U.S. court tosses BAE bribery suit to Britain

WASHINGTON (Reuters) - A U.S. appeals court has ruled that English law, not U.S. law, applies to a shareholder lawsuit accusing BAE Systems Plc of paying more than $2 billion in bribes to Saudi Prince Bandar bin Sultan and others to win a big Saudi arms deal.

The U.S. Court of Appeals for the District of Columbia upheld on Tuesday a lower court's dismissal of the case. The suit against BAE directors was brought by a pension fund for employees of the city of Harper Woods, Michigan.

"As the district court correctly determined, English law applies to this case," senior Circuit Judge Harry Edwards wrote.

The suit charged that current and former directors and executives of BAE, Britain's No. 1 arms maker, breached their fiduciary duties and wasted corporate assets by allegedly allowing illegal bribes and kickbacks in the 1980s arm deal known as al-Yamamah, or "the Dove."

BAE has denied that wrongful payments were made to secure the deal in which Tornado fighter jets, Hawker trainer aircraft and other military hardware were sold to Saudi Arabia in exchange for oil. The value of the barter has been estimated at up to $80 billion.

BAE welcomed the appeals court ruling, said Lindsay Walls, a company spokeswoman in England.

Lawyers for Bandar, a former ambassador to the United States, have denied any wrongdoing on his part.

Lawyers for the pension fund did not respond to questions about whether they would appeal to the U.S. Supreme Court or now planned to litigate in Britain.

They had argued the United States should have jurisdiction because more than $2 billion in alleged bribes went to Bandar through an account at Riggs Bank, a defunct Washington D.C. financial institution.

Britain's Serious Fraud Office in December 2006 dropped an inquiry into the al-Yamamah deal. Then-Prime Minister Tony Blair said pursuing the matter threatened national security and ties with Saudi Arabia, which he called crucial for counter-terrorism efforts and Middle East peace.

In June 2007, BAE said the U.S. Justice Department had opened its own investigation of BAE's compliance with anti-bribery laws, including dealings with Saudi Arabia. The department did not respond to a request for comment on its investigation.

In May 2008, BAE confirmed that U.S. officials examined and then returned electronic equipment carried by its then chief executive, Mike Turner, after he arrived at a Texas airport. Similar treatment was meted out to Sir Nigel Rudd, a non-executive director, after he flew in to Newark, New Jersey. Both were served with U.S. subpoenas.

Such treatment suggested the United States had been dissatisfied with BAE's cooperation at the time, Joshua Hochberg, a former top U.S. Justice Department official, told Reuters then.

Lawrence Byrne of the New York firm Linklaters LLP, a lawyer for the BAE defendants, could not be reached.

"England has a far larger stake in this case than does Washington D.C., and for reasons of national interest as well as convenience to the court and the parties, this case should proceed in England, if it proceeds at all," Byrne had argued in court papers for the BAE defendants.

(Reporting by Jim Wolf; Additional reporting by Dan Margolies; Editing by Tim Dobbyn)