Detective story that linked £1m Pinochet cash to BAE

Detective story that linked £1m Pinochet cash to BAE

· US investigators find 100 accounts linked to general
· Secret payments listed to alleged front companies

David Leigh, Jonathan Franklin in Santiago and Rob Evans
Thursday September 15, 2005
The Guardian UK

Augusto Pinochet, the 89-year-old former strongman of Chile and alleged torturer and murderer, has frequently slipped his pursuers, pleading ill health or relying on protectors at home in the Chilean military. But now an unexpected nemesis is pursuing him, in the shape of his tax returns.

The dogged pursuit of his multimillion dollar fortune by a Chilean judge, Sergio Muñoz, culminated last month in the arrest of General Pinochet's wife and son in Santiago. The hunt has unearthed a sophisticated array of bank accounts and offshore hiding places. It has also left Britain's biggest arms company, BAE, facing many questions in what may prove one of the biggest scandals to hit an already scandal-prone company.

The Chilean legal documents, based on US banking records, list secret payments by BAE to what are said to be front companies and middlemen for Gen Pinochet. They total $2,098,841 (more than £1m). The payments began in 1997, and the latest were recorded last year. A final $189,940 payment went into an alleged front company on June 30 last year. Many of the recent payments were not recorded in the name of BAE, but in that of Red Diamond Trading, an entity registered in the financial "black hole" of the British Virgin Islands. The company was set up in 1998 by a discreet subdivision of BAE at its Farnborough HQ. It has the uninformative title of HQ Marketing Services.

Its staff are frequent visitors to Switzerland, where they keep records of agents' contracts in a bank vault. Red Diamond Trading is used by Marketing Services to make covert payments to agents in South America who help BAE make arms and aerospace sales to Latin American governments. Documents obtained by the Guardian show that Red Diamond is not listed as a subsidiary in BAE's accounts, but transfers secret "commissions" on their behalf through Lloyds Bank.

Why would BAE pay Gen Pinochet all this money in so secret a fashion? The Chilean media accuse him of taking bribes for delivering arms sales, and there are two big arms deals in which BAE has been involved in recent years. One was the Rayo rocket system.

BAE wined and dined Gen Pinochet on visits throughout the 1990s, and in 1994 the Chilean military, of which Gen Pinochet remained commander in chief after he stepped down as president, agreed to set up a joint venture to produce the weapon. The Rayo fires a salvo of 24 high-explosive rockets at a time, at distances of up to 30 miles. The Chilean army is reported to have spent $60m on the project before pulling out of it in 2003, five years after Gen Pinochet retired as commander in chief to assume a new title as senator for life.

The second project is disclosed in a confidential bulletin of the Ministry of Defence's arms sales unit. It says BAE has a joint venture called Sisdef with the Chilean naval shipyards for "naval systems integration". There are opportunities, it says, to sell frigates, upgrade warships, supply offshore patrol vessels and provide radar and fire-control systems, as well as training. Britain sold the surplus frigate HMS Sheffield to Chile in 2003. The MoD lists Chile as a "key market". However, it has been illegal in Britain to make corrupt payments to foreign public officials since 2001. Legislation on money-laundering has also been tightened up since the terrorist attacks of 9/11 in the same year. The US bank documents list large, secret Pinochet-linked payments by BAE after that date - three of them in 2003 and five last year. Many of them go through a branch in Miami of Coutts, the British institution which looks after the Queen's money.

The Guardian asked BAE what was the purpose of the covert cash transfers to Gen Pinochet. Last night it said: "All BAE Systems' employees are required to act with honesty, integrity and fairness. We will not tolerate bribery or other attempts to improperly influence the decisions of customers or suppliers. We are committed to conduct our business to the highest ethical standards. We comply with the law in all countries where we operate."

The bank records implicating BAE have come to light as the result of a remarkable detective story. It, too, originated in the growing US concern about terrorist money laundering after 9/11. In Washington, a Democratic senator, Carl Levin, and a Republican colleague, Norm Coleman, launched an inquiry into the venerable Washington Riggs Bank. This followed reports that Saudi funds passing through it might have been used for terrorism.

What they found was so shattering that it led to the demise of the bank. Riggs executives had been profiting from handling the cash of criminals and dictators around the world. President Teodoro Obiang of oil-rich Equatorial Guinea was revealed to have looted millions and put it in his family's accounts at Riggs. Gen Pinochet had more than $8m squirrelled away. As the inquiry proceeded it turned up more and more accounts, drawing in more and more hitherto respected financial institutions. One was Coutts, which had first set up accounts for Gen Pinochet in 1993 at its Miami branch. When other banks closed down accounts hiding funds for Gen Pinochet, Coutts took them over. Coutts told investigators it did not realise that the octogenarian was the figure behind two offshore shells controlled by Gen Pinochet's Chilean financial adviser, Oscar Aitkin.

Last March, the senate committee produced a supplementary report, delving into more than 100 accounts Gen Pinochet had set up using false names, the names of his wife and children, or the name of his lawyer. In Santiago, Judge Muñoz seized on this evidence. Like Al Capone, the gangster who was eventually nailed by the US tax authorities, this investigation was seen as an alternative to the human rights cases brought against the former dictator which had stalled or expired as he claimed immunity or ill health. The Chilean authorities fired off legal requests to US courts to gain disclosure of the banking records. Handed over last month, these listed for the first time not only how much money Gen Pinochet had received, but where it had come from. European arms companies were high on the list. BAE was the most prominent.

· Story put together with help from the Chilean daily newspaper La Tercera

The payments

Payments from BAE Systems plc to offshore company Cornwall

December 1997 $573,783 ($70,000 immediately to secret Swiss account)

March 2000 $144,767

April 1 2003 $16,220

June 25 2003 $16,220

October 1 2003 $16,216

February 17 2004 $8,761

April 1 2004 $18,156

May 19 2004 $99,970

June 30 2004 $179,970

June 30 2004 $9,970

Payment from BAE Systems plc to offshore company Tasker

October 26 2000 $5,671

Payment from Red Diamond Trading Limited to Tasker

November 28 2000 $317,456

April 24 2001 £233,767 converted to US$334,931

June 11 2001 $27,205

October 16 2001 $329,545