BAE accused of secretly paying £1bn to Saudi prince.

The Bandar Cover-Up: Who Knew What, and When?
Why are we surprised at this? The only method of diplomacy in this world is checkbook diplomacy. World wide leadership is corrupt, but only the "little guys" end up in jail. ---BBB

The Bandar Cover-Up: Who Knew What, and When?
By David Leigh and Rob Evans
The Guardian UK
Saturday 09 June 2007

Attorney general urged to clarify role in concealing $1bn payments to prince.

The government was last night fighting to contain the fallout over £1bn in payments to a Saudi prince as the attorney general came under renewed pressure to explain how much he knew about the affair.

While in public the government was issuing partial denials about its role in the controversy, in private there were desperate efforts to secure a new BAE £20bn arms deal with Saudi Arabia.

And any hopes that the furore could be halted were dashed last night when the Guardian learned that the world's anti-corruption organisation, the OECD, was poised to resume its own inquiry into why the British government suddenly abandoned its investigations into the £43bn al-Yamamah arms deal.

The OECD's anti-bribery panel will meet in Paris on June 19 and is expected to discuss the disclosures. When it travels to London, its inspectors are likely to ask ministers for a full explanation of their conduct.

Last night, the Liberal Democrat leader, Menzies Campbell, demanded to know the role of the attorney general in concealing from the OECD the payments of more than £1bn from BAE to Prince Bandar as part of the al-Yamamah contract.

The money was paid from an account at the Bank of England into accounts in Washington controlled by Prince Bandar. Details of the transfers were discovered by the Serious Fraud Office during the marathon investigation into BAE.

However, the SFO inquiry was suddenly halted late last year. Al-Yamamah, Britain's biggest ever arms deal, which was signed in 1985, involves the sale of Tornado fighter jets and Hawk aircraft.

The Guardian has this week published accusations that £30m a quarter - for at least 10 years - was paid into accounts controlled by Prince Bandar at the Riggs bank in Washington.

The attorney general yesterday categorically denied part of the Guardian story in the affair.

He said that he had not ordered British investigators to conceal the £1bn payments from the OECD.

The director of the SFO took responsibility for the decision to withhold information. In a statement, Robert Wardle said the decision was made by his own organisation "having regard to the need to protect national security".

The Guardian investigation has revealed that:

The attorney general became aware of these payments because of the SFO inquiry into BAE corruption allegations.

He recognised the vulnerability of the government to accusations of complicity over a long period in the secret payments.

There is no dispute that, as reported by the Guardian, the fact of the payments was concealed from the OECD when it demanded explanations for the dropping of the SFO inquiry.

UK government officials have been exposed as seeking to undermine the OECD process, and complaining that its Swiss chairman has been too outspoken.

When, before publication, the Guardian originally asked the attorney general's office who was responsible for concealing the information from the OECD, the newspaper was told: "The information presented to the OECD bribery working group ... was prepared by AGO and SFO".
The AGO is the attorney general's office. Both departments report to Lord Goldsmith himself.

Last night, when Lord Goldsmith was asked if the concealment was done with his knowledge, he said he could not respond. His spokesman had previously said that full evidence had not been given to the OECD because of "national security" considerations. He also refused to discuss the allegations concerning the payments. "I am not going into the detail of any of the individual allegations," he said.

It also emerged yesterday that Des Browne, the defence secretary, held talks this week with the Saudi crown prince, Prince Sultan bin Abdul Aziz - the father of Prince Bandar - to try to secure a £20bn arms deal for BAE Systems.

Sir Menzies said the attorney general had more questions to answer.

"If it is true that information about payments made to Prince Bandar was not given to the OECD, then that is an allegation of the utmost seriousness. It would be unsupportable for Britain to sign up to an international agreement on bribery and then fail to honour its obligations when an investigation comes too close to home."

The charges that could torpedo BAE
The charges that could torpedo BAE
Published: 10 June 2007
Independent UK

A new sub launched, two big deals in the offing, but scandal has broken the surface again. Danny Fortson reports

In any other week, BAE Systems would probably have been treated to an uncommon patch of positive press coverage. At a gala ceremony at Barrow-in-Furness in Cumbria, Europe's biggest defence company launched the UK's first nuclear-powered attack submarine in a decade. The 98-metre vessel is a monumental technical achievement that is more complex, claims BAE Systems, than the space shuttle. To mark the affair, the Duchess of Cornwall arrived by helicopter to name the new boat, called Astute, in front of 10,000 spectators.

Yet the submarine story was torpedoed by explosive new corruption allegations, which emerged last week, that BAE had paid more than £1bn to a Saudi prince in connection with his role in the negotiation of major arms deals struck back in the 1980s.

