The man charged by the US Government with investigating BAE Systems, Europe’s largest defence contractor, has won hundreds of millions of dollars from companies convicted of bribing foreign officials.

Mark Mendelsohn, deputy chief of the US Justice Department (DoJ) fraud division, has launched a formal investigation into BAE amid allegations that the company funnelled money to Saudi Arabian officials as part of the £43 billion al-Yamamah arms deal. BAE denies wrongdoing.

The appointment of a chief investigator came as it emerged that John Kerry, the former Democratic presidential candidate, had pushed for an inquiry. Mr Kerry, a member of the Senate Foreign Relations Committee, is understood to have written to Alberto Gonzales, the US Attorney-General, last week. He expressed concern that BAE may have “violated US antibribery laws in relation to its international arms deals”.

The DoJ refuses to confirm whether it is investigating BAE, but the company has said that a formal inquiry has begun.

Background

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Mr Mendelsohn is responsible for policing the Foreign Corrupt Practices Act (FCPA), which prevents American companies or companies operating in US jurisdictions from bribing, or offering other inducements to, foreign officials.

Penalties open to the DoJ in FCPA cases include criminal fines, civil fines and requiring “disgorgement” of profits from corrupt enterprise. The DoJ can also act against company directors and can block future business from the US Government.

The latter punishment would be of greatest concern to BAE, should it be found guilty. The company is growing rapidly in the United States and now gets 43 per cent of its business there.

The DoJ has won a number of high-profile FCPA cases in recent years, including a settlement against Baker Hughes, an oil engineering company, in April. Baker Hughes was fined $11 million for criminal breach of the FCPA in Kazakhstan, plus a $10 million civil fine and loss of $24 million in profits. The company admitted paying $4.1 million to an intermediary.

The British and American subsidiaries of ABB, the Swiss engineer, were fined $5.25 million each for bribing Nigerian officials.

Despite the DoJ inquiry, the City stayed bullish about BAE yesterday. Credit Suisse said that negative sentiment about it was “overdone”. The shares closed up 2½p at 410½p, after an 8 per cent fall on Tuesday.

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