How long can BAE, Britain's biggest arms company, run a secret service and trump the armed forces?

The parallel universe of BAE: covert, dangerous and beyond the rule of law

How long can Britain's biggest arms company run a secret service and trump the armed forces in political influence?

George Monbiot
Tuesday February 13, 2007
The Guardian

There is a state within a state in the United Kingdom, a small but untouchable domain that appears to be subject to a different set of laws. We have heard quite a bit about it over the past two months, but hardly anyone knows just how far its writ runs. The state is BAE Systems, Britain's biggest arms company. It seems, among other advantages, to be able to run its own secret service.

This week, Campaign Against Arms Trade (CAAT) hopes to obtain a court order against BAE. The order would allow it to discover how the arms company obtained one of its confidential documents. CAAT instructed its lawyers, Leigh Day & Co, to seek a judicial review of the government's decision to drop the corruption case against BAE, which is alleged to have paid massive bribes to members of the Saudi royal family. Leigh Day sent CAAT an email containing advice on costs and tactics. The email ended up in the hands of the arms company.

How? Correspondence between a plaintiff and his lawyers couldn't be more private. The last people you would show it to are the defendants in the case. But somehow the letter found its way to BAE's offices.

The arms company argues that it was the unwitting and unwilling recipient of the email. So why does it refuse to tell CAAT who sent it? Why, far from assisting CAAT's attempt to explain this mystery, has it threatened the group with costs for seeking to reveal BAE's source?

CAAT has good reason to be suspicious. In 2003, the Sunday Times revealed that BAE had carried out a "widespread spying operation" on its critics. "Bank accounts were accessed, computer files downloaded and private correspondence with members of parliament and ministers secretly copied and passed on." The paper said the arms company made use of a network run by a former consultant for the Ministry of Defence called Evelyn Le Chene. "Le Chene recruited at least half a dozen agents to infiltrate CAAT's headquarters at Finsbury Park, north London, and a number of regional offices." They provided BAE with advanced intelligence on CAAT's campaign against the sale of its Hawk aircraft to the Suharto dictatorship in Indonesia. The arms company also obtained CAAT's membership list, its bank account details, the identity of its donors, its letters to ministers, even the contents of private diaries belonging to its staff.

After the story was published, CAAT asked a team of investigators to examine the messages sent from its offices. They found that one of the group's most senior members of staff, the national campaigns and events coordinator, had sent 181 emails to an unfamiliar address. Many of them contained extremely sensitive information.

The coordinator, Martin Hogbin, denied that he was an agent of Le Chene's. He claimed that the mysterious email address belonged to a former CAAT volunteer, and that he had been sending him this information because he might find it interesting.

The investigators contacted the former volunteer, who told them that he had not received any messages from Hogbin, and did not recognise the address. CAAT took the case to the United Kingdom's Information Commissioner, who found that the email address belonged to "a company with links to Evelyn Le Chene". Both Le Chene and Hogbin refused to assist the investigations. If it was true that Hogbin was working for Le Chene, it would be a tremendous coup for her and her clients. As campaigns and events coordinator, he knew more than anyone else about CAAT's plans. If BAE were to obtain and make use of such intelligence, it could anticipate and outmanoeuvre the Campaign's attempts to expose or embarrass it.

BAE's spying operations represent just one way in which the company looks like a parallel state. It also appears to enjoy crown immunity. Last August, this column suggested that the Saudi corruption case might be dropped, in order to protect a new order for 72 BAE jets. It was not a hard prediction to make - Saudi Arabia had made the new deal conditional on the abandonment of the case. But I could not have guessed that both the attorney general and the prime minister would make such a show of squashing the investigation. They seemed to go out of their way to demonstrate to BAE's clients that they would do whatever it took to protect the new order, even if it meant exposing themselves to allegations of collusion.

The prime minister has never taken such a risk on behalf of one of his departments, let alone his ministers or officials (witness how Lord Levy and Ruth Turner have been left to swing). There are just two friends for whom he will put his legacy on the line: George Bush and BAE.