For chief executive Mike Turner, who resolutely denies any wrongdoing, the damage to the defence giant's image is worrying. As a big arms seller, BAE can hold out little hope of a sterling public image. However, the charges come amid a raft of other corruption inquiries, seven at the last count, into the group's operations around the globe.

The aim for Mr Turner, then, is to keep the group's worsening public image from hindering its business, which is currently in a particularly delicate position. BAE is closing in on a pair of multi-billion-pound deals in Saudi Arabia and America, its two most important foreign markets.

Both transactions - a £20bn fighter jet sale to the Middle East kingdom and a $4.1bn (£2bn) purchase of an American rival - are vital to the company's long-term health. The brewing corruption allegations threaten not just to derail one or both of those, but a reputation tinged by possible dirty dealings could make it harder for BAE to do business elsewhere in the world just as it tries to expand abroad.

The charges, published by The Guardian newspaper and the BBC's Panorama programme, relate to the £43bn al-Yamamah deal to sell 120 Tornado fighter jets to Saudi Arabia. Signed in 1986, it was the largest arms-export deal ever made by the UK government.

The story alleges that BAE, with the implicit approval of the Ministry of Defence (MoD), funnelled payments of £30m every three months to Prince Bandar bin Sultan, a key player in the deal, for over a decade.

Crucially, the alleged payments are said to have continued for a period beyond 2002, when new anti-terrorism legislation outlawing bribery of foreign officials came into effect.

In a statement, the Saudi prince denied any wrongdoing: "Whilst Prince Bandar was an authorised signatory on the accounts, any monies paid out of those accounts were exclusively for purposes approved by [the Saudi Arabian Ministry of Defence and Aviation (MODA)]. In addition, the accounts in question were audited on an annual basis by the Saudi Arabian Ministry of Finance on behalf of MODA. At no stage have MODA or the Saudi Arabian Ministry of Finance identified any irregularities in the conduct of the accounts."

For Mr Turner, the charges resurrect a story that he thought he had finally put behind the company. Last December, Lord Goldsmith, the Attorney General, announced the Serious Fraud Office (SFO) had dropped a two-and-a-half-year investigation into allegations that the defence group had set up a £60m slush fund, also in connection with the al-Yamamah deal.

The dismissal of the case was done on the grounds of national security. It spurred immediate allegations, however, that the Government had buckled to pressure from the Saudis, who were in the midst of negotiating a new contract for 72 Eurofighter Typhoon jets. The deal is worth at least £20bn. The Saudis had also threatened to stop co-operating on terrorism intelligence with the British Government. In the wake of the decision, the OECD launched its own investigation into the claims.

The SFO, meanwhile, has opened inquires into BAE deals in Tanzania, Chile, South Africa, Romania, Qatar and the Czech Republic. Last month, the Swiss authorities began a probe into money-laundering allegations against BAE in that country.

Throughout the original SFO investigation, BAE never wavered from its line, which stopped short of outright denial and instead held that it did nothing which contravened existing laws at any time.

"We have done nothing that can be in any way construed as breaking the law," says a BAE spokesman. "Any payments we made were done under the signed al-Yamamah contract with the express permission of the Saudi government and, where relevant, the UK government via the MoD. We provided over one million documents to the SFO over the last two and a half years that were reviewed by very senior investigators, but they found there was not enough evidence to continue with the case."

Analysts discount the possibility that the firestorm will lead the Saudis to pull out of the £20bn Eurofighter deal.

Indeed, BAE, which employs more than 4,500 people in the kingdom, has a strong, long-standing relationship with the authoritarian regime, despite its poor record on human rights.

For its part, the City has long taken a jaundiced view of the corruption allegations, seeing the dredging up of details of a deal done 21 years ago as having little to do with the company today. "Why don't we look at when Don Revie [then the manager of the national football team] left England to coach the United Arab Emirates in 1977? Why don't we investigate that? It's a ridiculous example, but that's how ridiculous it's getting," says an analyst speaking on condition of anonymity.

The Campaign Against the Arms Trade will present an oral argument to the High Court later this summer in an effort to force the SFO to reopen the inquiry. Jamie Beagent, the Leigh Day lawyer who is handling the case on behalf of CAAT, says the legal action is about recent infractions, not the events of the 1980s.

"This is not about what happened 20 years ago. It's about what has happened since it became a criminal offence in the UK to pay bribes," he says.

So far, the story hasn't hurt BAE's business. There is a worry, however, that the resuscitation of the possible corruption issues could inspire the American authorities to pick up the ball dropped by the SFO.

Washington took a dim view of the SFO's decision to drop the al-Yamamah investigation and lodged a formal protest in January. Last month, BAE announced the $4.1bn acquisition of Armor Holdings in America. The purchase of the maker of bullet-proof vests and Humvee armour will cement BAE's status as the Pentagon's biggest foreign supplier. Both the US Department of Justice and the Committee on Foreign Investment in the United States are reviewing the Armor deal and could block it.

