BAE SYSTEMS PLC (BAES) - [Consent Agreement (CA) Date: 051611] United States Department of State (DOS) - Settlement Summary (As of 070111)

Trade compliance professionals are encouraged to read all the available related documents at http://www.pmddtc.state.gov/compliance/consent_agreements/baes.html.

Counts

Charges Summary Monetary Fines

Mandated Action Plan Highlights Actual Remedial

General

1-14

15-1144

1145-1157

1158-1457

1458-1460

1461-2591

Two-thousand five-hundred and ninety-one (2,591) alleged violations of the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) for BAES unauthorized brokering of US defense articles and services to include:

- Failure to register as a broker with the DOS from 1998-2011 while engaged in brokering activities;

- Failure to obtain written approval when engaged in brokering activities;

- Failure to provide annual report of brokering activities from 1998-2010 when engaged in brokering activities;

- Used brokers who were not authorized to engage in brokering activities from 1998-2007;

- Failure to disclose payments in respect of a sale for which a license or other approval was required;

- Failure to maintain records of brokering and financing of brokering by payments to other brokers.

$79,000,000 (Civil Penalty)

* $10,000,000

- Appoint in consultation with and at the approval of the Director, Directorate of Defense Trade Controls (DDDTC) a qualified individual from outside BAES to serve as a Special Compliance Officer (SCO) for not less than 3 years from the date of the CA

- Ensure adequate resources are and continue to be dedicated to ITAR compliance throughout BAES’ ITAR-regulated businesses units, subsidiaries, and operating divisions

- Within 120 days of the CA date, conduct an internal review of AECA & ITAR compliance resources to include an estimate of numbers and types of personnel, officers, employees, agents, advisers, and brokers engaged in covered activities

- Within 12 months of the CA date, institute strengthened corporate export compliance procedures focused on ensuring BAES business operations addressed the causes of these violations

- In consultation with the SCO, review current information technology systems for tracking ITAR-controlled activities, implement additional systems as necessary, consolidate and standardize where feasible and appropriate to strengthen BAES internal controls for ensuring compliance

- Under SCO or Internal SCO (ISCO) supervision, have outside consultants with AECA/ITAR expertise, approved by the DDTCC, perform two audits during the term of the CA

- To prevent unauthorized/accidental transmissions to unauthorized recipients, provide training to all employees to ensure that any type of electronic transmission of ITAR-controlled technical data are sent in accordance with BAES policies and procedures

- Continue publicizing the means of reporting concerns, complaints and perceived violations through the BAES “Ethics Helpline”

SCO & ISCO RESPONSIBILITIES [See CA, item 7, pages 5-12]: (1) Policy and Procedure: Monitor the BAES AECA an ITAR compliance program, but not limited to the remedial measures already established by BAES with specific attention to a list of 21 items outlined in the CA; (2) Oversight: The SCO or ISCO shall also monitor, review, promote and report on a list of 8 items listed in the CA; and (3) Reporting: Further, the SCO or ISCO is responsible to the DDDTC, for a list of 5 other reporting requirements. NOTE: The SCO shall recommend for DDDTC approval from within BAES a qualified person to be an ISCO to replace the SCO at the end of the SCO’s term. NOTABLE QUOTES: Aggravating factors in determining what charges to pursue included: “… failure to cooperate fully... from the inception of the DOS investigation; incomplete responses to DOS requests for information; …failure to maintain or produce relevant records; …frequency and type of violations; the fact that certain violations were authorized by its former senior management, that violations were systemic, wide-spread, and sustained for more than ten (10) years; only three (3) of the violations were disclosed at the request of the DOS, not voluntarily…all other remaining violations were never disclosed, but rather identified by the DOS during its investigation.” [See Proposed Charging Letter (PCL), page 2, 3rd and 4th paragraphs] DOS BAES PRIOR SETTLEMENT HISTORY: None. However, there is SIGNIFICANT/RELATED US Department of Justice (DOJ) Enforcement Action: On March 1, 2010, the DOJ announced BAES “…pleaded guilty in US District Court in the District of Columbia to conspiring to defraud the US by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act (FCPA) compliance program, and to violate the AECA and ITAR. BAES was sentenced and agreed to pay a $400 million criminal fine, one of the largest criminal fines in the history of DOJ’s ongoing effort to combat overseas corruption in international business and enforce US export control laws.” (See DOJ Press Release at http://www.justice.gov/opa/pr/2010/March/10-crm-209.html) OTHER FACTS / ITEMS OF INTEREST: This is the largest DOS civil penalty in history with the greatest number of alleged violations. As part of this settlement and in accordance with the AECA, a mandated statutory debarment of BAES was imposed, but then immediately rescinded. Additionally as part of this settlement, the DOS imposed a policy of denial on 3 BAES subsidiaries (BAE Systems CS&S International, Red Diamond Trading Ltd., and Poseidon Trading Investments Ltd., including their divisions, business units and successor entities). NOTE: This PCL, CA and Order do NOT apply/pertain to BAE Systems, Inc., the BAES US subsidiary.

There are no restrictions on distribution of this document exactly as is with complete/proper citation/attribution.

For changes, inputs, suggestions, please contact John Priecko at 703-895-1110 or jpriecko@comcast.net. Trade Compliance Solutions

* $3,000,000 is suspended as

a result of BAES already self-initiated remedial

compliance measures (RCM).

* Another $7,000,000 is sus-pended if BAES applies that

amount to CA authorized RCM over the 4 years of the CA.

The total fine of $79,000,000 equates to $30,490.16 per alleged violation.

The actual total civil penalty is 16.4% of the maximum of $1,295,500,000 that could

have been imposed for 2,591 administrative violations.

The worse case fine for 2,591 criminal violations is

$2,591,000,000.