In 2001, Blair overruled Clare Short and Gordon Brown to grant an export licence for BAE's sale of a military air-traffic control system to one of the world's poorest countries, Tanzania. The World Bank had pointed out that the contract was ridiculously expensive - Tanzania could have bought a better system elsewhere for a quarter of the price. In January the Guardian revealed that BAE Systems allegedly paid a $12m (£6.2m) "commission" to an agent who brokered the deal.

In 2005, Blair made a secret visit to Riyadh to expedite BAE's deal with the Saudi princes. He then sent both John Reid and Des Browne to clinch the order. Ministers in the UK have always acted as unpaid salesmen for the arms companies, but seldom has a prime minister muddied his hands this much. Blair pushed the order through by promising the Saudis that they could have the first 24 planes ahead of schedule. How? By selling them the jets already allotted to the RAF. BAE's interests, in other words, trump the requirements of our own armed forces.

Blair has also broken his government's pledge to publish the report by the National Audit Office on BAE's dealings in Saudi Arabia. It remains the only NAO report never to have been made public. We can only guess why the prime minister needs to protect it.

It could be argued, with some force, that this government has always had a special relationship with big business, rather like its special relationship with George Bush (it gets beaten up and thanks him for it). But the special favours it grants BAE are deeply resented by other corporations. After the suppression of the Saudi case, F&C Asset Management, a very large institutional investor, wrote to the government to complain that its decision undermined the rule of law and the predictability of the investment climate. Hermes, Britain's biggest pension fund, said that it threatened the UK's reputation as a leading financial centre, and the chairman of Anglo-American wrote that the abandonment of the case "damaged the reputation of Britain".

At what point does the government conclude that this company has got out of control? That it presents a danger to national interests, to the reputation of the prime minister, to the privacy and civil liberties of its opponents? Why does it appear to be above the law? For how much longer will it be permitted to run what looks like a parallel secret service? Of all the questions we might ask of our ministers, these are the least likely to be answered.

George Monbiot is the author of the bestselling books The Age of Consent: A Manifesto for a New World Order and Captive State: The Corporate Takeover of Britain, as well as the investigative travel books Poisoned Arrows, Amazon Watershed and No Man’s Land.

He has held visiting fellowships or professorships at the universities of Oxford (environmental policy), Bristol (philosophy), Keele (politics) and East London (environmental science). He is currently visiting professor of planning at Oxford Brookes University. In 1995 Nelson Mandela presented him with a United Nations Global 500 Award for outstanding environmental achievement. He has also won the Lloyds National Screenwriting Prize for his screenplay The Norwegian, a Sony Award for radio production, the Sir Peter Kent Award and the OneWorld National Press Award. A full archive of his articles, with references, is available at www.monbiot.com.

The arms deal they called the dove: how Britain grasped the biggest prize

The Saudis want Iran whacked. Time to go after these sumbitches, folks.
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· No expense spared as UK wooed Saudi politicians
· US and France lost out on tens of billions

David Pallister
Friday December 15, 2006
The Guardian

The deal of the century, as it came to be known, took three years to complete. But when it was finally signed by Prince Sultan, the Saudi defence minister, on the Caribbean island of Bermuda in 1988 it provided British Aerospace with a stream of revenue worth around $2bn (£1.02bn) a year, with a current total that stands at more than $40bn.

It involved the sale of 72 Tornado fighters and 50 Hawk jet trainers, the construction of two airbases and a host of other equipment, training and spares, serviced by more than 3,000 UK experts stationed in Saudi Arabia. They called it Al-Yamamah: the dove.

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Britain's role as one of the world's top arms exporters was guaranteed by the partnership, but it was a close-run battle. In 1985 the Saudis were desperate to upgrade their defences. They were concerned even then about the spread of Islamic fundamentalism touching their Shia citizens in the oil-rich east, as well as the possibility of being drawn into the Iran-Iraq war, in which they took the side of Saddam Hussein. They approached France for its Mirage 2000s and the US for the F-15E, in the face of strenuous opposition from the Israeli lobby.

