Select Committee on Business and Enterprise Minutes of Evidence


Examination of Witnesses (Questions 20 - 39)

THURSDAY 17 JANUARY 2008

RT HON DES BROWNE MP, MR DESMOND BOWEN AND MR TONY PAWSON

  Q20  Chairman: We appreciate exactly what you are saying but I am sure you will appreciate that we have some difficulty in the sense that the Ministry of Defence does speak of a period long before you became Secretary of State for Defence. In their memorandum to this Committee they are asserting that allegations of this kind are completely unfounded on the basis of the evidence they have and I simply make the observation that the public will find this difficult to comprehend given the statement of a previous Secretary of State for Defence and of others.

  Des Browne: I have many examples in my head of people who apparently had one view when they were in office and another view when they were out. I do not make any comment on that. What I say to you is that if you want my view then I am prepared to look at the evidence and the facts that are there and draw that view from that, not draw it from somebody else's conclusions based on their own experience of whatever it was because I cannot evaluate that unless I have their experience or they share the underlying facts with me and neither of them have.

  Q21  Chairman: I think that is entirely reasonable; I accept that. You invited me to ask you about 1976 so can we do so? You will be aware that papers that were in the National Archives in relation to certain events in 1976 have now come into the public domain, including a document that is before the Committee, the draft minute from Lester Suffield who was Head of Defence Sales at the time to Sir Frank Cooper, the then Permanent Secretary of the MoD. This draft says, for example, that agency fees, "although described as `technical consultancy', amount in practice to the exertion of influence to sway decisions in favour of the client".[19] Then, in a further paragraph, he goes on to explain that senior Saudis "would certainly not officially approve the payment of fees, although they undoubtedly expect appropriately discreet arrangements to be made. Statements to this effect are made by senior Saudis to visiting major businessmen in somewhat elliptical language whenever a suitable opportunity occurs" and then there is an example which I will not quote.[20] There were two contracts under discussion in 1976 essentially and the papers deposited in the National Archives have now been published. Do you think this provides any prima facie evidence that possibly the rules were being breached?

  Des Browne: I said at the outset that I have given this some consideration and I have. Clearly I am limited by the fact that this document that had been deposited in the Archives and the Public Record Office and has come to light is 30 or more years old. There is no way in which I can determine the circumstances of this draft document. It is not clear from it—I have examined it—who the author of it is but it has a set of letters at the top which suggests who the final document was supposed to come from. I do not know what his status is or his authority; it is addressed to the then permanent under-secretary who is unfortunately now no longer with us and it is just not possible for me to construct a reliable picture of the situation 30 years ago. However, it is possible to take about a dozen words out of it, but it is also possible to read the whole document. The advantage I have had is the ability to be able to read the whole document. What does the document tell me? The actual document tells me that somebody was conscious of the principles of the use of public funds because it starts off with the sentence which says, "In the context of your" (meaning the permanent under secretary) "recent directive on the subject of agency fees", so it is written in the context of the 1976 Directive I assume which was in turn a set of guidelines for officials to ensure that they stayed within the law and did not act corruptly.[21] The author of this document is consciously writing to the permanent under secretary to say, "Within the context of those guidelines and that objective" and then goes on, in my view, to set out an intention to alert the risk of allowing agency fees to rise above a particular percentage level, the inference that can be drawn if that happens or the danger that it will in fact be a corrupt thing to allow to happen. Then it goes on, "and advises the Government that the Government should seek to restrain payment so that that is not triggered". So the author says that there is a risk and that we should not trigger that risk. The way in which we should not trigger that risk is in the context of your analysis in the 1976 Directive and we should restrain these agency fees to a ceiling, which is broadly in the 1976 Directive considered to be a ceiling that is indicative of where the risk will not kick in, although the 1976 Directive also says you have to look at the individual circumstances of each one. Contrary to the conclusion that officials were in a recipe for corruption, they were actually conscious that they had to create a set of circumstances. The whole document does not seem to me to hold any other construction. It may well be that there are parts of it in which the drafter sets out certain types of behaviour—I have no idea on what basis that was being set out—but that is not the tenor of the document. The document says that in the context of your directive, permanent under secretary, of 1976 this is what we need to be alert to and this is what we need to do to make sure that we do not trigger that risk. It is capable of supporting, very easily, the entire contrary construction to that which people have put from 12 or 15 words out of it.

