APPENDIX 3
Memorandum submitted by the Campaign Against
Arms Trade
1. The Campaign Against Arms Trade (CAAT)
is opposed to all military exports, but recognises that, despite
its negative effects on human rights, security and the economy,
the arms trade will not end overnight. As an interim measure,
therefore, CAAT is seeking an export licensing policy with an
emphasis on restraint, especially on exports to governments which
violate human rights or to countries in areas of conflict and
regions of tension.
2. Military exports are frequently very
high value financially, and always shrouded in secrecy. This combination
of factors renders such exports liable to corruption. Indeed,
it would be most surprising if there were none.
3. The biggest arms sales are not to the
poorest of countries, but many are to middle income ones where
the military purchases can distort government spending, potentially
diverting resources from social needs, including health and development.
Also, countries currently poor and receiving development assistance
could potentially be affected as their economies grow and they
attract the attentions of the arms companies.
4. Although military equipment accounts
for less than 3 per cent of the UK's total visible exports, an
average of 25 per cent of the underwriting of the Export Credits
Guarantee Department is for military sales. Most arms exports
to middle income countries are supported by Export Credit Guarantees.
5. This paper outlines military deals with
South Africa, Jordan and Saudi Arabia, where there have been allegations
of corruption. The ECGD has been involved in all these cases.
It then makes recommendations for change.
SOUTH AFRICA
6. Despite reductions from the originally
announced order, in September 1999 the South African government
confirmed major arms purchases from European companies. These
include eight British Aerospace/SAAB fighter aircraft, and 12
British Aerospace Hawk 100 fighter trainers.
7. A number of organisations within South
Africa, including church, human rights and gun control groups,
have formed the Coalition for Defence Alternatives (CDA). They
believe their Government's massive weapons procurement programme
will further aggravate the poverty of most South Africans. The
South African organisations say the purchase will severely undermine
their country's economy, and most especially its economic and
social development.
8. On 5 September 1999, CAAT wrote to the
Secretary of State for Trade and Industry, Stephen Byers MP, as
the request of the CDA to ask that the UK government investigate
allegations of corruption being made in respect of the contracts
for military equipment. The CDA had received a report that British
Aerospace has paid R40 million, via two Swedish trade unions,
to shop stewards of the National Union of Metalworkers of South
Africa (NUMSA). It is also reported that the shop stewards have
been given holiday trips to England and Sweden. It is alleged
that the purpose of this has been to secure NUMSA support for
the acquisition of Bae/SAAB Gripen fighter aircraft. Mr Byers
passed the information to the MoD police who contacted the CDA.
9. In South Africa, according to Patricia
de Lille MP of the Pan Africanist Congress, the Health Special
Investigating Unit, the Auditor General, the Office for Serious
Economic Offences and the Department of Defence are all investigating
allegations of corruption relating to the weapons' acquisition
programme as a whole. The Auditor-General, in his report dated
15 September 2000, said there were "material deviations from
generally accepted procurement practice" with regard to the
purchase of the Hawk aircraft. These costs significantly more
than aircraft offered by an alternative supplier. Further investigations
were recommended by the Auditor-General.
JORDAN
10. In a series of articles in the spring
of 1989 regarding a £800 million order for Tornados from
Jordan, The Observer alleged that huge commissions, of
up to 30 per cent, were paid to rulers and middlemen, and that
bribes were paid to "British citizens with close contacts
to the government". (Observer, 19.3.89, 30.4.89)
11. The deal was eventually cancelled after
Germany refused to finance the deal in proportion to its share
in the planes' manufacture, at least partly because of doubts
over corrupt payments. These doubts were prompted by an anonymous
letter from London to the German Foreign Office, alleging that
Tornados, which cost the RAF £26 million and the Luftwaffe
£26.5 million each, were being sold to Jordan for at least
£40 million. The then head of the Defence Export Services
Organisation, Sir Colin Chandler, maintained that the discrepancy
was a matter of more expensive support services. (Observer,
19.3.89)
SAUDI ARABIA
12. The £20 billion Al Yamamah deals
with Saudi Arabia were signed by Margaret Thatcher in 1985 and
1988, and included the sale of Tornado and Hawk aircraft. Claims
that vast commissions were paid to intermediaries began almost
as soon as the deals with signed.
13. Although Saudi Arabia is a middle-income
country, nonetheless the allegations may be of interest to your
Committee as an example of what can happen when large contracts
are being negotiated.
