KPMG caught up in BAE Systems corruption probe

KPMG is being investigated by UK regulators over 10 years' worth of audits for BAE Systems in connection with a long-running corruption probe into the European defence contractor.
 
The investigation by the Accountancy and Actuarial Discipline Board has led to the departure of Neil Lerner, KPMG's former head of regulatory affairs, from its board, effective as of Monday, to prevent any perception of conflict of interest. He became a director only last year.
 
The Board, which is part of the UK's Financial Reporting Council, said that it intends to investigate audits undertaken by KPMG, one of the world's largest accounting firms, between 1997 and 2007 in relation to commission payments made by the arms manufacturer “through any route to subsidiaries, agents and any connected companies”.
 
It will also look into “any professional advice, consultancy or tax work” that is linked to the “status, operation or disclosability” of three BAE front companies, Red Diamond Trading, Poseidon Trading Investments and Novelmight.
 
According to the findings of a Guardian investigation, the anonymous offshore firms were used to funnel payments around the world. Red Diamond was used to send cash to many countries, it claimed, while Poseidon made specific payments to senior Saudis.
 
Novelmight, meanwhile, was set up to run a secret vault in Switzerland housing copies of confidential agreements to pay foreign politicians in order to win arms contracts.
 
But KPMG said that it did not believe "any act of misconduct" had taken place, adding that it would be "co-operating fully with the AADB to ensure that the matter is brought to a swift conclusion".
 
A BAE spokeswoman likewise said: "The AADB has not indicated to BAE Systems that it has any basis for reaching a view that there is any material inaccuracy in any of the company's accounts."
 
But the investigation threatens to reopen a damaging chapter in BAE's history, coming only eight months after it paid nearly $450m to settle a high-profile bribery case with the US Justice Department and UK Serious Fraud Office in connection with supplying air traffic control systems to Tanzania.
 
The arms manufacturer has always denied committing bribery, however, and attested that the settlement agreements did not include any admission of corrupt payments.