  Q22  Chairman: Except that it is confirmation that the Saudis undoubtedly expect appropriate discreet payment.

  Des Browne: What it does not do—and this is what the nub of the issue is—is that it does not say that we are going to countenance that or allow it; it says in fact that we need to behave in such a way that not only are we not going to do that but that it cannot be inferred that we are.

  Q23  Chairman: It is interesting that the 1976 Directive—the so-called Cooper Guidelines—does not actually make any reference whatever to the 1948 Act which has been used in aid of the MoD's position at the time, nor does it refer to any risk of criminal prosecution. Is that not a little strange?

  Des Browne: It may well be but I have no way of knowing whether it is or not. Does it not largely depend on the trained state of knowledge of those whom this directive was written for? If everybody in the 1970s who was operating at that level in the Civil Service knew very well that to act corruptly as a public official was a criminal offence then they probably did not need to be told. I actually suspect that most people who rise to that level in the Civil Service probably have an inkling that behaving corruptly as a public official in those days was a criminal offence whether they know the particular provision of the act or not. In any event, they have the advantage of the directive and the directive was obviously written to ensure that the MoD staff acted lawfully and properly. I have taken the trouble of drawing out of the directive the bits that I think support that. Rather than read the whole directive I can send it to you, but it says, "there is a need for some special guidance" because of the "importance of maintaining strict standards in the defence sales field ... Public money is not to be used illegally or for improper purposes. Officials must not engage in, or encourage, illegal or improper actions; this requirement covers relations with representatives of United Kingdom firms as well as nationals of other countries. Defence sales are to avoid so far as possible the use of agents. If agents are employed"—and this is the important thing about the subsequent document—"The agent should be reputable in the area in which he is operating" and a fee of 10% or more or any fee less than 10% which "would appear excessive in relation to the level and proper work the agent undertakes" is to be referred to the permanent under secretary.[22] So it did not specifically refer to Section 31 of the Criminal Justice Act 1948 but it did pretty comprehensively set out the sort of behaviour which, if transgressed, would be a contravention of Section 31 of the 1948 Act. So it did the job although it did not refer to the actual piece of legislation.[23]

  Q24  Chairman: What it also said was, "What is `illegal' or `improper' will depend in the last resort on the law and practice of the country or countries concerned, and it is for the foreign government to determine what are acceptable standards within its jurisdiction".[24] It then goes on to say—so that I cannot be accused of being too selective—"But where these standards are less restrictive than those applied within the UK, any relaxation of the UK standards should be applied by us with great caution". Somebody thought it was quite important to stress that what is `illegal' or `improper' depends on the country concerned and not upon the 1948 Act. Somebody thought it was important to say that and not that where the standards are less restrictive than in the UK we should apply UK standards but specifically the words chosen were: "any relaxation of the UK standards should be applied by us with great caution". I dare say, Secretary of State, you can apply different interpretations of the phrase "with great caution" but somebody here was sending a message that is not quite as firm, I would suggest, as the rule is according to the 1948 Act.

  Des Browne: Just to highlight the disadvantage that both of us have, we have a piece of paper in front of us, we do not know the author of that piece of paper, we have no way of looking into that person's mind. What we do know is that both of these objectives are served by this paper, the question is which of them was most likely to impress the reader? I have no way of knowing but I just say to you that as far as Section 31 of the 1948 Act, the makings of it were there even if the reference to the Act was not.

  Q25  Chairman: I want to ask a final question about the Panorama broadcast of 11 June last year. I have already referred to it in the context of what the late Lord Gilmour said but is it the case, as alleged in that programme, that MoD officials have processed quarterly invoices from Prince Bandar bin Sultan of Saudi Arabia?

  Des Browne: What is the case—and this is in the public domain—is the written answer that my predecessor Geoff Hoon, when he was the Secretary of State for Defence, gave to Mr Hancock on 20 June 2004 and that is (I read this short but people can read it for themselves) that claims are processed by MoD officials but those are claims that are endorsed by the UK Government for payment only when they comply with the terms and the prices contained in the associated contract supported by documentation confirming contractual performance and that what we do is that we process presentation for payments of claims submitted by BAE systems. That is what our officials have been doing. Can I just say, for the avoidance of any doubt, that in the context of the SFO[25] investigation, the officials from the MoD cooperated fully with the SFO in relation to their engagement in this process and shared all the information that was asked of them with the SFO investigation. There has been no attempt to try to do anything other than show that these allegations—which I still say are unfounded—against officials in the MoD are unfounded by transparency in terms of that investigation.

