to achieving the objective that we agreed with the SFO, which was to make the payment for the benefit of the people of Tanzania. So we have been pursuing that path since the Crown Court passed sentence in relation to the accounting matter and we knew how much was in issue. We deposited the money in a Treasury account, separate and distinct from the company’s working capital, it is accruing interest at LIBID and so there is no diminution in value of the funds.
I went to the Foreign Office in January saying what our broad approach was going to be. We are concerned that we should apply our responsible trading principles to this as we would to any other arrangement. We recognise we do not have international development expertise, so in February I went and saw the Director of the SFO and said that we intend to form an advisory board to bring to the company independent expert advice on international development. The Director agreed that that was an appropriate approach, and since then we have been systematically convening the advisory board, agreeing its terms of reference and proceeding towards our goal.
Q32 Pauline Latham: It is not benefiting any person in Tanzania whatsoever at the moment, whilst it is sitting in a bank account. How much is it costing for this advisory board, and is that coming out of that money?
Philip Bramwell: No, the advisory board are giving their services entirely free of charge. To the extent that they incur travel expenses, for example in going to Tanzania if they intend upon doing so, the company would reimburse that, but none of that would come from the fund; the fund is ringfenced.
Q33 Pauline Latham: Left to your own devices, how long do you think this might take, how many more years?
Philip Bramwell: In January we were hoping it was going to be a matter of a few months. Our priority, as we have said, is to get this right. Plainly we would like to do it as quickly as possible, but most of all, bearing in mind the various competing submissions that we have received unsolicited from interested parties, we recognise we have a difficult course to navigate to satisfy all those parties who have very strong views as to how this money should be spent to deliver a sustainable benefit to the people of Tanzania.
Q34 Pauline Latham: You have just said you had hoped it would be a matter of months; how many years do you anticipate it will be?
Philip Bramwell: I really cannot say. We have made an offer on the advice of Lord Cairns in recent days, to pay away an initial tranche of money. We have made that offer to DFID and we have yet to receive a response.
Q35 Pauline Latham: So it could be years?
Philip Bramwell: It could be weeks before the first tranche is paid out. What the company will do in paying away its shareholders’ money, I should hasten to add-
Q36 Chair : Hang on, this was an agreement with the SFO in front of the court. Do people not find it extraordinary that you still consider this shareholders’ money? This is money you paid away for a settlement, but you still regard it as shareholders’ money.
Philip Bramwell: The company has no money other than its shareholders’ money, Chairman.
Q37 Chair : You do not have any money if you have paid it away. It is no longer your money; it does not belong to the shareholders either.
Philip Bramwell: It is in a ring-fenced account, but its origins are from shareholders and it is to the shareholders and the general public that we must account responsibly for its expenditure.
Q38 Chair : Do you really find that a credible position for your company to take? I do not think many other people would.
Philip Bramwell: I would have thought that this Committee would recognise that above all things the company, given the context of this settlement, must ensure that it behaves responsibly and openly in every manner with regard to the discharge of these funds.
Pauline Latham: It is not very open.
Chair: This is an agreement that the company has entered into freely and signed up to.
Q39 Chris White: Are you saying there is an opportunity to take back that money? So if the shareholders wish to abandon the £30 million-
Philip Bramwell: No, the company has entered into a binding agreement with the SFO.
Q40 Chris White: So you may wish to correct your previous response; it has no influence from shareholders.
Philip Bramwell: I did not say the company had influence from shareholders, I said the company had a duty to shareholders to act responsibly with regard to the application of their funds.
Pauline Latham: It is not their funds now.
Q41 Chris White: I would suggest, and I am sure other members of the Committee would also suggest, that it is no longer their funds.
Philip Bramwell: But the origin of the money is shareholders; that is the only place public companies get their money.
Q42 Chair : That is true of anything you pay out. If you go out and buy equipment to manufacture your products and you pay suppliers; once you have paid it to the suppliers it is no longer your shareholders’ money.
Philip Bramwell: We are answerable to the shareholders for, for example, the manner in which we buy that equipment, and to ensure that appropriate processes are applied.
Q43 Chris White: To boil it down, you have been fined and presumably there is no way you could take back that fine.
Philip Bramwell: This is what we were anxious to clarify in our evidence to the Committee. Had the obligation to make a payment for the benefit of the people of Tanzania been a matter of the court’s decision and direction that would be a different matter, but it is actually the subject of an agreement. So the court can say, "We impose a fine of £500,000 payable within 30 days. Thank you very much." Payment made. The agreement between the SFO and the company, as we said in our evidence, contains no such temporal limitation, no delineations as to who the beneficiary should be; it merely has an object. In achieving that objective the company is concerned only to ensure that it proceeds in a responsible manner, applying its responsible trading principles, as I know members of this Committee would want it to do.
Chair : I think members of this Committee would have a different view as to how it should be done.
Q44 Pauline Latham: You said a few minutes ago you had been in contact with DFID and had not had a reply.
Bob Keen: I think what Mr Bramwell was talking about was the exchange of correspondence between the Secretary of State for International Development and the company’s Chairman. The Secretary of State wrote to the Chairman on 3 July and the Chairman responded last Friday.
Q45 Pauline Latham: Yes, so you would not really have expected by Tuesday to have received a considered response from DFID.