14. Rumour suggests that the motivation
behind Al Yamamah may have come from those few individuals who
directly benefited from "commission" payments. The Dooley
court case in the US in 1991, the 1994 Granada TV "World
in Action" programme, the allegations concerning Mark Thatcher
in 1994, the 1996 Westland memo on the Saudi dissident Mohammed
al Mas'ari, the Rolls Royce court case in 1997 and the Jonathan
Aitken affair all support suggestions that "commissions are
an essential part of the system". (Times, 12.10.94)
15. Only weeks after the first Al Yamamah
agreement was officially concluded in 1985, The Guardian
led with an article headlined "Bribes of £600m in jets
deal". (Guardian, 21.10.85). In 1985, Alan Roberts,
the then Labour Defence Spokesman, said that he was "quite
confident that commissions have been paid in the Saudi deal"
and determined an official investigation. (Independent,
27.4.89)
16. In 1991, the Black Hawk helicopter scandal
seemed to confirm Roberts' suspicions. In 1985 the US helicopter
firm Sikorsky, or rather its parent United Technologies, managed
to acquire a controlling interest in the UK company Westland,
which it allowed to built its Black Hawks under licence. In October
1991, Thomas Dooley, a retired US Army lieutenant-colonel and
former military attache« in Saudi Arabia, filed a suit against
his current employers, the Sikorsky company, as well as United
Technologies and Westland, complaining that he had been unjustly
demoted for threatening to blow the whistle on corrupt and illegal
dealings. He alleged first that, though Black Hawks were normally
unarmed and had been approved by Congress for export to the Middle
East on that basis, those to be built by Westland for sale to
Saudi Arabia were to be equipped with TOW anti-tank missiles.
(Flight International, 16-22.10.91) His other allegation,
reported in The Independent, was that to secure an order
for as many as 90 helicopters (both Black Hawks and Westland's
own EH101s) bribes had been paid to two Saudi Arabian princes.
(Independent, 8.8.92)
17. Westland argued that the case had no
substance, being "founded largely on events which never actually
occurred". It stated that there had been "no Westland
helicopter sales to Saudi Arabia, no Westland arming of any helicopters
and no Westland bribes", and that, accordingly, "Dooley's
action against Westland plc and Westland helicopters is almost
entirely hypothetical". (Independent, 8.8.92) Although
80 Westland helicopters were included in the Al Yamamah shopping
list, none were actually ordered. It has since been reported by
The Guardian that, since the Dooley case in May 1995, Westland
agreed to pay a Saudi agent 9.5 per cent commission on a deal
potentially worth $50 million. (Guardian, 5.3.99) Again,
however, the deal fell through.
18. Allegations of corruption persisted
and it became clear in 1994 that it was not just Saudi intermediaries
who profited from the commissions systems, as accusations of bribery
were now directed against employees of UK companies. The Guardian
published an article in which Sir Colin Southgate, Chairman of
Thorn EMI, "admitted to paying huge commission" of 25
per cent on a £40 million Saudi arms deal in which more than
40,000 fuse assemblies for Tornado bombers were ordered by the
Royal Saudi Air Force in 1990 and delivered through BAe in 1991.
(Guardian, 14.11.94).
19. Granada TV broadcast a "World in
Action" programme on 14 November 1994 which identified UK
and Saudi businessmen who were paid over £10 million for
helping to organise the fuse assembly deal, and who claimed that
the Ministry of Defence not only gave its approval to this, but
also claimed £2 million of the profits as payment for helping
to design the fuses. (Guardian, 14.11.94) The Guardian
quoted John Hoakes, former managing director of Thorn's defence
systems divisions, as saying that "Commissions make the world
go round. There's nothing illegal about them. I don't know of
a [Saudi] royal who'll get out of bed for less than 5 per cent".