  Q26  Malcolm Bruce: Secretary of State, perhaps I can make it easy for you by asking what you are going to do now rather than what has happened in the last 30 years. The Government signed an Understanding Document with Saudi Arabia in 2005 and under that Document the Saudi Arabian Government announced on 17 September that agreement had been reached to purchase 72 Typhoon aircraft for the Saudi Armed Forces at a cost of £4.4 billion. This is a new contract starting. Transparency International—which I think you will acknowledge is a well-recognised body—has suggested that in order to make clear at the start of this arrangement that the accusations that have been discussed in the previous questions will not arise again, that it would be useful to set up a body comprising respected institutions from both countries that would monitor the finance, equipment and associated support areas during the whole life of the contract. The suggestion is that this has been set up by the two governments; my understanding is that they have in fact put this proposition directly to you and that it would be consistent with recognised standards of corporate integrity and that putting such an operation in place would both improve the image of the UK and of Saudi Arabia as to their intentions of how they are going to conduct contracts that go from this day forward to avoid the problems and the embarrassment we have suffered over the last 30 years.

  Des Browne: This contract which I think is very good for British industry and good for our broader security arrangements—the security of the United Kingdom and of the world—is an arrangement where the funding comes from the Saudi Arabian defence budget. Pedantically this process has not actually been put to us, it has been put to government, it was put to the FCO. The view of government is that these contractual arrangements are subject to the scrutiny of the NAO.[26] That is, in my view, a good enough and reputable enough organisation to be scrutinising them. Why create a new body to be arbiter of whether that body meets these criteria when we have a perfectly good body in the UK in audit terms which has a worldwide reputation and could scrutinise the conduct of this and will no doubt turn their attention to it at some time. The fundamental problem is that this is a government-to-government contract. The Saudi Government's view—and we respect this—is that the financial arrangements in relation to such contracting is confidential, so I do not understand how creating some other body is going to actually address the issue that people will look to in any event to criticise by inference or allegation what is going on. I am confident enough that the NAO can do this job personally as a minister; I am confident that they do not avoid tough scrutiny of the Government—that is not my experience of them—and I do not see any advantage in setting up some body where in any event there is no international standard to set it against.

  Q27  Malcolm Bruce: Just to make clear, Transparency International say they have written to the prime minister, the former Secretary of State for Trade and Industry, the Secretary of State for Defence and the Head of the FCO Middle East desk commending their proposals. Their proposals say that it is the governments that should set them up so it is a government-to-government arrangement. If you are saying—as I think you are—that you are not really interested in pursuing that proposal or any variation on it, other than what you have said how can you say with certainty that you can be confident that this new Al Salam contract will not be tainted with accusations of bribery as has been the case with previous contracts?

  Des Browne: I cannot be certain that people will not make allegations and accuse anybody; I am saying that this is a perfectly proper contract in which there is no impropriety associated with this negotiation at all. It is a government-to-government contract. I apologise both to you and to Transparency International that I was misinformed about whether they had written to us or not; they may well have written to my office. However, that is neither here nor there, they wrote to government in any event. I have to say that in this area I suspect that were we to accede to this and that the two governments were to set this up, the next claim would be that it is not independent because the governments set it up even if it was in response to a suggestion from Transparency International. There is a perfectly good, independent body in the NAO that reports to Parliament that does this job, why do we need another one?

  Q28  Malcolm Bruce: There was a perfectly good Serious Fraud Office that did not quite deliver the job on the previous accusations.

  Des Browne: I have to say that I fundamentally disagree that officials behaved corruptly.

  Q29  Linda Gilroy: Secretary of State, you announced the outcome of the review of defence attachés last September. To what extent did you take account of the need to have suitably qualified staff such as defence attachés to advise on defence exports and to monitor the use to which British arms imports are put? Did you take account of this role when you were making the decisions to either remove or reduce the numbers in the different embassies?

