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'David vs. Goliath': City Takes On BAE Systems

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'David vs. Goliath': City Takes On BAE Systems


'David vs. Goliath': City Takes On BAE Systems

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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It's got the elements of a great thriller. At the center is an arms deal, British fighter jets for sale, a Saudi prince, payments in the billions to a long-time ambassador to the United States, and a small leafy suburb of Detroit. NPR's JJ Sutherland explains how they all come together.

JJ SUTHERLAND: If you're ever looking for the perfect model of American suburbia, make your way to Harper Woods, Michigan. The streets are lined with trees, the houses are small, the yard's big and just about everyone has a dog. They're big into Little League; every year there's a parade where the mayor drives by in one of his classic cars. One of the finalists for National Teacher of the Year teaches seventh grade here, and back in the day Bob Seger played at the now-closed Hideout Dance Club before he was big.

Kim Silarski has lived here since 1996. She's considered a newcomer.

Ms. KIM SILARSKI (Harper Woods Resident): One of the funny things about Harbor Woods is that it really - there's nothing really terribly special about it. And so in its normalness, in its normality I think that is its beauty and its charm.

(Soundbite of laughter)

SUTHERLAND: It's only 2.6 square miles and only has about 14,000 residents and they're intimately involved in a $100 billion international arms deal. How? Well, that revolves around a company called BAE Systems. If you need to fight a war, they're one-stop shopping - aircraft carriers, armored vehicles, super advanced cannon. Anything you need, they make it. Oh, and fighter jets - it's the fighter jets which have gotten the British defense contractor into trouble.

Mr. PATRICK COUGHLIN (Harper Woods Public Employees Retirement Fund): In the mid-'80s the Brits were negotiating a large defense contract with Saudi Arabia. Nearly $100 billion, obviously a huge, huge contract.

SUTHERLAND: That's Patrick Coughlin. He's a lawyer who represents the Harper Woods Public Employees Retirement Fund.

Mr. COUGHLIN: As part of the contract there was a side agreement, side letters, that basically allowed for payments to be funneled to Prince Bandar. Bank examiners and people looking at this have estimated it was nearly $100 million a year or a total of $2 billion that was funneled through various U.S. banks.

SUTHERLAND: The Prince Bandar he's talking about is more formally known as Prince Bandar bin Sultan bin Abdul Aziz al-Saud. He was Saudi Arabia's ambassador to the United States for decades. Coughlin is alleging that in order to get that defense contract for a bunch of fighter planes, known as the Dove Deal, they paid Bandar $2 billion over 20-some years. Yes, that's billion with a B.

Ms. CHERYL CONSTANTINO (Mayor Pro Tem, Harper Woods): The Saudi princes sometimes feel like the rules don't apply to them.

(Soundbite of laughter)

Ms. CONSTANTINO: This is like David versus Goliath. Only instead of using a rock, we're using attorneys.

SUTHERLAND: Here's the Harper Woods connection: Cheryl Constantino is the mayor pro tem of Harper Woods. She's also a full-time substitute teacher and teaches piano at night. The reason that she's outfitted herself with sling-carrying lawyers revolves around the Harper Woods pension fund for its employees. It's not a big one - about $40 million. About 135,000 of that is invested in BAE Systems. Not a lot but this is not a big town.

Now the Harper Woods Fund has taken BAE and Prince Bandar to court.

Ms. CONSTANTINO: We don't look at this as sort of an international incident. We just look at it as, hey, here's our retirees pension money and we just want to make sure that everything is right with it. And then the next thing we know is that, you know, this whole Prince Bandar thing comes up and we're like whoa.

SUTHERLAND: Patrick Coughlin - he's the fund's lawyer - he says they want BAE to recover as much money as they can and put it back into the company. They also want to reform the governance of the company so that this kind of thing doesn't happen again.

Mr. COUGHLIN: Corruption just inflates contract, destroys competition and is not good for anybody. And corruption with a defense contractor, of course, is the most dangerous because, you know, where are the arms going, where do they ultimately go? You have to have real accountability in this area because of the world that we live in today.

SUTHERLAND: When asked to comment on the Harper Woods case, BAE sent an email. Here it is in its entirety. Quote: "The company believes these proceedings have no substance and will be vigorously contested." End-quote.

The Saudi Arabian embassy in Washington did not respond to requests for comment. The U.S. Department of Justice is investigating BAE Systems as well. While no one there will give specifics about the investigation, they did briefly detain the CEO of BAE when he entered the United States a few weeks ago.

A spokesman for BAE says that FBI agents took his Blackberry away for a short while before returning it to him and served him with a subpoena before letting him go. The feds also served subpoenas on several other BAE executives who live in the United States.

And now here's another twist. The British government was investigating the deal as well. Their probe had gotten so far as to getting access to Swiss bank accounts, then the investigation was shut down. Here's why: according to British court documents, Saudi Arabia threatened not only to kill another fighter plane deal with BAE that was being negotiated at the time, but - and this is key - to end their close intelligence and diplomatic relationship with the British government.

The Saudi threat to call off intelligence cooperation was taken very seriously. As the former director of Britain's serious fraud office testified, the Saudi ambassador to the UK put it to him this way. Quote: "British lives on British streets were at risk." End quote. But a British court recently ruled that bowing to those threats was unacceptable.

Mr. ROB WATSON (BBC): What the ruling said that when the Serious Fraud Office under pressure from the government, in particular Tony Blair, decided to drop the investigation into allegations of bribes, it was wrong.

SUTHERLAND: Rob Watson is the BBC's defense and security correspondent.

Mr. WATSON: They said it was wrong because British justice should not give in to threats from wherever they might come.

SUTHERLAND: The British government is now appealing that ruling to the House of Lords.

The Harper Woods case is moving through the U.S. court system as well. At the moment, BAE is maintaining that American courts don't have jurisdiction over the company. After all, they're British. Patrick Coughlin argues that with tens of thousands of employees in the U.S. and more than 40 percent of its business here, the U.S. courts should have jurisdiction. The judge hasn't ruled yet.

Harper Woods mayor pro tem - and teacher and mom - Cheryl Constantino says it's very simple. She wants to get to the bottom of the allegations, and if there is a problem it needs to be fixed, and the shareholders, no matter how small, they have the right to do it.

Ms. CONSTANTINO: Even though we've got, you know, Britain and the United States investigating it - and we're little teeny-tiny Harper Woods - and even smaller than little teeny-tiny Harper Woods is the little teeny-tiny Harper Woods pension board, and here we are, you know, with the nerve to investigate this and the nerve to do something about it, the nerve to stand up to it.

SUTHERLAND: So far that nerve has had one tangible result: Prince Bandar's real estate assets in the U.S., and proceeds from their sales, have been frozen by American courts. They've been valued at more than $150 million.

JJ Sutherland, NPR News.

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