The Guardian reported that when Hoakes was told that Saudi
law prohibited commission on defence contracts, he replied "Then
they got a big problem with Al Yamamah". (Guardian, 14.11.94)
20. It was also in 1994 that scandal erupted
around the former Prime Minister's son, Mark Thatcher, much of
it based on allegations made by the Saudi dissident, Mohammed
Khilewi. (Independent, 10.10.94; Guardian, 14.10.94; Sunday
Telegraph, 16.10.94) As Anthony Sampson commented at the time,
"with the huge sums at stake, it would be surprising if some
money did not find its way to the British side. . . . To reward
the son of the British Prime Minister—even if he gave no
help—would be as natural as rewarding the King's son"
(Times, 12.10.94). In October 1994 Tam Dalyell MP submitted
a US intelligence report and an internal British Aircraft Corporation
memo to officials in the House of Commons. He claimed these proved
that Mark Thatcher was involved in Al Yamamah (Financial Times,
19.10.94). The Public Accounts Committee, however, decided not
to investigate the allegations that Mark Thatcher received commission
payments of £12 million from Al Yamamah as this was outside
their remit of issues concerning taxpayers' money. (Financial
Times, 20.10.94)
21. The allegations continued. In December
1996, Sunday Business suggested that one of the reasons
behind the Saudi company Aramco's replacement of BP and Shell
as oil exporters in Al Yamamah was an attempt by the Saudi government
to save money on commission payments to the companies, which were
estimated at $30 million/£18 million a year. (Sunday Business,
1.12.96)
22. In 1997, the Panamanian company, Aerospace
Engineering Design Corporation, whose ultimate ownership is unclear
but which, according to The Financial Times, is understood
to have links with the Al Saud, served a writ against Rolls Royce,
alleging that the company had paid only £23 million of an
agreed £100 million commission on part of Al Yamamah. Aerospace
Engineering Design Corporation claimed that it had acted as Rolls
Royce's agent throughout the Al Yamamah negotiations and that
Rolls Royce has agreed to pay it 8-15 per cent commission on the
sale of engines for Al Yamamah planes. Rolls Royce declined to
give details of exports value or commissions policy, saying only
that it intended to "vigorously" defend itself. The
action was subsequently withdrawn pending a settlement. (Financial
Times, 20.12.97; Private Eye, 9.1.98)
23. More information emerged as a by-product
of the libel action brought by Jonathan Aitken MP, against The
Guardian newspaper and Granada TV in 1997. When the
Conservatives came to power in 1979, Aitken has been a high-flying
and well-connected young politician. While Margaret Thatcher was
Prime Minister, his political career made no headway, but his
business career prospered greatly.
24. Jonathan Aitken had made friends with
a Lebanese-Saudi businessman, Mohammed Said Ayas, who was the
factotum of a powerful Saudi prince, Mohammed bin Fahd, son of
the future King Fahd and governor of the Eastern Province. The
prince put him in charge of the London arm of his trading company
Al-Bilad, and when Aitken joined TV-AM, helped him by investing
in the station. Aitken was forced to resign as a director of TV-AM
when it was discovered he had broken regulations by concealing
the £2.1 million illegal Saudi investment. (Sunday Business,
1.6.97)
25. The Sunday Business reported
that when John Major, as Prime Minister, appointed Jonathan Aitken
for Defence Procurement in 1992, he would have known that Jonathan
Aitken had been forced to resign and also "ministerial vetting
would have told him that the MP enjoyed good business relations
with Saudi princes". (Sunday Business, 1.6.97) The
Guardian and World in Action alleged that Aitken's
business relationship with Said Ayas and Prince Mohammed continued
after this appointment, and even later when Jonathan Aitken became
Chief Secretary to the Treasury.
26. In particular it was claimed that in
September 1993 he had a secret meeting in Paris with Ayas and
Prince Mohammed, who had paid his bill at the Ritz hotel. Since
this would have been a clear breach of the rules of ministerial
conduct, Aitken brought an action for libel. The case collapsed
when detective work by The Guardian proved that he had
lied on oath about the bill, and he was subsequently imprisoned
for perjury. (Harding, Leigh and Pallister 1997)
NATIONAL AUDIT
OFFICE
27. By 1989 the persistent allegations of
corruption over the Al Yamamah deal, coupled with rumours surrounding
the sale to Jordan, had prompted an investigation by the National
Audit Office (NAO).
28. The NAO investigation took three years,
and in March 1992 the House of Commons, Public Accounts Committee
(PAC) agreed not to publish its findings. The Chairman, Robert
Sheldon MP, refusing to disclose the report even to the Committee
members, simply assured them that there was "no evidence
of fraud or corruption". It seems clear that the inquiry
had proceeded within narrow limits; Sheldon acquitted the MoD
alone of having made improper payments, finding that "the
deal complied with Treasury approval and the rules of governmental
accounting" and that "there was no misuse of public
money" (Independent, 12.3.92, 24.6.97). However, the
NAO only investigated the MoD; as Sheldon states, "We were
not able to follows money outside the department once it is paid
to the contractors, so we do not know what was done with it"
(Independent, 24.6.97). Sheldon made it quite clear that
the reason the report was not published was the "highly sensitive
situation regarding jobs in the defence industry". (Independent,
12.3.92). Later he was even more specific: "The Saudis would
have been upset". (Independent, 23.6.97)
29. The PAC decided not to publish the NAO
report, despite the fact that most of its members were not even
allowed to read it. Sheldon invited a Conservative member, Sir
Michael Shaw, to read the report and to join him in interviewing
Sir Michael Quinlan, Permanent Secretary at the MoD, and Sir John
Bourn, head of the NAO.