  Des Browne: We looked across a whole host of defence attachés across the world and we re-evaluated their roles in the context of the 21st century. We looked at the job they were doing and saw how we could best maximise our resource and where we could make efficiencies. That is what you will expect of government. The principal role of the defence attaché in the 21st century is to help strengthen international peace and stability by working to prevent conflicts, to help boost peace support operations and to reduce the risks of terrorism. That is why we deploy them. Can I also say that the assessment that we made was that of the total defence attaché time; about 5% of it was associated with any aspect of defence exports. The principal responsibility in relation to licensing issues does not lie with the defence attaché, it lies with the Foreign Office. Because of the expertise of our people periodically we are asked to help in this regard as part of the team. They will still be able to do that. We have no doubt that they will be able to meet the high standards that we have been able to meet as a team in these missions abroad when work is necessary to be done. The defence attaché was a part of that but not the majority part of that process that people believed they were. In some countries they did more of it than in others, but it was about 5% of the total time of defence attachés.

  Q30  Linda Gilroy: Part of the statement said that as well as reductions in military staff more of their tasks will be undertaken by civilian personnel. Can you assure us that these changes will not degrade the ability of the embassy posts to advise on applications? How does that figure in with your 5% of time?

  Des Browne: I cannot divide it between military and civilian. Tony may be able to help us in that regard; he is more associated with the day-to-day working of the Defence Export Service. In all its manifestations, both military and civilian, you do not have to be a military person to be able to do this. Of course we will, as we reduce military force and replace it with civilians, take into account the need for certain skills and for trained people. I can reassure the Committee that there will be no reduction in the level of scrutiny that is necessary from posts abroad in relation to the licensing process by the process that we have gone through with defence attachés. It was not the majority of the work that we did that some people believed that it was. In actual fact the defence attachés, people will be pleased to hear, are more focussed on trying to prevent conflict, keeping the peace and counter terrorism work.

  Q31  Sir John Stanley: Secretary of State, the joint funding arrangement between the FCO and the MoD goes back a long way and, to the best of my recollection, it was in place when I was minister for the Armed Forces. Is it not the case that in reality the defence attachés still perform responsibilities which come within the MoD but equally—and your answer confirms this—they discharge functions which come within the responsibilities of the FCO? Given that that remains the case, was it not wholly unreasonable—I cannot put it any other way—for the Foreign Office to unilaterally renege on their joint funding arrangement and basically say, "You, MoD, are left with picking up their slice of the bill"?

  Des Browne: I spent a lot of my time across government encouraging people to do things across government and to work together across departments. That requires, I think, the ability to be able to respect the priorities and the changing priorities of government departments in a pretty flexible way. We ask people across government who work with us to respond to changes that we make. I do not think it is unreasonable. I fully understand why that £10 million to £11 million became a hostage to other priorities in this complex and changing world and I was pleased to be able to work with them to re-shape our defence attaché team in a way that I think will ensure that we still do all the priority work that we need to do as well as we have ever done before and we have been able release resources towards other priorities. That, as you know from your own experience, is what government is all about.

  Q32  Mr Borrow: I want to touch on the UK/US Defence Trade Cooperation Treaty. The Committee has received evidence from Saferworld expressing some concerns about the impact on arms exports and particularly suggesting that the Treaty puts the UK/US relationship into some imbalance in the sense that it allows the US to determine which goods are included in the Treaty and allows the US to override the UK arms exports controls and impose their own in terms of end use of particular goods. Would you like to comment on that?

  Des Browne: It's easier to answer the last part of the question first. The integrity of our own arms export control system is entirely intact and the United States has no role to play in that; it is still our responsibility. It no way weakens it and no way affects it. It is a misunderstanding of the Treaty if people think that it does. The other part of the question is designed to identify that there are some sensitive technologies (which is a phrase that is used in the Treaty) which will be excluded from the Treaty. The fact that the Americans will identify certain technologies that they will exclude from the Treaty and they will do that in consultation with us in the implementation arrangements does not in my view in any way undermine or imbalance the Treaty. In fact the whole purpose of the Treaty is to bring the processes into alignment so that we can speed up and simplify the delivery of equipment to the UK but also to US troops who operate together around the world which is a longstanding policy of both countries. Since we have deployed together and operated together and are valued allies of each other that seems to me to be an appropriate and reasonable objective and it is in our interests as well as in theirs. In relation to the sensitive technologies, there will be about three or four of them. I am not able to specify what they will be but they will be a comparatively small number. I think given the advantages there will be in the treaty which will be manifest—and I am sure you know what they are—then this comparatively small area of restriction which is perfectly understandable because of the sensitivities of the technologies does not in any way undermine it.

