The Daily Star ** December 9, 2003
Massive Saudi weapons deal draws unwanted attention to BAE Systems
British firm faces scrutiny as it tries to negotiate what would be the largest-ever sale to a foreign country
by Julie Flint
LONDON - Opposition to a multi-billion pound arms deal between Saudi Arabia and BAE Systems, Britain’s biggest arms company, is growing as a result of deepening regional instability and new revelations about an intricate system of secret commission payments that helped BAE win contracts abroad * most notoriously, in Saudi Arabia.
The new agreement, which is currently under negotiation, is the latest in a series of deals with Saudi Arabia that began in 1986 with Al-Yamamah I, Britain’s largest-ever arms contract with a foreign customer. Although the British government has refused to disclose the size of the agreement, perpetuating the culture of secrecy and unaccountability that has always surrounded Al-Yamamah, it is reported to include weapons, advanced avionics and refurbished planes worth up to 2.7 billion pounds ($5 billion).
The Al-Yamamah contracts grew out of the refusal of the US Congress to allow large packages of American arms to be sold to Saudi Arabia, a regime regularly accused of corruption on a massive scale, and have been the subject of intense controversy for almost two decades. Contracts signed so far include two agreements worth at least 15 billion pounds for Tornado and Hawk fighter-bombers, more than 80 military helicopters and air bases. Only weeks after the first deal was signed, it was alleged that sweetener payments totaling 600 million pounds had been made to fixers and the Saudi royal family. Britain’s National Audit Office opened an investigation into the allegations in 1989. Its report is the only NAO document that has never been published * on the grounds of national interest.
Until now, the main security concern surrounding Al-Yamamah has been Saudi Arabia’s reputation as an unreliable end-user of British weapons. (The kingdom is under no legal obligation to give details of end-users for equipment supplied under Al-Yamamah.) Before the toppling of Saddam Hussein, Riyadh was known to have sent arms to Iraq through Jordan, and CAAT claims there is “strong evidence†that it has, in the past, funded counter-revolutionary movements including the Taleban in Afghanistan and the nuclear programs of Iraq and Pakistan.
Adding to the concerns, BAE is, for the second time in less than three months, at the center of corruption allegations involving its Saudi deals, among others. BAE, created in 1999 by the merger of British Aerospace with Marconi Electronic Systems, has denied all illegality or wrongdoing.
After a lengthy investigation, Britain’s Guardian newspaper last week published details of how BAE allegedly sweetened some of its arms sales. It said the company removed its fingerprints from all covert commission payments by using a British Virgin Island company to distance itself from the transactions and a Swiss bank to keep the only copy of each agreement beyond the reach of British jurisdiction. The paper quoted a commission agent as saying: “I’ve worked for a lot of aircraft companies, but BAE is the only one with such an institutionalized system.â€
British companies are normally required to disclose the identity of their agents and the size of commissions paid so that the government’s export credits guarantee department (ECGD), which effectively subsidies many arms exports, can satisfy itself that the government is not misusing taxpayers’ money. BAE has consistently refused to hand over documents detailing the secret commissions it pays.
The Guardian said the allegations, made by some of those involved in the secret transactions, were based on internal BAE records and Swiss bank records. It said a “peculiarity†of the files it had seen was that they appeared to show the same agent getting two contracts * an “open†contract signed in London for straightforward payments at a modest commission rate, and a “covert†agreement signed and hidden in Switzerland for much larger sums alleged to be paid through BAE’s secret offshore channel.
A former BAE executive was quoted as saying that when a new Swiss bank became “custodian†of the secret agreements in the late 1990s, a special vault was constructed and swept for bugs before a BAE van transferred the secret files to the new location.
The paper named the two Swiss banks allegedly involved in the agreements as Lombard Odier and, later, Rene Merkt and Associates.
Asked for comment on the allegations against it, BAE told the Guardian: “In pursuit of its legitimate business goals, BAE Systems pays people for lawful activities to accomplish which they have been hired to do.†It did not respond to the allegation that it was using secret offshore companies to achieve its end. Nor did it explain how its alleged relationship with one BVI company, Red Diamond Trading, did not appear in its published accounts.
Asked why BAE’s agreements were lodged outside British jurisdiction, it said: “BAE Systems rigorously complies with the laws of the UK and the laws of the countries in which it operates. BAE denies any allegations of wrongdoing.â€
BAE has not yet commented on the Guardian story. But a former British defense minister, Labor MP Peter Kilfoyle, has called for an official investigation into the company.
“BAE Systems must come clean about its alleged illicit activities,†he said. “It only adds to the suspicion which surrounds BAE Systems that they see fit to channel large amounts of cash through offshore accounts. The Ministry of Defense must face up to their responsibilities in this regard, and as their biggest customers, investigate whether there is any truth in these allegations.â€
In September this year, the Guardian reported allegations that BAE used a front company, Robert Lee International, to operate a 20 million pound slush fund to bribe Saudi officials in connection with the Al-Yamamah deals.
BAE Systems chief executive Mike Turner did not deny the slush fund charges. “They are old allegations and they are old hat,†he told a press conference. “They are history … Everything we do is legal and that is all I am prepared to say. Whatever the law is, we are legal.â€
Sasha Lille, research coordinator at CorpWatch, said the reported slush fund sounded “like the stuff of pulp fiction * the UK’s largest armaments producer running a 20 million pound slush fund to finance prostitutes, gambling trips, yachts, sports cars and more for its most important clients and their intermediaries, greasing the wheels of the largest business deal in UK history.â€
Lille noted that the Saudis are not the only ones who may have profited from Al-Yamamah kickbacks. In 1993, Britain’s defense procurement minister, Jonathan Aiken, who played a key role in setting up the second Al-Yamamah deal, was imprisoned for letting the Saudis pay his bill at the Paris Ritz. The following year, the son of then-Prime Minister Margaret Thatcher was accused of receiving a 12 million pound commission from the Al-Yamamah deal.
http://globalsecurity.com/war_and/massive_saudi.htm
