APPENDIX 9
Supplementary memorandum by the Campaign
Against Arms Trade
1. The Campaign Against Arms Trade (CAAT)
is working for the reduction and ultimate abolition of the international
arms trade, together with progressive demilitarisation within
arms-producing countries.
2. Military exports account for between
a third and a half of the export credits issued annually by the
Export Credits Guarantee Department (ECGD). This being the case,
CAAT is pleased that your Committee is to question the Minister
responsible for the ECGD, Douglas Alexander MP, about the attempt
to water down the ECGD's anti-corruption procedures and its support
for projects where corrupt practice has been alleged.
DTI SUPPORT FOR
COMPANIES RATHER
THAN ENDING
CORRUPTION
3. CAAT was pleased when the ECGD brought
in new anti-bribery laws in May 2004. In particular, it was good
that commissions paid to agents had to be disclosed and that both
the applying company and any affiliates or joint venture partners
had to show that they had robust anti-corruption procedures in
place. No less should be the case when the ECGD is underwriting
deals with taxpayers' money.
4. It was, therefore, especially disquieting
to learn in autumn 2004 that the Trade and Industry Secretary,
Patricia Hewitt MP, had overruled ECGD officials to water down
the controls following pressure from the Confederation of British
Industry, BAE Systems, Rolls Royce and Airbus. The message sent
by this relaxation of the rules is that the UK is not serious
about combating corruption.
5. It is interesting, but not in the least
surprising, that military exporters feature prominently amongst
those lobbying for the anti-bribery rules to be relaxed. Such
exports are the subject of many allegations of corrupt practice.
Many of the deals are supported by Export Credit Guarantees and
it must be seriously asked whether the attempts by the companies
to dilute the ECGD's anti-bribery procedures mean they need to
pay political and military figures and members of their families
in order to secure deals.
6. CAAT is pleased that, following the application
by Corner House for a Judicial Review of the relaxation of the
rules, a public consultation will now be held on the ECGD's anti-corruption
procedures.
7. CAAT believes that the ECGD must protect
public money by:
(a) making companies liable for the actions
of their subsidiaries and agents;
(b) requiring details of agents and agents'
expenses in all cases;
(c) not underwriting commissions as part
of the contracts covered;
(d) immediately terminating cover for any
project if a bribe has been paid and making the companies reimburse
any claim payment that has been made;
(e) not giving companies which make illegal
payments in connection with ECGD backed projects any further export
credits or guarantees for a period of five years. The companies
should also be asked to demonstrate that they have adopted robust
anti-corruption procedures.
INDONESIA
8. One current example of bribery allegations
surrounding a military deal is that of armoured vehicle manufacturer
Alvis (now part of BAE Systems) and the controversial sale of
Scorpion tanks and Stormer Armoured Personnel Carriers to Indonesia
in the mid-1990s.
9. Recently released Court papers show that
Alvis employed a company called PTSK, run by the daughter and
two sons of a Brigadier General in the Indonesian Army, to secure
the sale of armoured vehicles to Indonesia. By the daughter, Rini
Soewondho's, account, it was her link with another company, Global
Select, owned by then Indonesian President Suharto's daughter
"Tutut", which enabled the Indonesian Army to gain the
funds it needed to purchase the Alvis vehicles.
10. According to the Guardian, Global
Select collected around 10% (£16.5 million) of the sale price.
Nick Prest (former Chairman and Chief Executive of Alvis and also
a former Defence Export Services Organisation employee) said that
Alvis had only secured the deal after hiring PTSK and Global Select.
11. A company owned by Tutut had been linked
in 2002 to the Hawk deals which the then British Aerospace negotiated
with the Suharto regime in the mid-1990s (Associated Press,
15.7.02).
