Quadripartite Select Committee Written Evidence


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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