In the end Britain triumphed, due, in large part, to the intervention of Margaret Thatcher. She assiduously cultivated Sultan on his private visits to London and developed a close relationship with King Fahd, whose opinion of the British prime minister verged on infatuation.

The British party that flew to Bermuda to sign the memorandum of understanding included Sir Colin Chandler, head of defence export services and now chairman of easyJet; air vice-marshal Ronald Stuart-Paul, head of the Saudi armed forces project at the Ministry of Defence; and John Weston, the British Aerospace director in charge of the project.

The deal was immediately controversial and perpetually shrouded in secrecy. It was paid for by the delivery of up 600,000 barrels oil a day, with the money going into a dedicated MoD account. But given the Saudi royal family's propensity for extravagance and corruption, the allegations of kickbacks soon surfaced and have never gone away.

It was not only princes and their officials who were said to have benefited but also, allegedly, Mrs Thatcher's son, Mark, through his friendship with one of the intermediaries, the Syrian/Saudi billionaire Wafic Said.

Campaigners against the arms trade argued that Britain should not be selling war planes and military equipment to an undemocratic regime that practised torture. They claimed that the British government refrained from criticising Saudi human rights abuses, even when British citizens were involved, in order not to upset the arms sales.

Such was the sensitivity of the arrangement that a National Audit Office report in the early 1990s was, unprecedentedly, suppressed. The official British line has always been that this was a government-to-government contract, and no agents were involved. But evidence that commissions or bribes were paid by BAE, as it now is, and some of its sub-contractors such as Rolls Royce, Thorn EMI and Royal Ordnance, have been seeping into the public domain for years. Rolls Royce was even sued in the high court by agents acting for one of the princes because it had reduced the level of its commissions.

The alleged principal method for concealing the bribes was to increase the price of the goods; so, it appears, the Saudi princes were stealing from their people.

But after Al-Yamamah 1, the deal just rolled on. It was renewed in 1993 when Saudis agreed to buy another batch of 48 Tornado war planes. In a third stage, signed last year, Britain is selling up to 72 more planes, this time Typhoons.

The Guardian disclosed that accidentally released Whitehall papers, including a telegram from Chandler, revealed how the price of the Tornados had been inflated by 32%. Another document in the archives quotes a dispatch from a British ambassador saying the family of Prince Sultan "had a corrupt interest in all contracts". Two years ago this newspaper also revealed something of the quantity of money that was allegedly being passed around when it published details of the lavish BAE Systems hospitality showered on Prince Turki bin Nasser, the deputy head of the air force, and his family.

By then, the Serious Fraud Office had launched an inquiry into allegations; laws that came into force in 2002 made paying bribes on overseas deals a criminal offence. SFO officers have been trawling seized documents and have arrested and interviewed some BAE officials.

They unravelled details of arrangements for commissions being paid through Swiss bank accounts, and appeared to be about to approach the Swiss authorities for access to them. The scale of the alleged slush fund, concealed in Swiss bank accounts of Panamanian companies, may be as much as £100m.

BAE and all individuals have always denied any wrongdoing.

All the allegations have infuriated the Saudi royal family, not least because they have fuelled the resentment against the regime by its own militants and fundamentalists throughout the Muslim world.

In the past few weeks there have mutterings - aired by BAE Systems itself - that the Saudis are upset, the new Typhoon deal is in peril, and thousands of jobs are at risk if the Serious Fraud Office continues its investigations.

Key dates

Mid-1980s
Saudis keen to upgrade defences; consider French and US-made systems as well as British.

1985
Al-Yamamah deal signed by Saudi defence minister Prince Sultan and then defence secretary Michael Heseltine. Britain's biggest arms deal, it provides for the sale of 72 Tornado and 30 Hawk warplanes to Saudi Arabia. Worth £43bn so far. Al-Yamamah means "the dove" in Arabic.

