Memorandum from 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. CAAT would like to draw the Committee's
attention to issues with regard to the closure of the Defence
Exports Services Organisation; bribery and the Government's arms
sales unit; and the recommendations on corruption contained in
your last report.
DEFENCE EXPORT
SERVICES ORGANISATION
CLOSURE
3. On 25 July 2007 the Prime Minister announced
that the Defence Export Services Organisation (DESO) was to close
(Hansard, col 23WS), with its responsibility for the promotion
of military exports moving to UK Trade and Investment (UKTI).
Further details were announced on 11 December 2007 (Hansard,
col 16/17WS), by the Secretary of State for Business, Enterprise
and Regulatory Reform, John Hutton, who said the change would
take place on 1 April 2008.
4. CAAT recognises that, unfortunately,
the Government does not see the closure of DESO as a move towards
the end of the arms industry. Indeed, Ministers have stressed
the UK's success in selling arms and their wish maintain this.
For example, in a UKTI press release dated 11th December 2007,
John Hutton said: "The UK has a world class defence sector,
generating exports of around £5 billion a year and amounting
to some 20% of the world market. I am determined to ensure this
success continues."
5. Nonetheless, CAAT welcomes DESO's closure
and the move of military export promotion to UKTI, as it will
put the Government's relationship with military industry on a
more normal footing, comparable to that it has with other industries.
This means that the arms industry may no longer be a special case
with a unique and privileged place in Government.
6. In this regard, CAAT is pleased that
what is initially to be called the UKTI Defence and Security Group,
will, like all the other industry sector groups, be operating
to UKTI strategic objectives, be answerable to the UKTI Board
and have a head who will report to the UKTI Chief Executive.
7. The UKTI Defence and Security Group will
initially have 240 staff. However, since military equipment accounts
for less than 2% of the UK's visible exports and UK Defence Statistics
show that 65,000 jobs (just 0.2% of the national labour force)
are sustained by military exports, CAAT thinks staff numbers,
including those on secondment from the Ministry of Defence, should
be reduced so that the military equipment sector's exports are
given no greater share of UKTI resources than is proportional
to the size of the sector's contribution to the economy. Unless
this happens, the arms industry will continue to be an undeserved
special case.
8. Export licensing implications CAAT is
pleased with emphasis put in the 11 December announcements on
the separation between the export licensing functions of Government
and trade promotion and support. However, at the time of writing,
CAAT has not seen any discussion of the implications of the change
for the F680 process and feels this is an area your Committee
might usefully probe.
9. Business conduct CAAT also welcomes the
commitment made in the announcements, especially that by UKTI,
to the promotion of good business practice as well as to transparency.
Our comments, below, show just how vital this is.
CORRUPTION AND
THE MINISTRY
OF DEFENCE
10. CAAT wrote to your Committee in February
2006.arguing that "your Committee was seriously misled by
the Ministry of Defence (MoD) in its memorandum to you of July
2003 (Strategic Export Controls: Annual Report for 2002, Licensing
Policy and Parliamentary Scrutiny, 18 May 2004, HC390, Ev34)".
In its letter, reproduced at Strategic Export Controls: Annual
Report for 2004, Quarterly Reports for 2005, Licensing Policy
and Parliamentary Scrutiny, 19 July 2006, HC873, Ev158, CAAT stated
that the MoD memorandum "was designed to leave the reader
with the impression that DESO had never condoned bribery in arms
sales, and in fact had procedures in place designed to `ensure
legality and propriety in the handling of Government-to-Government
contracts'".
11. Your Committee's latest report, "Strategic
Export Controls: 2007 Review" (HC117), states, in paragraph
341, that the Committee "attached weight" to the MoD's
responses when asked about this. In particular, you rely on a
statement made in July 2003 by Geoff Hoon, then Secretary of State
for Defence. However, as Nicholas Gilby, who undertakes research
for CAAT, said in a letter to your Chair on 17th September 2007,
evidence placed in the National Archives by the MoD contradicts
that statement. A summary of this evidence follows.
