US-centred but UK-headquartered arms globocorp BAE Systems may soon face serious restrictions on its operations imposed by the US government.
The Financial Times reports today that the BAE Systems plc, the London-based umbrella corporation for BAE's worldwide operations, is "braced for the imposition of strict curbs" by the US State Department as a year-long probe by State officials draws to a close.
The State Department is in charge of implementing the USA's strict controls on the export of advanced military technology, and it is responsible for ensuring that firms involved in illegal practices should not be licenced to make such exports.
Last year, following a deal with Justice Department investigators in which BAE admitted conspiracy to violate US arms-export laws and paid a $400m fine, the State Department placed certain new BAE Systems plc licences on hold and began a review of the firm's status.
Many products made, sold or assembled by BAE outside the United States nonetheless contain substantial amounts of controlled US technology - indeed almost all advanced Western-made equipment (and even some modern Russian stuff) contains kit subject to America's International Traffic in Arms Regulations (ITAR). Examples include the Eurofighter, which cannot be sold to export customers without US clearance, and the Swedish Gripen fighters which BAE was involved in marketing to the Czech republic and Hungary.
US District of Columbia court documents supplied to the Register following the Justice investigation last year stated that:
With respect to the lease of Gripen fighter jets to the Czech Republic and Hungary, and sales of other defense materials to other countries [our emphasis] BAE Systems caused the filing, by the applicant, of false applications for export licenses of US Munitions List defense materials and the making of false statements to the Directorate of Defense Trade Controls...
Previously, officials at the US Defense Department had expressed disquiet over BAE's involvement in the F-35 Joint Strike Fighter stealh-warplane programme while also manufacturing combat aircraft outside the US. In a classified report which later broke in the news media, authors at the Defense Inspector-General's department wrote:
The Government needs to be particularly vigilant of attempts by foreign-owned or -controlled companies that could benefit by acquiring critical JSF technologies. The foreign-owned parent of BAE Systems has numerous interests in aircraft development...
BAE Systems manufactures both [Eurofighter] Typhoon and the JSF aircraft components at its Samlesbury site in the United Kingdom. With contractors such as BAE Systems plc, and its subsidiaries working on competing aircraft, the US Government needs to implement effective management accountability and security controls to safeguard sensitive JSF technologies...
More specifically, DoD advanced aviation and weapons technology may not be adequately protected from unauthorized access at facilities and in computers at BAE Systems.
The report caused a furore when it was published. BAE told the Reg at the time:
The DoD IG explicitly found no instances of unauthorized access to classified or export control information on the JSF program. We strongly disagree with the IG's suggestion that nonetheless, such information may have been compromised in some unidentified way by unauthorized access at BAE Systems. There is no basis whatsoever for that conclusion.
The Defense IG's office was later forced to publicly disavow the comments; but nonetheless the report served to indicate the viewpoint of some American security officials regarding BAE's unique position as the largest foreign-controlled defence contractor in the USA.
Following the ITAR conspiracy admissions by BAE last year, it now appears that the State Department may "debar" BAE Systems plc from transferring US technology to other entities (such as customers). Depending on how comprehensive this debarment is, it could exert an almost crippling effect on the company's non-US business: but the State officials have many less devastating options open to them.
In imposing the holds on licences at the beginning of the review, systems and products at war right now as well as future equipment vital to the US (for instance the JSF) were safeguarded.
“Dialogue continues and is progressing with the Department of State in order to address its concerns regarding matters arising from the [Justice] settlement," the firm tells the Financial Times.
No matter what degree of debarment is suffered by BAE Systems plc, this will not affect BAE Inc, the globocorp's US operation, which will be able to continue its lucrative work making equipment mostly for the US government. With BAE Inc unaffected, BAE Systems plc will probably be OK in the long run: the originally British company has effectively moved across the Atlantic in recent decades. Using funds garnered mainly from UK government deals BAE has made huge acquisitions in the States even as it has fired workers and closed factories in Britain.
Today, many more BAE employees are Americans working for BAE Systems Inc than Brits employed by BAE Systems plc: and more than half the group's worldwide profits come from the US company. ®