1989
Deliveries begin.

1992
National Audit Office scrutinises the deal following allegations that members of Saudi royal family and middlemen were secretly paid hundreds of millions of pounds in kickbacks. But report is suppressed over fears it would anger the Saudis.

1993
Al-Yamamah deal renewed. Saudis agree to buy 48 Tornados.

1997-1999
BAE sets up offshore accounts in British Virgin Islands and Switzerland to move around large sums of off-balance-sheet cash.

2002
Laws come into force making it illegal to pay bribes to foreign public officials.

2004
Guardian reveals scale of hospitality BAE showered on Prince Turki bin Nasser, deputy head of air force.

2004
SFO launches investigation into corruption, including allegations that BAE Systems ran a multimillion pound "slush fund" to secure the Saudi arms deals.

2005
Third phase of deal sees Britain sell up to 72 Typhoon aircraft in £6bn deal.

2005
Sir Richard Evans, BAE chairman, interviewed by SFO.

Oct 2006
Guardian publishes documents showing how price of Tornado warplanes was inflated by £600m.

Nov 2006
SFO pursues evidence that millions of pounds of BAE cash was found in Swiss accounts potentially linked to the Saudi royal family.

A dangerous illusion

The idea that caving to Saudi pressure to halt the SFO's inquiry could be in Britain's national interest is absurd - and disastrous.

December 15, 2006 06:15 PM

Ian Davis

The decision to discontinue the Serious Fraud Office investigation into BAE Systems' arms deals with Saudi Arabia was not only a "shabby, shaming day, among the most inglorious" Tony Blair has spent in office, it is also one that leaves Britain less secure.

This arms deal with Saudi Arabia will ensure that Britain remains a target for al-Qaida, is almost certainly bad for British jobs and the economy, lacks transparency and accountability, drives a coach and horses through proposed tougher measures against corruption in international business and undermines UK leadership of an international arms trade treaty. Apart from boosting the coffers of BAE Systems and its shareholders, what does Britain gain from this highly visible, seemingly unquestioning appeasement of one of the most ineffective, corrupt and authoritarian regimes in the Middle East?

There are at least four grounds for disagreeing with the Attorney General's interpretation of the UK public interest in this case.

First, it is in Britain's national interest to promote our international standing as a democratic country that values the rule of law and seeks to promote it elsewhere. This decision not only undermines confidence in UK anti-corruption legislation, but also opens the door for other countries to apply political pressure to prevent criminal investigations that might conflict with foreign policy objectives. Will the Scotland Yard inquiry into the murder of former Russian spy Alexander Litvinenko be the next casualty should Vladimir Putin decide to threaten our access to gas and oil supplies?

And where does this leave Hilary Benn, appointed in June this year as our "ministerial champion" for tackling international corruption with the support of a new taskforce including the City of London and Metropolitan police? This will now be seen as a fruitless exercise and have no credibility with either domestic opinion or other governments.

How different the wheels of justice spin in Germany, for example, where the former junior defence minister, Ludwig-Holger Pfahls, was jailed in August 2005 for two years and three months on bribery and tax evasion charges stemming from a controversial export of 36 armoured vehicles to Saudi Arabia during the 1991 Gulf war.

Second, it is in Britain's national interest to promote restraint in international arms transfers. Indeed, down at the Foreign Office, Margaret Beckett, is supposedly championing an international arms trade treaty to ban arms transfers if they are likely to contribute to human rights violations, fuel conflict or undermine development. As one of the world's leading arms exporters, this was always going to be a difficult trick to pull off. The Saudi arms deal makes it nigh impossible.

The British arms industry has long been heavily dependent on one major deal: the al-Yamamah contract to supply Tornado fighter aircraft to Saudi Arabia, which was secured only after personal lobbying by Margaret Thatcher and after high levels of secrecy and commissions were guaranteed. Al-Yamamah accounted for 62% of all UK military exports from 1997-1999, but by the end of the millennium the deal was coming to a close, increasing pressure on BAE to secure a follow-up order for the Typhoon Eurofighter.

