The entire board of BAE Systems and several former directors including Michael Portillo, a former UK Secretary of Defence, are being sued by a US pension fund over bribery and corruption claims at the defence group.

The City of Harper Woods Employees’ Retirement Scheme, a public pension fund in Michigan, has accused the board and former directors of intentional, negligent and reckless breaches of their duties as company officers.

The lawsuit, filed in the US District Court in Washington, DC this morning, is seeking unspecified damages and calls for BAE to implement sweeping corporate governance changes.

The lawsuit, which also names Nigel Rudd, former chairman of Boots and a non-executive director of BAE, centres on allegations that senior executives either permitted or encouraged BAE managers to pay bribes to secure business contracts.

It claims that BAE staff paid illegal kickbacks and bribes totalling $2 billion to Prince Bandar Bin Sultan of Saudi Arabia and his associates to win lucrative weapons contracts.

Similar allegations are at the centre of an ongoing investigation by the US Department of Justice. The UK’s Serious Fraud Office dropped its investigation into the same allegations earlier this year citing national security concerns.

The lawsuit also names as defendants Prince Bandar, BAE chief executive Mike Turner and Peter Weinberg, a well-known former Goldman Sachs banker who sits on BAE’s remuneration committee.

Patrick Daniels, a lawyer at Coughlin Stoia Geller Rudman & Robbins, the US law firm, said: “In bringing this case we allege that, over time, through a systematic abuse of national and international anti-corruption laws, coupled with a flagrant disregard of their fiduciary duties, BAE current and former executives have caused serious and lasting damage to the Company and undermined its competitive position.

“BAE’s reputation is in tatters and there are huge, and still unanswered, question marks over its corporate governance standards. Through this lawsuit, the directors and executives will be called to account and held personally liable for their actions.”

As well as seeking damages, the lawsuit is demanding a complete overhaul of corporate governance standards at BAE including establishing an anti-corruption committee and cutting the number of board seats for executive directors.

In a statement, BAE said: "We note the contents of the press release issued today by a US law firm representing the City of Harper Woods Employees Retirement System.

"The Company was not given any prior notice of any intention to file any such proceedings and no such proceedings have been served upon the company. The company intends vigorously to defend any such proceedings served upon it."

Mr Portillo, a Conservative MP between 1999 and 2005, was a non-executive director of BAE from 2002 until 2006. He could not immediately be reached for comment.

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