12. Both the Hawk and Scorpion deals were
underwritten by the ECGD. Indonesia has never paid for the aircraft
and vehicles, as the payments were rescheduled in 1998 following
the Asian financial crisis. After 1998, the ECGD paid out £645
million for bad debts relating to arms sales to Suharto—about
£400 million to BAE Systems for the Hawks, £93 million
to Alvis for the Scorpions, and £150 million to other UK
arms companies (Guardian, 20.12.04). Currently, Indonesia
owes the UK £551 million in military-related debt (Hansard,
10.1.05). Of this, £80.7 million is for the Scorpion and
Stormer vehicles and £382.7 million for the Hawks (Hansard,
13.1.05). Payment of the debt by Indonesia to the ECGD is not
expected to finish until 2021, and there is every likelihood the
money will never be recovered.
13. The Indonesian weekly Tempo (21-27.12.04)
reported that investigations in Indonesia had shown PTSK was written
into the contracts for the 1995 and 1996 Scorpion deals. Questioned
about this, the Department for Trade and Industry said "details
of contractual arrangements (including agent's commission) are
provided to ECGD by exporters in confidence" (Hansard,
10.1.05). It is completely possible, therefore, that the ECGD
knew of Alvis's arrangements, but decided to commit UK taxpayers'
money anyway.
14. CAAT believes it is of the utmost importance
to establish what officials in the ECGD and the Department of
Trade and Industry knew about the structure of the deal(s) at
the time UK taxpayers' money was used to underwrite them. CAAT
has urged the National Audit Office to use its powers to inquire
into the specifics of the Scorpion and Hawks deals to confirm
if the Government had reason to know at the time of the possibility
of corrupt practices. Given that the public is at present out
of pocket by half a billion pounds, with no chance of recovering
the money in the immediate future, an investigation is needed
to see whether the ECGD's actions represented a good use of the
UK's financial resources.
15. The implications of the witness statements
go much wider and the following points need also to be considered:
(a) Both Rini Soewondho and Nick Prest refer
to the 1996 contract being secured despite the competition from
Daewoo of South Korea "who were offering a competitive vehicle
on generous credit terms" (Prest). Was the ECGD cover offered
to Alvis on particularly generous terms with the purpose of enabling
Alvis to secure the deal and, if so, was this a reasonable use
of taxpayers' money?
(b) From Nick Prest's statement we know Royal
Ordnance employed PTSK. Royal Ordnance was state-owned up until
April 1987. How far, therefore, was the UK government directly
involved in making payments to agents or to Suharto's "inner
circle"?
16. CAAT hopes that your Committee will
encourage the National Audit Office to undertake such an investigation
and, since the allegations about the Alvis deal have been the
subject of extensive media coverage, to make its report public.
SAUDI ARABIA
17. On 14 December 2004, the Guardian
revealed that should the Saudi regime collapse (not the remotest
of possibilities) the UK taxpayer, through the ECGD, will pay
BAE Systems £1 billion in respect of the Al Yamamah deal.
This highlights a major inadequacy in the ECGD's Annual Review.
Although this now lists details of guarantees issued, details
of insurance cover provided by the ECGD, which accounts for a
rather greater proportion of its business, are not given. This
should be remedied forthwith.
18. Since so much taxpayers' money is at
risk, CAAT would urge your Committee to ask the ECGD to rethink
its insurance cover for the Al Yamamah deal.
19. In mid-November 2004, BAE Systems was
told by the Serious Fraud Office that it was widening its investigation
into possible false accounting in its contracts with two marketing
and travel companies involved with the Al Yamamah deal. Former
employees of the companies were alleged to have lavished gifts
on Saudi officials. CAAT hopes that your Committee will urge the
Government to give the SFO every assistance in its investigations
so that, if warranted, charges may be pressed.
20. In 1992 the National Audit Office had
investigated allegations of corruption surrounding the Al Yamamah
project, but the report has never been published. In view, not
least, of the vast amount of taxpayers' money at risk through
the £1 billion insurance, CAAT would urge your Committee
to press for the immediate publication of the NAO report.
February 2005
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