30. The non-publication of the NAO report
meant that it was impossible to dismiss charges that commissions
had been paid. Members of the PAC were not happy. As Alan Williams
MP said, "quite a few of us [on the Committee] had misgivings
about the suppression". (Observer, 10.5.92) Dr Kim
Howells MP said that the situation was "most unsatisfactory.
If we can't see the report, and it goes right to the heart of
the problem, what does the PAC exist for?" (Observer,
10.5.92) A former member of the PAC, Jeff Rooker MP, who had pressed
for the investigation in 1989, said that he was "astonished"
by the decision; "the committee is supposed to be independent
of political considerations such as jobs". His colleague
Dale Campbell-Savours MP, who had served on the committee for
eleven years, was "convinced that payments had been made".
(Independent, 12.3.92)
31. Martin O'Neill MP, the then Labour Defence
Spokesman, pledged at the time that a Labour government would
re-open the inquiry (Independent, 12.3.93), and even Robert
Sheldon himself has now agreed that the report should be published
and the PAC given wider powers. (Independent, 23.6.97)
Despite these statements, the present government has maintained
its predecessor's refusal to release the NAO report, despite pressure
from CAAT and other organisations. The then Defence Minister Lord
Gilbert told the House of Lords that publication was not possible
because the report "refers to matters which are confidential
between the Governments of the United Kingdom and Saudi Arabia".
(Hansard, 7.4.98, WA124) In a letter to Gisela Stuart MP,
dated 20 April 1998, he elaborated slightly: "information...
which would harm the conduct of international relations . . .
is exempt from disclosure".
THE POSITION
OF THE
GOVERNMENTS
32. The official position has been restated
by successive governments. In May 1992 the then Minister for Defence
Procurement, Jonathan Aitken MP, assured the Commons: "My
Department has not employed business agents in connection with
Al Yamamah contracts". (Hansard, 19.7.92, col 84)
In 1994, the then Minister for Defence Procurement, Roger Freeman,
reaffirmed this: "No commissions were paid, and no agents
or middle men were involved". (Financial Times, 19.10.94)
33. In 1998 the then Labour Minister for
Defence Procurement, John Spellar MP, again stated that the government
had paid no commissions, but acknowledged that he could not speak
for the Al Yamamah contractors as, "any use of agents by
companies associated with Al Yamamah is a matter for those companies".
(Hansard, 16.3.98, col 446)
34. There is, however, no proof available
to substantiate any of these official statements. Such blanket
denials of any irregularity are hard to believe considering the
persistent rumours of corruption that surround Al Yamamah, and
the Government's refusal to publish the findings of its own NAO
investigation.
RECOMMENDATIONS
35. Corruption thrives in conditions of
secrecy; conversely, transparency is the best antidote to it,
allowing parliamentarians, the media and the public to monitor
the situation and raise any concerns. To achieve transparency:
(a) the UK government should make details
of military equipment export licences available for public inspection
ten working days in advance of the licence application being considered,
in order to allow adequate time for comment and, if necessary,
debate. Politicians and the public have the right to have their
representations taken into account when applications are considered;
(b) the UK government's Annual Reports on
Strategic Export Controls, the content of which is under review,
should give details of the types of equipment licensed, the manufacturer,
and the number of items. Full information is a prerequisite for
informed debate, and its release should take precedence over commercial
confidentiality or the military security interests of overseas
governments.
36. The publication of the NAO Report would
signal an intention to greater transparency. A new inquiry with
a wider remit, covering the companies and individuals as well
as government, would shed even greater light on the matter.
37. The Government should refuse an export
licence to any companies which have been proved to have been involved
in bribery or corrupt practices and disbar them from being granted
export licences for a minimum period of 10 years.
38. The ECGD should help prevent corruption
by:
(a) cancelling all cover for companies which
have been proved to have been involved in bribery or corrupt practices
and disbarring them from future support for a minimum period of
10 years;
(b) requiring the ECGD to ensure that the
contracts which it supports have been awarded through an open
tendering process.
39. The Government should introduce new
legislation criminalising the bribery of foreign officials and
establishing clear and regularly monitored anti-corruption rules
for UK business.
Campaign Against Arms Trade
September 2000
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