12. Mr Hoon had quoted guidelines issued
in 1976 by Sir Frank Cooper, then Permanent Secretary at the MoD,
which said that "public money should not be used for illegal
or improper purposes" and "officials should not engage
in, or encourage, illegal or improper actions whether in their
relations with UK or overseas firms". These guidelines were
used by the MoD to claim that allegations by The Guardian that
"the government's own arms sales department [DESO] is directly
implicated in bribery abroad", substantiated by documents
detailing that "special commissions... are even written by
civil servants into the secret contracts on government-to-government
arms deals", were "irresponsible" and "totally
without foundation".
13. The Cooper guidelines were issued to
Lester Suffield, then Head of Defence Sales, on 9 June 1976. Two
weeks later Sir Frank approved the "agency fees" Mr
Suffield had requested on two Government-to-Government contracts
with Saudi Arabia, one for the Royal Saudi Air Force and one for
the Saudi Arabian National Guard.
14. A draft of the note Mr Suffield wrote
to Sir Frank was placed in the National Archives on 25 July 2007
(file DEFE 68/319). This shows that the guidelines, contrary to
what the MoD has been telling your Committee, were not "to
ensure legality and propriety in the handling of Government-to-Government
contracts". Paragraph 8 of this draft says that the "agency
fees", "although described as `technical consultancy',
amount in practice to the exertion of influence to sway decisions
in favour of the client".
15. In paragraph 10 it explains 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, for example by
HRH Crown Prince Fahd ibn Abdul Aziz during a recent audience
granted to Mr Greenwood, Chairman of BAC, in the presence of D
Sales 1 [a DESO official] and our Defence Attaché".
Paragraph 4 refers to contractors needing to "conceal agency
fees" in the overall price quoted.
16. It would seem that, at the very least,
these payments, made via the MoD accounts under a Government-to-Government
deal, were improper. They were in direct breach of the Cooper
guidelines, which the MoD relied on to defend itself to your Committee
against the allegations made by The Guardian.
17. This is, of course, just one instance
of the growing body of evidence of official condoning of bribes
made to attain arms sales to Saudi Arabia. There are also numerous
allegations, not least of "commissions" paid to Prince
Bandar bin Sultan, via the MoD, as part of the Al Yamamah arms
contract. CAAT believes proper parliamentary scrutiny of the evidence
is essential. Although some of this is historical, other payments
are said to continue. In any event, a clear understanding and
acknowledgement of the past is a prerequisite for better future
practice.
18. Since this would go beyond the scrutiny
of export licensing part of the arms sales process, CAAT suggests
it may be appropriate for your Committee to formally ask the Public
Accounts Committee to commission the National Audit Office to
investigate the whole Saudi Armed Forces Project, in particular,
the extremely disturbing allegations around Prince Bandar made
in June 2007, and how the issue of "consultancy" payments
is currently dealt with in the context of Government-to-Government
arms contracts. Any such inquiry should take evidence from officials
who have served with DESO, and its predecessor the Defence Sales
Organisation. Finally, it is essential that the report of any
investigation carried out be made public.
CORRUPTION AND
YOUR COMMITTEE'S
LAST REPORT
19. Your Committee's last report, "Strategic
Export Controls: 2007 Review" (HC117), recommended that the
Department for International Development, when considering licence
applications under Criterion 8, include an assessment to test
whether the contract behind an application for an export licence
is free from bribery and corruption.
20. However, corruption is not confined
to those countries which qualify for consideration under Criterion
8. The Serious Fraud Office (SFO) is currently investigating allegations
of corruption with regards to BAE Systems' deals with Chile, Czech
Republic, Qatar, Romania, South Africa and Tanzania—countries
with widely differing economic circumstances and political backgrounds.
In addition, CAAT, together with The Corner House, has been granted
permission for a Judicial Review of the Government's December
2006 decision to end the SFO's inquiry into BAE's Al Yamamah deal
with Saudi Arabia. The hearing is scheduled to take place on 14th
and 15th February 2008.
21. Against this background, CAAT is disappointed
that your report did not recommend that all export licence applications
be subject to an anti-corruption assessment. It is also strange,
to say the least, that the section of your report which deals
with Saudi Arabia makes no recommendations. These omissions, surely,
only serve to reinforce the idea that the UK's anti-corruption
efforts are selective and not being applied consistently.
December 2007
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