[A-List] UK state: the al-Yamamah deal again

["Michael Keaney" <michael011@xxxxxxxxxxx>]

BAE accused of secretly paying £1bn to Saudi prince

· Money moved via US bank
· £30m payments a quarter
· Sanctioned by MoD

David Leigh and Rob Evans
Thursday June 7, 2007
The Guardian
 
The arms company BAE secretly paid Prince Bandar of Saudi Arabia more
than £1bn in connection with Britain's biggest ever weapons contract, it
is alleged today.

A series of payments from the British firm was allegedly channelled
through a US bank in Washington to an account controlled by one of the
most colourful members of the Saudi ruling clan, who spent 20 years as
their ambassador in the US.

It is claimed that payments of £30m were paid to Prince Bandar every
quarter for at least 10 years.

It is alleged by insider legal sources that the money was paid to Prince
Bandar with the knowledge and authorisation of Ministry of Defence
officials under the Blair government and its predecessors. For more than
20 years, ministers have claimed they knew nothing of secret
commissions, which were outlawed by Britain in 2002.

An inquiry by the Serious Fraud Office (SFO) into the transactions
behind the £43bn Al-Yamamah arms deal, which was signed in 1985, is
understood to have uncovered details of the payments to Prince Bandar.

But the investigation was halted last December by the SFO after a review
by the attorney general, Lord Goldsmith.

He said it was in Britain's national interest to halt the investigation,
and that there was little prospect of achieving convictions.

Tony Blair said he took "full responsibility" for the decision.

However, according to those familiar with the discussions at the time,
Lord Goldsmith had warned colleagues that British "government
complicity" was in danger of being revealed unless the SFO's corruption
inquiries were stopped.

The abandonment of the investigation provoked an outcry from
anti-corruption campaigners, and led to the world's official bribery
watchdog, the OECD, launching its own investigation.

The fresh allegations may also cause BAE problems in America, where
corrupt payments to foreign politicians have been outlawed since 1977.

The allegations of payments to Prince Bandar is bound to ignite fresh
controversy over the original deal and the aborted SFO investigation.

The Saudi diplomat is known to have played a key role with Mrs Thatcher
in setting up Britain's biggest ever series of weapons deals.

For more than 20 years Al-Yamamah, Arabic for "dove", has involved the
sale of 120 Tornado aircraft, Hawk warplanes and other military
equipment.

According to legal sources familiar with the records, BAE Systems made
cash transfers to Prince Bandar every three months for 10 years or more.

BAE drew the money from a confidential account held at the Bank of
England that had been set up to facilitate the Al-Yamamah deal. Up to
£2bn a year was deposited in the accounts as part of a complex
arrangement allowing Saudi oil to be sold in return for shipments of
Tornado aircraft and other arms.

Both BAE and the government's arms sales department, the Defence Export
Services Organisation (Deso), allegedly had drawing rights on the funds,
which were held in a special Ministry of Defence account run by the
government banker, the paymaster general.

Those close to Deso say regular payments were drawn down by BAE and
despatched to Prince Bandar's account at Riggs bank in Washington DC.

Under the terms of a previously unknown MoD instruction from the
department's permanent secretary, Sir Frank Cooper, the payment deal
would have required Deso authorisation.

The money was not characterised as commission, but as quasi-official
fees for marketing services. The payments are alleged to have continued
for at least 10 years and beyond 2002, when Britain outlawed corrupt
payments to overseas officials.

SFO investigators led by assistant director Helen Garlick first stumbled
on the alleged payments, according to legal sources, when they unearthed
highly classified documents at the MoD during their three-year
investigation.

Before the investigation was abandoned, the SFO interviewed Alan
Garwood, head of Deso. Sources close to the arms sales unit say that he
and Stephen Pollard, the commercial director of the Saudi project, were
questioned about the reasons for authorising the payments.

Prince Bandar, currently head of the country's national security
council, was asked about the alleged payments by the Guardian this week.

He did not respond.

BAE Systems also would not explain the alleged payments. The company
said: "Your approach is in common with that of the least responsible
elements of the media - that is to assume BAE Systems' guilt in complete
ignorance of the facts."

Its spokesman, John Neilson, added: "We have little doubt that among the
reasons the attorney general considered the case was doomed was the fact
that we acted in accordance with ... the relevant contracts, with the
approval of the government of Saudi Arabia, together with, where
relevant, that of the UK MoD."

The attorney general's office would not discuss claims about Lord
Goldsmith's concerns of "government complicity" in the payments.

A spokesman said the SFO inquiry had been halted because of the "real
and serious threat to national security".

"There were major legal difficulties ... given BAE's claim that the
payments were made in accordance with the agreed contractual
arrangements". The spokesman added: "None of this is altered by the
Guardian story."

