BAE Systems Bribery Scandal Spreading?

(MoneyWatch)  Unfortunately there has always been a history of bribery and fraud in defense and much of other government contracting. That is why countries like the United States and the U.K. have complicated acquisition rules. Both of them work very hard to avoid this in their awards and with their contractors trying to get foriegn business. Not all countries are as ethical as these in their practices. Now BAE Systems is being investigated by Britain for bribes to Saudi officials in the award of a large fighter contract as well as with other European and African countries.

Of further concern for the company the United States Department of Justice is also gathering information on the investigations. In the past the punishments for these kind of cases have been fines or at the worst being banned from doing business. Obviously if BAE Systems receives this kind of punishment from the U.S. it will seriously affect its business as it now relies on the United States military for an increasing amount of its work.

Despite many criticisms of the U.S. for not treating waste and fraud seriously there have been several major cases similar to the one BAE is facing. In the last two years the U.S. has made Siemens and KBR pay large fines related to bribes paid to foriegn countries for contracts.

In India several major contract initiatives have had to be put on hold or re-done after evidence of Indian officials receiving bribes. These have included naval and helicopter contracts. A major ammunition contract was also tainted by these types of allegations. In India they do face a conundrum as they still want to award these contracts and the investigations delay them making the military wait for much needed equipment.

Supposedly at one point BAE was offered the chance to settle the case with large fines similar to the Siemens settlement and the company refused. The company was worried that admitting guilt would open them up to lawsuits from investors costing them even millions more. By not settling the company may face bans on selling to the U.K. and U.S. governments as well as having to fire some personnel.

Unfortunately for the Government due to the fact that they often rely on only one supplier for major equipment it is hard to ban a company. In the early part of this decade Boeing was banned by the U.S. Air Force due to its ethical problems over the tanker and some other contracts. Obviously the Air Force needed Boeing to work on satellite and aircraft programs so the ban lasted a token few months. There really was nothing the Air Force could do as it needed Boeing's support. The same is a problem faced with BAE. They cannot easily be replaced on major contracts and starting over on procurements would take years.

There has to be these sort of investigations and punishment because without them the whole integrity of the procurement system would come into question. In the past many companies received all types of defense contracts by bribing military, government and contracting officials. This hurts the government as they waste money, it may hurt the soldier as they get worse equipment and it hurts the employees as they may end up without a job. As long as the government has billions to spend on things this kind of crime will continue to occur.