Built by a four-nation consortium, which includes Britain's BAE, the Typhoon was delivered to the RAF a decade later than first planned (hence the change in name from Eurofighter 2000), at a total cost for the UK alone of over £19bn, £12bn more than initially projected. That is about £350 for every adult and child living in the UK, the equivalent of paying £1.1m for every job that the project is said to sustain.

Like several other controversial arms deals agreed in recent years, the export of Typhoons to Saudi Arabia will breach a series of criteria outlined in the 1998 European Code of Conduct on Arms Exports. For example, the code requires consideration of the impact of any export on the preservation of regional security. President George HW Bush's 1991 Middle East Arms Control Initiative also called for a series of proposals designed to "restrain destabilising conventional arms build-ups", since the situation in the Middle East poses "unique dangers". Despite all this, the US and UK have carried on transferring vast quantities of destabilising weapons to the Saudis.

Similarly, the code states that arms exports should be compatible with "the technical and economic capacity of the recipient country, taking into account the desirability that states should achieve their legitimate needs of security and defence with the least diversion for armaments of human and economic resources". Saudi Arabia's weapons purchases over the past 20 years have been among the largest in the world, vastly outweighing domestic technical capability, with much of the equipment being operated or serviced by UK government officials and RAF personnel. In short, Britain is effectively running the Saudi air force.

This leads to my third point that it is in Britain's national interest to balance "UK/Saudi security, intelligence and diplomatic cooperation" in the war on terror with the pursuit of political reform in Saudi Arabia. There is a strong public perception in the Arab world that the ruling Saudi family is corrupt and exists in mutual dependency with the west. This has led not only to increased support for al-Qaida but also to fears of a palace coup. More recently, a steady stream of Saudis have become involved in the insurgency in Iraq, a further indication of the depth of support for radicalism in the Saudi state. Reconciling the tension within Saudi Arabia between an internal radical Islamic stance and an external pro-western policy can only be made more difficult by a further arms deal with the UK government.

Finally, it is also in Britain's national economic interest to remove the costly subsidies that underpin such arms deals. Lord Goldsmith's claim that "no weight has been given to commercial interests or to the national economic interest" carries no credibility whatsoever. Large defence export contracts have helped to ensure BAE's continuing viability, but at a significant cost for Britain. By 2003, for example, £1,015,166,892 of Saudi debt was guaranteed by the UK Export Credit Guarantee Department (ECGD), mostly for military exports. And industry claims that 50,000 UK jobs are at stake are pure fantasy. The Eurofighter consortium's own report (The Industrial and Economic Benefits of the Eurofighter Typhoon, June 2006) states that Eurofighter sales to Saudi Arabia would secure around 11,000 jobs throughout the whole of Europe. Fewer than 5,000 of these jobs would be located in the UK.

Moreover, studies by the MoD's own chief economist have suggested that a halving of military exports from Britain would lead to an increase in the numbers employed, as investments shift to less capital-intensive activities elsewhere in the economy. Because of the level of subsidy offered by the government to defence exporters (up to almost £1bn a year, for an industry that accounts for less than 2% of exports), the exchequer and the wider economy would clearly benefit from a shift in resources.

It is now almost 12 months since then defence minister, John Reid, signed the latest multi-billion-pound arms deal with Saudi Arabia. The deal has profound political and security implications - and the high likelihood that it is being underpinned by publicly-funded subsidies. Yet, with the exception of a few political commentators (such as George Monbiot) and a handful of parliamentary questions from Liberal Democrats, the silence from our guardians of truth and accountability has been deafening.

When the late Robin Cook took over foreign policy in 1997, in the wake of the arms-to-Iraq scandal, the promise was that things would be different. A stronger ethical or moral compass would guide Britain's relations with the rest of the world. Today, such an approach is needed more than ever, not only to enhance Britain's tarnished international reputation as result of an illegal war in Iraq, but also to dampen some of the poisonous thinking at home that led to the London terrorist bombings. An ethical foreign policy would also make Britain more secure. Unfortunately, Britain's ethical foreign policy appears to have been finally buried by the Attorney General's statement in the House of Lords yesterday.