The MoD, where minister Paul Drayson runs Britain's government arms
sales unit, also refused to elaborate.

"The MoD is unable to respond to the points made ... since to do so
would involve disclosing confidential information about Al-Yamamah, and
that would cause the damage that ending the investigation was designed
to prevent," a spokesman said.

The Liberal Democrat deputy leader, Vince Cable, called for an urgent
inquiry into the new disclosures last night.

"This is potentially more significant and damaging than anything
previously revealed. It is unforgivable if the British government has
been actively conniving in under-the-counter payments to a major figure
in the Saudi government.

"There must be a full parliamentary inquiry into whether the government
has deceived the public and undermined the anti-corruption legislation
which it itself passed through parliament."

He added: "It increasingly looks as if the motives behind the decision
to pull the SFO inquiry were less to do with UK national interests but
more to do with the personal interests of one of two powerful Saudi
ministers ... Tony Blair's claims that the government has been motivated
by national security considerations look increasingly hollow."

Last month, Dr Cable raised the issue of BAE in the Commons and accused
Prince Bandar of benefiting personally from the Al-Yamamah deal.

The new disclosures may also make BAE's attempted takeover of the
US-based Armor Holdings more difficult. The deal requires approval from
US regulators.

Separately, the state department has protested to the Foreign Office
about the ending of the SFO inquiry, saying it undermines global efforts
to stamp out corruption by exporters.

Story of a £43bn deal

1985 Al-Yamamah agreement signed by Saudi defence minister Prince Sultan
and the then defence secretary Michael Heseltine. Saudis agree to buy 72
Tornado and 30 Hawk warplanes. The deal - "the dove" in Arabic - will in
time be worth £43bn to BAE

1989 National Audit Office (NAO) starts inquiry into allegations that
members of Saudi royal family and middlemen were secretly paid huge
bribes to land Al-Yamamah contract

1992 MPs and auditor general Sir John Bourn suppress NAO report after
government claims it would upset Saudis. Report never published

2001 Whistleblower alleges BAE operates "slush fund" to keep sweet the
Saudi prince in charge of country's air force, but MoD covers up
allegations

2004 Second whistleblower discloses to Guardian further details of slush
fund. Serious Fraud Office starts investigation into alleged BAE
corruption

2006 Government halts SFO inquiry; investigators were about to gain
access to Swiss accounts thought to have been linked to Saudi royal
family

2007 OECD, the world's anti-bribery watchdog, rebukes Blair government
for terminating SFO investigation, and launches own inquiry

*****

US protest on BAE inquiry fuels new row
By Jimmy Burns, Michael Peel, and Ben Hall
Financial Times: Apr 28, 2007

The US protest over Britain's decision to drop a probe into alleged
bribery of Saudi officials by arms manufacturer BAE Systems has
triggered fresh condemnation by opposition MPs and anti-corruption
campaigners.

The Financial Times revealed yesterday that a verbal rebuke for the
decision had been -delivered by an official of the US embassy in London
to the Foreign Office in January within days of the Serious Fraud
Office's investigation being called off last December.

Sir Menzies Campbell, the Liberal Democrat leader, said yesterday: "US
dismay at the British decision to discontinue the BAE investigation is a
grave embarrassment to the prime minister."

The Liberal Democrats have secured a debate on the issue in the Commons
on Tuesday after claiming they had not received convincing answers from
the government to a number of questions they had asked about the Saudi
deal including what it knew about the US position.

Mike Turner, BAE's chief executive, who has consistently denied any
wrongdoing by the company, has said the SFO inquiry has not had any
impact on the company's US expansion plans.

The decision to pull the plug on the SFO inquiry is expected to be
criticised tomorrow in a report by the Commons foreign affairs
committee.

The Labour-dominated committee is expected to say that the halting of
the SFO investigation into the al-Yamamah deal has damaged the UK's
standing in the fight against corruption overseas.

Jeremy Carver, a board member of Transparency International UK, said the
revelation of the diplomatic ticking-off from Washington made London's
attempts to defend itself at the Organisation for Economic Co-operation
and Development look "very shaky indeed".

He said London still needed to do something about the "really quite
rank" stench left behind by the decision to scrap the probe, which had
made other countries think they, too, could ignore the OECD's
anti-bribery convention.

Mr Carver urged London to make a strong statement in support of the
anti-corruption work of the Paris-based OECD. The UK also needed to
respond to pressure from the OECD and others to reform its
anti-corruption laws and properly resource investigations.

Nicholas Hildyard, res-earcher at The Corner House, an anti-corruption
group that has launched a court challenge to the decision to scrap the
inquiry, said the US intervention was "extremely welcome" and a "major,
major development".

The Foreign Office said yesterday the government still believed that
calling off the SFO probe was justified to "safeguard national and
international security".


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