BAE discounts that possibility, pointing out that the Armor purchase is the 16th it will have made in the US. It is also a much- better known entity to the American government than Dubai Ports, the Middle East group that was forced by American lawmakers concerned about national security to sell six American ports as part of a takeover.

The BAE spokesman says: "We're getting no signals from the US that we'll have a problem on this."

Further reading: To learn more about the Eurofighter, check out 'Eurofighter Typhoon: Storm Over Europe' by Hugh Harkins

We did it their way
We did it their way
10/06/2007
Telegraph UK

To Western eyes, Saudi Arabia's super-rich royal princes appear a confusing mix of pious Muslims and decadent playboys. But it is their distinctive approach to doing business that is now giving Britain a headache. David Harrison reports

Prince Bandar insists there were no secret commissions or 'backhanders'

Long after midnight, the party is in full swing, the music loud, the whisky and champagne flowing. In the penthouse suite at a five-star London hotel, six attractive young British women in short, tight dresses that leave little to the imagination, sashay between wealthy princes from Saudi Arabia, flirting and laughing more loudly than the Arabs' witticisms merit.

A silver dish of white powder, with matching spoon, is passed around. From time to time, a couple slips out of the suite only to reappear half an hour later and seek new friends. Others do not feel impelled to leave in order to share intimate moments and settle on a sofa or the four-poster in the main bedroom, oblivious of their fellow party-goers.

A British businessman standing by the window overlooking Hyde Park, drinks in the decadent scene, not sure if he has landed in heaven or in hell. "It was my first party with the Saudis, in the early Nineties, and it was a bit of an eye-opener," he recalls. "We'd been to the casino and I watched the princes gamble like there was no tomorrow. The money they threw around was staggering. Then we went upstairs for the party. It was shocking but fascinating."

One woman told him she was paid hundreds to attend and would earn much more by sleeping with one, or more, of the visitors. "She said she would get £2,000 for spending the night with a prince," he says. "The Saudis had their favourites and liked to think they were their girlfriends in London. They don't like to admit they are paying for sex."

advertisementDays later, back in their home city of Riyadh, the Saudi princes are on best behaviour. No alcohol, no drugs, no girls. Perhaps the occasional drink, but discreetly, in private, with close friends. They know a flogging awaits those who are caught with as much as a glass of Johnnie Walker by the mutaween, the dreaded religious police, who torture suspects with impunity. This is the country where Sharia law reigns, the Koran is the constitution, women are not allowed to drive and religious zealots hold sway over law and order in a delicate pact with the ruling House of Saud, the extended royal family that fills every government post and has 5,000 princes on its books.

In the capital's notorious Chop Chop Square, in front of sand-coloured buildings and a line of palm trees, the executioner brandishes his sword before swiftly cutting off a thief's right hand. If he offends again, the left hand will follow. On other days the executioner will behead a cuffed and blindfolded drug-dealer, rapist or murderer, watched by a rapt and approving crowd, who laugh and cry "Allah Akbar!" when the blood shoots into the air and cascades down on to their clothes. "Some Saudis think that beheading is too soft a punishment," said one veteran Saudi observer.

This authoritarian country, with its princes who are pious Muslims at home and libertines away, is also the one with which Britain signed its biggest export deal in 1985: the al Yamamah agreement to sell 72 Tornado and 30 Hawk warplanes for £43 billion, mostly paid in oil shipments, over 20 years. The deal, signed by the Saudi defence minister Prince Sultan and Britain's then defence secretary, Michael Heseltine, has been mired in controversy and corruption allegations for years.

The furore has erupted again. This time the claim is that BAE Systems, Britain's biggest arms manufacturer, paid more than £1 billion into two Washington accounts controlled by the former Saudi ambassador to the US, Prince Bandar bin Sultan, the Saudi defence minister's son, over more than a decade. The payments, made on a quarterly basis, were allegedly written into "secret annexes" of the al Yamamah contract for the provision of "support services'', with the full knowledge and approval of the Ministry of Defence.

MPs have demanded an inquiry into whether government ministers were involved in corruption. A criminal investigation by the Serious Fraud Office - which is understood to have discovered the payments but not whether they were illegal - was controversially dropped "in the interests of national security" last year, after Tony Blair warned that the Saudis, vital allies in the war on terror and a stabilising force in the Middle East, would stop sharing anti-terrorist intelligence if the inquiry continued.

