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On Monday, BAE Systems PLC (BAES) pleaded guilty in U.S. District Court in the District of Columbia and has been ordered to pay a $400 million criminal fine, one of the largest criminal fines in the history of the Justice Department's ongoing effort to combat overseas corruption in international business and enforce U.S. export control laws. Specifically, BAE Systems pleaded guilty to conspiring: (1) to defraud the United States by impairing and impeding its lawful functions; (2) to make false statements about its Foreign Corrupt Practices Act (FCPA) compliance program; and (3) to violate the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR).

BAES is a multinational defense contractor with headquarters in the United Kingdom and with a U.S. subsidiary - BAE Systems Inc. - headquartered in Rockville, Maryland. None of the criminal conduct described in the plea involved the actions of BAE Systems Inc.

According to court documents, from approximately 2000 to 2002, BAES represented to various U.S. government agencies, including the Departments of Defense and Justice, that it would create and implement policies and procedures to ensure its compliance with the anti-bribery provisions of the FCPA, as well as similar, foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-bribery Convention. According to court documents, BAES knowingly and willfully failed to create mechanisms to ensure compliance with these legal prohibitions on foreign bribery. According to court documents, the gain to BAES from the various false statements and failures to make required disclosures to the U.S. government was more than $200 million.

The FCPA makes it illegal for certain businesses and individuals, or anyone taking action within U.S. territorial jurisdiction, corruptly to make payments to foreign government officials for the purpose of obtaining or retaining business. In addition, the FCPA prohibits corruptly making payments to a third party, while knowing that all or a portion of the payments will go directly or indirectly to a foreign government official for the purpose of obtaining or retaining business. Despite BAES's representations to the U.S. government to the contrary, BAES knowingly and willfully failed to create sufficient compliance mechanisms to prevent and detect violations of the anti-bribery provisions of the FCPA.

According to court documents, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subjected to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as "marketing advisors" to assist in securing sales of defense items without scrutinizing those relationships. In fact, BAES took steps to conceal from the U.S. government and others its relationships with some of these advisors and its undisclosed payments to them.

For example, after May 2001, BAES contracted with and paid certain advisors through various offshore shell companies beneficially owned by BAES. BAES also encouraged certain advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES admitted that it established one company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships, including who the advisor was and how much it was paid; to create obstacles for investigating authorities to penetrate the arrangements; to circumvent laws in countries that did not allow such relationships; and to assist advisors in avoiding tax liability for payments from BAES.

Through this BVI entity, from May 2001 onward, BAES made payments totaling more than £135 million plus more than $14 million, even though in certain situations BAES was aware there was a high probability that part of the payments would be used to ensure that BAES was favored in foreign government decisions regarding the purchase of defense articles. According to court documents, in many instances, BAES possessed no adequate evidence that its advisors performed any legitimate activities in justification of the substantial payments.

In addition, according to court documents, BAES began serving as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. According to court documents, the "support services" that BAES provided according to the formal understanding resulted, in part, in BAES providing substantial benefits to a foreign public official of KSA, who was in a position of influence regarding sales of fighter jets, other defense materials and related support services. BAES admitted it undertook no adequate review or verification of benefits provided to the KSA official, including no adequate review or verification of more than $5 million in invoices submitted by a BAES employee from May 2001 to early 2002 to determine whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance procedures. Moreover, in connection with these same defense deals, BAES agreed to transfer more than £10 million plus more than $9 million to a bank account in Switzerland controlled by an intermediary, being aware that there was a high probability that the intermediary would transfer part of these payments to the same KSA official.

Also as part of its guilty plea, BAES admitted to making and causing to be made certain false, inaccurate and incomplete statements, and failing to make required disclosures to the U.S. government in connection with the administration of certain regulatory functions, including statements and disclosures related to applications for arms export licenses, as required by the AECA and ITAR. The AECA and ITAR prohibit the export of defense-related materials to a foreign national or a foreign nation without the required U.S. government license, and the Department of State has the power to approve or deny such applications. As part of the licensing scheme, applicants are required to identify associated commissions to the State Department - whether they are legitimate commissions or bribes - paid to anyone who helps secure the sales of defense materials.

BAES admitted that, as part of the conspiracy, it knowingly and willfully failed to identify commissions paid to third parties for assistance in soliciting, promoting or otherwise securing sales of defense items in violation of the AECA and ITAR. BAES failed to identify the commission payments paid through the BVI entity described above, in order to keep the fact and scope of its external advisors from public scrutiny. In one specific instance, BAES caused the filing of false applications for export licenses for Gripen fighter jets to the Czech Republic and Hungary by failing to tell the export license applicant or the State Department of £19 million BAES paid to an intermediary with the high probability that it would be used to influence that tender process to favor BAES.

As part of its guilty plea, BAES has agreed to maintain a compliance program that is designed to detect and deter violations of the FCPA, other foreign bribery laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws. Under the terms of the plea agreement, BAES has agreed to retain an independent compliance monitor for three years to assess BAES's compliance program and to make a series of reports to the company and the Justice Department.

The criminal case was investigated by FBI special agents who are part of the Washington Field Office's dedicated FCPA squad and special agents of the U.S. Immigration and Customs Enforcement's Counter Proliferation Unit. Investigative assistance also was provided by the Defense Criminal Investigative Services and the General Services Administration, Office of Inspector General. The Criminal Division's Office of International Affairs provided substantial assistance in support of the investigation.

