DIRECTORS of BAE Systems rejected a £300m settlement of a Serious Fraud Office investigation after receiving advice they would leave themselves open to civil lawsuits for a misuse of shareholders’ funds.

The offer, made by the SFO in recent weeks, came after lengthy talks over a plea bargain deal to end an investigation of alleged bribery in Africa and central Europe. The defence contractor’s lawyers and the SFO were working on an agreed statement of facts to form the basis for a court-sanctioned settlement.

However, BAE’s advisers told the board, led by chairman Dick Olver, that the sum proposed was too great given the evidence so far uncovered — and suggested £20m was closer to the mark. “There was the question of a misuse of shareholder funds and civil lawsuits by investors if the higher figure was paid,” said one senior BAE source.

The talks came to an abrupt end last week when Richard Alderman, director of the SFO, said the agency planned to prosecute BAE for offences “relating to overseas corruption” and would submit papers to the attorney general, Baroness Scotland, when “the SFO considers it is ready to proceed”.

Despite the breakdown in talks — and its continued insistence that it has done nothing illegal — BAE is understood to be eager to settle and hopes to renew negotiations with the SFO shortly. Olver, who has instituted an ethics programme after a report by Lord Woolf, a former lord chief justice, is keen to make a clean break with the past.

Directors are understood to be ready to approve the payment of a fine — at the right level — if a suitable formula of words in the plea bargain can be agreed, with some sources suggesting BAE will admit to misdemeanours by agents and middlemen. Executives are worried that a trial will harm BAE’s reputation regardless of the final outcome.

There are indications that the SFO, too, might prefer a settlement to a trial, which legal experts say could last years. The agency has for several years been investigating BAE arms deals struck in the 1990s and early years of this decade. They include the sale of Gripen fighter jets and Hawk trainers to South Africa; leasing Gripens to the Czech Republic and Romania; sale of Eurofighters to Austria; and the sale of an air traffic control system to Tanzania.

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