The Accountancy and Actuarial Discipline Board in the United Kingdom has begun an investigation of KPMG’s U.K. firm for its audits of British Aerospace and BAE Systems Group.

The board said Monday it has begun an investigation of KPMG Audit plc as auditors of the aerospace and defense company “from 1997-2007 in relation to the commissions paid by BAE through any route to subsidiaries, agents and any connected companies.”

KPMG’s former head of regulatory affairs, Neil Lerner, resigned from the board, effective Monday, to avoid the perception of a conflict of interest, according to the Financial Times.

BAE agreed in February to pay over $400 million in fines to the U.S. Department of Justice and the U.K. Serious Fraud Office to settle charges relating to bribery allegations around the world. The company allegedly made secret payments to sell military radar systems in Tanzania, lease Anglo-Swedish warplanes in the Czech Republic, frigates in Romania, and weapons in South Africa. Under the deal, BAE agreed to plead guilty in the U.S. to one charge of conspiring to make false statements in its regulatory filings and one charge in the U.K. of breach of duty to keep accounting records.

The Accountancy and Actuarial Discipline Board said Monday it was also investigating any other professional advice, consultancy or tax work provided to BAE by KPMG between the dates of 1997-2007 with respect to “commission payments paid by BAE and the status, operation or disclosability of Red Diamond Trading Ltd., Poseidon Trading Investments Ltd. and Novelmight Ltd.” The three companies were also investigated by the U.K.’s Serious Fraud Office during the BAE probe, including payments made to Red Diamond and allegedly sent to agents in South Africa.

The accountancy board said it made the decision to start the investigation following a consultation with the Institute of Chartered Accountants in England and Wales.
KPMG denied any wrongdoing. “KPMG Audit Plc notes the release made today by the AADB concerning its investigation into certain work carried out by the firm in relation to British Aerospace/BAE Systems Group plc,” said a statement e-mailed by a spokesman in the U.K. “The firm does not believe there has been any act of misconduct. It will of course be cooperating fully with the AADB to ensure that the matter is brought to a swift conclusion.”

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