*BAE Systems admits to ethical failings as investigations into corruption continue

· Claims ‘cast doubt’ over company, says report 
· Lord Woolf sets out ‘road map’ to bolster standards

•  and 
• , 
• Wednesday May 7 2008

BAE Systems, the arms giant accused of making corrupt payments worldwide to win lucrative contracts, has admitted it acted unethically in the past.

The admissions were made by BAE executives to Lord Woolf, the former lord chief justice, who was hired by the company to review its conduct. BAE promised to improve its behaviour when seeking to win future contracts.

Britain’s biggest defence company had been forced to hire Woolf last summer after it suffered bad publicity over corruption allegations. There had been an outcry after Tony Blair’s government halted a Serious Fraud Office investigation into allegations of huge bribes in a Saudi arms deal. That deal is being investigated by the US Department of Justice and is the subject of a House of Lords appeal.

BAE is also being investigated by the Serious Fraud Office over claims it paid bribes to secure contracts in a number of other countries, including Tanzania and the Czech Republic.

Woolf published his report yesterday, in which he said the allegations had directly damaged BAE’s reputation, and had “cast a shadow of suspicion and doubt” over the company.

He added that BAE was “overly secretive, defensive, unwilling to explain its actions and, at best, lukewarm to the challenge of dealing with the major reputational issues affecting the company and industry”.

He said that during his review Mike Turner, BAE’s outgoing chief executive, and Dick Olver, the company’s chairman, had conceded BAE “did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage”.

Woolf set out 23 recommendations, which he said formed a “road-map” for BAE to “ensure higher standards of ethical business conduct”.

In response, Turner said: “We will carefully study the report’s contents to understand the detail of its conclusions and remain committed to acting on all its recommendations”, while Olver said Woolf’s report was “an important step towards BAE’s objective of achieving benchmark standards of governance in the conduct of its day-to-day business”.

However, Woolf has been accused of producing a “whitewash” for a company desperate to improve its public image – a claim he rejected yesterday. When he agreed to do the job, he accepted BAE’s terms that he would not investigate the details of allegedly corrupt deals of the past, nor BAE’s system of making secret payments to middlemen through offshore accounts.

Woolf said: “If they were looking for somebody to go and look through these old allegations, I wasn’t the person for the job. I’m not a policeman, I have not got the skills to fill that. And what I was interested in was helping BAE … to set standards in global companies which meet the highest ethical standards, because that’s important for the reputation of this company.”

He gave a clean bill of health to the “Salam project”, BAE’s latest multibillion-pound deal to sell Typhoon combat aircraft to the Saudis, as he deemed it to be current. Woolf said “security obligations” prevented access to some relevant documentation on the contract but, on the basis of the information given by BAE, the contract “should not in itself create any risks of unethical conduct by the company”.

BAE had told Woolf it had not employed any middlemen to land the contract.

In all, BAE paid £1.7m for the report, which included payments to Woolf and three committee members and various administration costs. Woolf’s recommendations, which were criticised for being light on detail, include the creation of a more proactive ethics board, the nomination of an executive to champion ethics, and greater monitoring of gifts and hospitality.

He suggested the appointment of middlemen – who are frequently used to funnel bribes to foreign politicians and officials – should be subjected to greater scrutiny, so that there are “demonstrably no risks of actual or apparent corruption of any kind”.

Woolf also urged ministers to bring into force much tougher legislation to outlaw bribery, as Britain has been repeatedly criticised for failing to prosecute any company for making corrupt payments overseas.

http://www.guardian.co.uk/uk/2008/may/07/bae.armstrade

Comment added by John Donovan:

*BP and Shell have both been named as being implicated in corrupt practices associated with BAE.