Report: BAE failed to follow ethical standards

LONDON, England (AP) -- A report commissioned by BAE Systems PLC found Tuesday that the arms company failed to pay sufficient attention to ethical standards, leaving itself open to misconduct accusations of that have tarnished its reputation.

The review, which began after accusations that BAE made multimillion pound payments to help win a deal from Saudi Arabia, recommended that the company implement tougher anti-bribery measures.

"Critically, both the chairman and chief executive, in discussions with us, acknowledged that the company did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage," the report said after a one-year review of the company's operations.

The report was commissioned by the BAE board in June as a review of its own ethical standards and procedures in a bid to restore faith in the company. Presided over by Britain's former most senior judge, Lord Woolf, the report did not investigate allegations relating to past conduct of the company.

Campaign groups successfully brought a legal challenge to the Serious Fraud Office's decision to end an inquiry into possible corruption in BAE's multibillion pound deals with Saudi Arabia.

Britain's High Court ruled last month that the SFO acted illegally when it abandoned the inquiry, but has allowed the fraud office to make an appeal to the House of Lords to decide whether the judiciary has the right to intervene and force the government to reopen the sensitive inquiry.

However, it did recommend that BAE publish and implement a global code of ethical business conduct and carry out regular, independent audits of that conduct.

The report said that BAE's insufficient attention to ethical standards was combined with an "acceptance of conditions which constrained its ability to explain the full circumstances of its activities."

"These contributed to the widely held perceptions that it was involved in inappropriate behavior," the report said. "They recognize that, justly or otherwise, these perceptions have damaged the company's reputation."

Woolf said that while BAE Systems had made "huge improvements," it still needed to do more.

"The company had, like most companies in the past, just focused on the law," he told BBC Radio. "There were no ethical standards embedded in the company."

The High Court sharply criticized the SFO, the British government and the Saudi royal family when it ruled that the agency's 2006 decision to halt its inquiry was unlawful, saying it represented an "abject surrender" to pressure from a foreign government.

The SFO backed claims by Prime Minister Tony Blair that national security would have been undermined by the inquiry, but denied coming under any political pressure to drop it. Blair said there was a strong risk that the investigation would provoke the Saudi government to stop cooperating in combating terrorism.

The High Court judges said the SFO and the government had bowed to threats made by Saudi Prince Bandar bin Sultan, the former ambassador to the United States and now head of Saudi Arabia's National Security Council, that Saudi Arabia would drop a multibillion pound contract for Typhoon Eurofighter jets.

A 20 billion pound deal for 72 Typhoons was signed in September between Saudi Arabia and London-based BAE Systems.

An investigation by the US Department of Justice is ongoing.

BAE, which has maintained that it acted lawfully, said that it was committed to implementing the Woolf report's recommendations and that it would make a further statement in July. E-mail to a friend

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