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FBI Director Robert S. Mueller, III, has named Michael Morehart special agent in charge of the FBI's Richmond Division. Morehart most recently served as deputy assistant director of the Security Division at FBI Headquarters.

Morehart entered on duty as a special agent with the FBI in October 1986. Upon completion of training at the FBI Academy in Quantico, Virginia, he was assigned to the Columbia Division. He served there until February 1992, when he was transferred to the Houston Division. He was promoted to supervisor in the Inspection Division's Audit Unit at FBI Headquarters in September 1995. In February 1998, he returned to the field, where he served as the supervisor of a white collar crime squad in the Memphis Division.

In February 2001, Morehart was promoted to assistant special agent in charge of the El Paso Division. While in El Paso, he was responsible for oversight of the counterterrorism, counterintelligence, violent crime, public corruption, civil rights, and white collar crime programs. In March 2004, Morehart was promoted to chief of the Terrorist Financing Operations Section in the Counterterrorism Division at FBI Headquarters.

Morehart was named special agent in charge of the Administrative Division for the FBI's Washington Field Office in January 2007. In this role, he had direct oversight of the budget, personnel, hiring, facilities management, and the protective detail for the FBI Director and the attorney general. In 2008, he returned to FBI Headquarters as deputy assistant director of the FBI's Security Division.

Born in Wurzburg, West Germany, Morehart was raised in Petersburg, Virginia, where he received his early education. In 1980, he graduated cum laude with an Associate Degree in business administration from John Tyler Community College in Chester, Virginia. He earned a Bachelor of Science degree in business administration from Virginia Commonwealth University in Richmond in 1983. In 1986, he became a certified public accountant. He served as a senior auditor for the Commonwealth of Virginia, Office of the Auditor of Public Accounts, from May 1984 through October 1986.

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In the October 8, 2009 issue of FEDagent, we reported on the oral argument in Maryland v. Shatzer. We now report that the U.S. Supreme Court has issued an opinion on the question of whether a break in questioning prohibits police from further questioning a person in custody. The Court determined that it did not. Specifically, the Court held that if the suspect has been out of custody for more than two weeks before the contested interrogation, "the court is spared the fact-intensive inquiry into whether he ever, anywhere, asserted his Miranda right to counsel." Justice Scalia authored the opinion, with six Justices joining him in full, while Justice Thomas concurred in part and concurred in the judgment and Justice Stevens concurred in the judgment.

In August 2003 the defendant, Michael Shatzer, who was in prison on a child sexual abuse conviction, was questioned by police about unrelated allegations that he sexually abused his 3-year-old son. Shatzer initially waived his Miranda rights, but after the officer explained what he wanted to discuss, Shatzer invoked his Miranda rights and refused to speak with the police officer and instead asked for an attorney; the officer terminated his interview of Shatzer.

In 2006, when Shatzer's son was able to make more specific allegations against Shatzer three years later, a different police officer questioned Shatzer, who was still imprisoned, on the same matter involving his then 3-year old son. After being re-advised of his Miranda rights, Shatzer waived his Miranda rights, made incriminating statements, then requested an attorney.

At the lower court, Shatzer filed a motion to suppress the two statements taken by the police in the 2006 interrogation on the basis that his prior request for counsel in the 2003 interrogation prevented further interrogation without the presence of an attorney, under the protections afforded by Edwards v. Arizona, 451 U.S. 477 (1981). Under the Edwards rule, if a criminal suspect requests counsel, that suspect cannot be interrogated unless or until he obtains counsel or independently approaches authorities to confess or make incriminating statements. The lower court, and then the Court of Appeals, declined to recognize a break in custody exception to Edwards regarding an inmate who was subject to uninterrupted, continuous incarceration between the first invocation of the right to counsel and a second interrogation when the interrogation related to the same investigation. The Supreme Court granted certiorari.

Shatzer argued that a lapse in time should not terminate the Edwards' presumption, because a non-arbitrary break in time would be impossible to identify. The State of Maryland argued that a break in custody or the passage of a fixed period of time could serve to make the Edwards prohibition inapplicable.

The Court determined that the Edwards prohibition against interrogation of a suspect who has invoked the Fifth Amendment right to counsel is inapplicable after the suspect asks for counsel, there is a break in custody or a substantial lapse in time (more than two weeks) before commencing re-interrogation pursuant to Miranda. The Court found that Shatzer's release back into the prison population constituted a break in Miranda custody. The Court explained that when previously incarcerated persons are released back into the general population, they return to their accustomed surroundings and daily routine-they regain the degree of control they had over their lives before the attempted interrogation. Further, the Court found that the period of 14 days "provides plenty of time for the suspect to get reacclimated to his normal life, to consult with friends and counsel, and to shake off any residual coercive effects of his prior custody." Thus, the "inherently compelling pressures" of custodial interrogation ended when Shatzer returned to his normal life.

Therefore, because Shatzer experienced a break in Miranda custody lasting more than two weeks between the first and second attempts at interrogation, Edwards does not prohibit re-interrogation without the presence of an attorney or the suppression of his March 2006 statements. The Court reversed the lower court's judgment and remanded it for further proceedings.

The case is Maryland v. Shatzer, Supreme Court of the United States, No. 08-680.