BAE Investigation – ends not with a bang but a whimper

A lot has been written about the recent settlements by BAE with the SFO and the DoJ. What is clear from the press (and the share price), is there is a general perception that BAE did well – we would suggest more, they did extraordinarily well – specifically:

• No individual prosecutions in the UK and the US (to be confirmed).  Let’s put this in the context of some of the recent successful prosecutions in the US where the headline allegations in terms of amounts and importance seem minor in comparison (e.g. the Greens and Bourke). Or look at Siemens where the old board is being prosecuted both by the company and by the Munich prosecutor (with 2 convictions already obtained).
• To state the obvious, the settlements provide clear evidence that the DoJ had the real leverage  – see quantum as well as the scope and tone of the two settlements (quantum ratio of 90 (DoJ) : 10 (SFO) – cf. Siemens where the split was 60 (DoJ) : 40 (Munich Prosecutor)
• Round numbers – the plea agreement and statement of facts are not yet public.  But it will be interesting to see the underlying logic behind the $400 million headline fine. Typically these fines are based on the ‘gain’ resulting from the illicit action(s). This explains why settlements tend not to be round numbers. Also in the context of the volume of business BAE obtained further to the alleged bribes – this seems pretty modest.  According to the Guardian newspaper, Al-Yamanah over 20 years brought BAE revenue of £43 billion with commissions of £600 million.  More here. 
• No admission of bribery or corruption, so no debarrment from public contracts under the EU regulations.  The SFO prosecution was based only on a s221 Companies Act 1985 offence of failing to keep reasonably accurate accounting records (in common with their previous prosecution ‘successes’).  
• We note that the DoJ and SFO have settled – will the SEC enter into the fray? Seems unlikely but we note that BAE is listed on the NYSE.
• No monitorship? There are rumours that a monitor will be imposed on the company –  given the severity of the allegations and the extent of BAE’s dealings with Governments around the world, we would be surprised if one were not.

Presumably the relative modest settlement and the economic impact on the share price, also undermines the economics of potential US securities class actions. Public contrition apart, Dick Olver must have been very pleased.