Dr Ian Davis is executive director of the British American Security

Information Council (BASIC). With offices in Washington, DC and London, BASIC provides independent research, analysis, and advocacy on nuclear and WMD non-proliferation, missile defense, the international weapons trade, and global security issues. BASIC acts as a transatlantic bridge for policy makers and opinion formers on these issues, and seeks to promote public awareness of security and arms control in order to foster a more informed debate leading to creative and sustainable solutions.

Ian has a rich background in government, academia, and the non-governmental organization (NGO) sector. He received both his Ph.D. and B.A. in Peace Studies from the University of Bradford, in the United Kingdom. He has made high-level presentations in Washington, D.C. and in Europe on WMD non-proliferation and transatlantic security issues.

His publications include: The Regulation of Arms and Dual-Use Exports: Germany, Sweden and the UK, SIPRI/Oxford University Press (2002); Sailing Into Uncharted Waters? The Proliferation Security Initiative and the Law of the Sea, BASIC Research Report (2004); and Unravelling the Known Unknowns: Why no Weapons of Mass Destruction have been found in Iraq, BASIC Special Report, (2004).

Defense group's millions to arms trafficker

BAE paid millions into accounts linked to billionaire's bank accounts

28/11/2006 23h54

Eurofighter aircraft
©AFP/DDP/File - Timm Schamberger

LONDON (AFP) - Secret payments worth millions of pounds (euros/dollars) from British defence group BAE Systems have been found in the Swiss bank accounts of Syrian-born Saudi arms dealer Wafic Said, a report said.

Citing unnamed legal sources, The Guardian daily reported that investigators from Britain's Serious Fraud Office (SFO) wanted to investigate Said's accounts to see if he passed along any of the cash to members of the Saudi royal family, and if so, when.

It is part of a three-year investigation by the SFO into claims that BAE established a 60-million-pound slush fund for some members of the Saudi royal family, which allegedly provided perks including luxury cars to ensure that they kept doing business with BAE.

According to The Guardian, 68-year-old Said refused to comment on the allegations. He has previously conceded that he was an intermediary on Saudi arms deals over the past 20 years, and is credited with playing a major role in the Al-Yamamah deal between Britain and Saudi Arabia in 1985.

The deal has been the focus of the SFO inquiry. Said has always denied receiving commissions from BAE.

The Guardian reported that SFO investigators are checking to see if any payments were made after 2002, when Britain passed a law criminalising overseas corruption. The country is also party to an OECD agreement under which national interests are not allowed to block efforts to fight bribery.

Saudi Arabia threatened to suspend diplomatic links with Britain over the affair after SFO lawyers persuaded a Swiss magistrate to force disclosure of details about confidential Swiss bank accounts, this week's Sunday Times reported.

And BAE on Tueday hinted that negotiations between the two countries over the kingdom's purchase of 72 new Eurofighter aircraft have stalled, with a BAE spokeswoman telling AFP that the talks "have not moved at pace" since the end of Ramadan in late October.

The Financial Times reported that Saudi Arabia has gone as far as suspending the talks over the aircraft made by BAE Systems because of a row over an investigation into an alleged slush fund.

The FT had quoted BAE Systems chief executive Mike Turner as saying:

"We cannot speak on behalf of the two governments. But I do know we are not currently moving forward on finalising the Typhoon contract."

BAE Systems has sealed a series of lucrative deals with Saudi Arabia since 1985. The current Eurofighter deal is initially for 10 billion pounds (19.4 billion dollars, 14.8 billion euros), but the value of the agreement could rise to as much as 40 billion pounds for BAE through maintenance and upgrades.

According to unnamed officials from BAE and the British defence ministry, the Saudis are poised to sign a deal with France to buy 24 or 36 Rafale jets, the Financial Times said on Tuesday.

http://www.afp.com/english/news/stories/061128235206.y66st68p.html