Appendix 1: Memorandum from the Ministry
of Defence
DEFENCE EXPORT
SERVICES
1. The Committee has requested a Memorandum
on the allegations in the Guardian newspaper of 13 June
alleging bribery by the Defence Export Services Organisation of
MoD. These are very grave allegations which are totally without
foundation. The MoD recognises that the Guardian is opposed
to Government policy on defence exports but regards it as irresponsible
that it should conduct its campaign in this way.
2. The allegations centre on a paragraph
in the MoD Contracts Manual published on the internet which required
MoD contracts officers to refer to DESO all requests for payments
of special commissions in Government-to-Government transactions.
The Guardian assumes that special commissions equate to
bribes, and the allegations of bribery rest in large part upon
this false equation.
3. The procedure referred to in the Contracts
Manual is in fact now obsolete. It dated from a time when the
MoD was engaged directly in production and/or selling of defence
items. This has not been the case since the privatisation of the
Royal Ordnance Factories in 1987 and IMS Ltd, a Government-owned
company, ceased trading in 1991 (apart from surplus equipment,
some of which is disposed of directly).
4. While the procedure was in force, reference
to DESO was required because this was the organisation in MoD
with expertise in defence equipment sales. DESO staff dealing
with these matters were instructed to observe the following explicit
and careful principles:
(a) Public money should not be used for
illegal or improper purposes;
(b) Officials should not engage in, or encourage,
illegal or improper actions whether in their relations with UK
or overseas firms;
(c) Direct employment of agents should be
avoided so far as possible. If agents had to be employed then
they should be reputable and the fee should not be excessive in
relation to the lawful and proper work involved.
This instruction was amended when MoD ceased
to be engaged directly in production or sale of new defence items.
The Contracts Manual should have been amended at the same time,
but in error it was not.
5. The Guardian has irresponsibly
suggested, without any evidence or other reasonable cause, that
this procedure was designed to facilitate payment of bribes. On
the contrary, it can be seen that the procedure's purpose was
to ensure legality and propriety in the handling of Government-to-Government
contracts at that time. The Guardian also fails to mention
that the same Contracts Manual, a few paragraphs on, required
contracts officers to obtain legal advice in the case of any "unusual
terms or conditions".
6. The Committee has asked particularly
for answers to the following questions:
What is meant by the term "special commission",
and what distinguishes such a commission from a bribe?
The term "special commission" seems
to have been used inter-changeably in the past with the term "commission"
to describe payments made to agents for services in support of
exports overseas. A commission is a legitimate payment for such
services; a bribe is a payment made in order to corruptly influence
or obtain a decision.
What is the purpose of such commissions?
Examples of circumstances in which such commissions
are paid.
For the reasons described above, MoD no longer
employs agents nor pays commissions in its Government-to-Government
defence export programmes.
How the payment of such commissions and DESO's
activities more generally have been affected by the coming into
force of Part 12 of the Anti-Terrorism, Crime and Security Act.
The Corruption Act of 1906 applied to acts committed
in the UK. This position changed with the implementation of the
Anti-Terrorism Crime and Security Act 2001 that provided extraterritorial
reach in respect of acts of bribery by UK citizens overseas. It
has, however, been the position for many years that, even prior
to the introduction of the power in the 2001 Act, UK civil servants
were already subject to extra territorial jurisdiction for criminal
offences if all the elements of the offence were committed overseas.
Section 31, sub-section (1) of the Criminal Justice Act of 1948
provides that where any British subject employed by HMG in the
UK, when in a foreign country and acting in the course of his
employment, commits an offence which if committed in England would
be punishable on indictment, then that individual shall be guilty
of an offence and subject to the same punishment as if that offence
had been committed in England. The implication in the Guardian
that the Government resisted changes to the law in order to enable
official corruption to continue is thus totally false.
Whether DESO's advice on special commissions takes
into account the likelihood of a licence being granted by the
Government for the exports to which the commission is related.
As described above, DESO no longer provides
advice on special commissions.
What the status is of document MCM 16.1, published
on the Asset Management section of the MoD's website.
This document has now been amended to omit paragraph
19.
7. The Guardian article also quotes
a number of statements attributed to Sir Donald Stokes in papers
deposited in government files in the Public Records Office. These
papers go back to 1965 when Sir Donald was conducting an enquiry
into Government support for defence exports. Sir Donald was an
industrialist, not a Government official nor was he representing
Government views. The files provide no evidence for the Guardian's
allegation that bribery was subsequently adopted as the modus
operandi of the then Defence Sales Organisation. Indeed the
same run of files from the PRO shows that the promotional budget
eventually proposed for DESO includes provision only for legitimate
promotional activities; visits overseas by MoD staff, sponsored
visits by overseas customers to the UK, hospitality and entertainment,
trials and demonstrations of equipment, publicity and assistance
towards training charges for overseas personnel attending courses
in the UK.
8. The Guardian also refers to the
appearance of a former Head of Defence Sales, Sir Lester Suffield,
at an Old Bailey corruption trial in 1977 when he was asked about
bribes paid in Iran to secure the sale of Chieftain tanks. We
have attempted to obtain the transcript of this trial to check
the details, but it is no longer available. But a similar allegation
in the New Statesman of October 1980 was refuted by MoD
at the time. And it is inherently unlikely that an official could
admit to authorising bribery in open court and escape prosecution.
The trial involved Colonel Randel, a former member of the Defence
Sales Organisation, who was convicted of accepting bribes, but
there was no question of any MoD involvement in Randel's criminal
activity.
9. Finally, the Guardian refers to
the appointment of the current Head of Defence Export Services,
Mr Alan Garwood, and to a supposedly secret cash top up by "the
arms firms themselves". Mr Alan Garwood, has been seconded
from industry and receives a Civil Service salary within the Deputy
Secretary pay band. Industry then pays an additional element which
brings the salary to the level which the individual would otherwise
receive in industry. This figure is agreed by the National Defence
Industries Council. This approach was endorsed by the HCDC when
it considered the arrangements for the employment of the previous
HDES, Mr Tony Edwards (HCDC Second Report, Session 1998-99, The
Appointment of the New Head of Defence Export Services) and there
is, therefore, nothing "secret" about the present arrangements
for Mr Garwood.
July 2003
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