  Q33  Mr Borrow: In terms of the implementing arrangements, where are we up to with that? Where is the UK in terms of exchanging notes with the US Government and also in terms of Senate ratification of the Treaty itself?

  Des Browne: The current position in relation to the Treaty, as the Committee will know, is that the Treaty has gone through the parliamentary process here. The congressional process is an integrated process in the sense that both the Treaty and the implementing arrangements will be presented to Congress. The negotiation of the implementing arrangements is going on at the moment. I have in my mind a kind of timeline in relation to that but I do not think it would necessarily be helpful to the negotiations for me to publicly say that we expect them to be concluded on a particular day. However, they are advanced, they are going well; we have no reason to believe that they will not be concluded successfully in a reasonable timeline and then we will be in a position to present the Treaty to Congress. We hope to be able to do that at an early date and we are working with the American authorities to be able to do that. In case you ask me when I think we will get it through congress, I do not necessarily think it would be helpful to that process for me to say from here and feed into that process; I think we need to leave it to them.

  Q34  Mr Borrow: A significant chunk of the UK defence industry is international in the sense that it is owned by several European countries' major companies that have invested to a large extent in the UK defence industry in the last five or 10 years. How do they fit into this particular Treaty?

  Des Browne: You know the value of the Approved Community to this Treaty; the so-called List X is the Approved Community. We already have to take into account the fact that companies are owned by foreign owners when assessing applications to join that community of companies. Nothing substantially will change; we will still go through that same process and take that into account in relation to the Approved Community for the Treaty and it will not make that much of a difference.

  Q35  Peter Luff: Secretary of State, the Defence Export Services Organisation is still with you until the first of April when defence sales moves to the UKTI. What was this all about? Was it doing its job too well as the NGOs[27] seemed to think? Or perhaps not well enough? Or is just change for change's sake?

  Des Browne: People make changes in the machinery of government regularly and they are a matter for the Government. I have no knowledge of machinery of government changes being extensively debated, discussed and consulted about before they were announced in the past and this was no different. We promised that we would work through before Christmas with industry and with other stakeholders the nature and shape of this change and I am pleased that on 11 December when my colleague, the secretary of state for DBERR, announced the nature and shape of the future arrangements they were welcomed by industry and so they should be because we now have, I think, an ability which we were seeking to create of using the broader UKTI framework to support and help the defence exports area and this will improve the one organisation which was doing well and the other and they will come together and do better.

  Q36  Peter Luff: So your hope is that it will increase defence sales.

  Des Browne: Defence sales are a very complex area, as you know. Our ambition to maintain a level of them for a number of reasons is very important. They make a big contribution to building capability where we need to build it for the purposes of peace keeping and other purposes that we share in terms of our foreign policy. The measure of improvement in this area is not just about the numbers. We happen to have had last year a very good year. We had a very good year a few years ago. We believe that we will continue in that way. Against all the objectives that we set for the defence industry I think that this change will be good.

  Q37  Peter Luff: The NGOs have welcomed the change because they think it will put defence sales and defence exports on a level playing field with the rest of industry which presumably means will disadvantage defence sales. Is that the case?

  Des Browne: I think that everybody at the end of the day will see that this change was to the advantage.

  Q38  Peter Luff: Advantage of?

  Des Browne: The advantage of the objectives that they set.

  Q39  Peter Luff: This is getting rather circular.

  Des Browne: No, it is not. This is not a zero sum game. It is not the case that in defence, in defence sales and in defence equipment you always have to fly in the face of the NGOs and their ambitions by what you do in the defence industry. The trick is actually to do the two. What I am saying is that it is not a zero sum game and there is no reason to believe that people will not see that the issues that they are interested in about transparency, about ethical behaviour and all the rest of it being improved. I am not suggesting that our defence industry does not conform to these. It will be improved by this but at the same time we will have the advantage that the very successful organisations such as UKTI will be able to deploy its extensive resources in support of the defence industry. The defence industry and the sales of certain equipment abroad is a humanitarian thing to do in many circumstances.


19   National Archives, file DEFE 68/319 Back

20   National Archives, file DEFE 68/319 Back

21   1976 Guidelines Back

22   1976 Guidelines Back

23   Ev 45 Back

24   1976 Guidelines Back

25   Serious Fraud Office Back

26   National Audit Office Back

27   Non-Governmental Organisations Back


 
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