Many who have lived and worked in Saudi Arabia or done business with the Gulf state say the claims, to be broadcast by BBC's Panorama tomorrow, show a failure to understand Saudi culture. "It's totally different from ours," says Jonathan Aitken, the former defence minister who took part in key negotiations over the al Yamamah contract in the early 1990s. "The Saudi monarchy is similar to a Tudor monarchy in that servants of the Crown are rewarded for doing their public service faithfully and well. They believe people are entitled to a slice of the action when they help with something like a big contract."
We did it their way

No British minister was told anything about the alleged payments, he says. "But living in the real world there were always going to be some parts of the contract - training, spares and construction, for example - for which agents would receive commission. Sales commission is what makes the world of commerce go round. The big picture is that Saudi Arabia is a crucial ally for intelligence and is a stabilising influence in a volatile region."

Mr Heseltine agrees. "If this is the way the Saudis want arrangements for their procurement programme, an international company would have had no choice but to go along with that. It's massively important to us and the stability of the Middle East that we have those defence interests in Saudi."

Doing business with the Saudis is not like doing business in the West. Deals take longer, typically 18 months to two years, to finalise. "The Saudis like to get to know and trust you," says David Lloyd, a senior consultant for the Middle East Association, who makes regular trips to Saudi Arabia with trade missions. "They like to see your face, look you in the eye and expect to meet the same people each time. They treat you as a guest in their country and set great store by personal relationships with all countries, not just the UK."

The Saudi royals also like to entertain and expect to be entertained in turn. In their home country that will consist of lavish dinners, with the finest food, in elegant surroundings. Abroad they will expect at least the same, but often much more, especially in Western Europe. Mr Aitken, though, says that senior members of the Saudi royal family did not ask for prostitutes or drugs during his time in office. "We took them to see shows like Chicago and then we would get a table at Annabel's," he said. "They were dignified and, on the whole, they did not get up to those squalid antics."

The "whisky and women" were usually demanded by less senior members of the ruling family, says one former diplomat in Riyadh. "There are about 5,000 Saudi princes and a lot of the younger ones, especially, like to do things that many men of their age do. They are very restricted in their country so it's understandable that some go a bit wild when they are over here." Even in Saudi Arabia, he said, there was much discreet drinking, not just among expatriates but also the locals. "Saudi is the only country where I've seen a jeroboam of Chivas Regal. The owner was a Saudi," he said.

Despite its vast oil wealth (it holds 25 per cent of the world's oil reserves), Saudi Arabia is a backward country run by a curious coalition of the large, nepotistic House of Saud and the fundamentalist Wahhabi religious leaders. The Saud family has ruled the desert kingdom since 1932, when King Abdul Aziz Al Saud united warring tribes under Sharia law. It has a historic connection with the Wahhabis, a branch of Islam to which many of the al-Qaeda members involved in the 9/11 attacks belonged, but there have been growing tensions since the accession of King Abdullah, two years ago. The clerics are resisting the king's attempts to liberalise education and give women more freedom.

One of Abdullah's first appointments was to make his nephew Prince Bandar, the Western-friendly "Mr Fixit" and the central figure in the al Yamamah row, his national security adviser. The cigar-smoking prince has been friendly with British prime ministers and US presidents since the days of Margaret Thatcher and Ronald Reagan and is particularly close to George Bush Snr and his son, hence his nickname "Bandar Bush".

Described as charismatic and charming, he glides easily between the West and the Gulf. He trained as a fighter pilot in the US and at RAF Cranwell, but friends say there is no doubt where his true loyalties lie. "The home team is Saudi Arabia," says William Simpson, his biographer and former RAF classmate. The prince has certainly enjoyed the fruits of his al Yamamah labours: he has a personal Airbus, painted in the silver and blue colours of his favourite American football team, the Dallas Cowboys, and landing rights at RAF Brize Norton, close to his 2,000-acre Oxfordshire estate at Glympton.

It was Mrs Thatcher who approached Prince Bandar in December 1984 to ask for his help in winning BAE a new weapons contract. He cleared the deal with the Reagan administration - unable to sell to Riyadh because of pro-Israeli opposition in Congress - then flew to London to meet Charles Powell, Mrs Thatcher's private secretary, and other key officials. In the summer of 1985, he flew to Salzburg, where Mrs Thatcher was on holiday, with a letter from the Saudi king, Fahd, to seal the deal, according to Simpson's book, written with the Prince's co-operation. "I told her specific numbers, shook hands, and the deal was done," he is quoted as saying. The contract, the first instalment of a 20-year deal, was the fourth with BAE since 1967 in which commissions of up to 15 per cent had been passed to Saudi royals with Downing Street's backing, according to British archives.

Two other figures said to have played smaller roles in the deal are Wafic Said, the Syrian-born billionaire, and Mark Thatcher, the Prime Minister's son. Both are said to have acted as advisers. Mr Thatcher has denied that he received up to £12 million as part of the agreement.

The mystery over what was paid to whom and why in the deal has deepened because the Government, BAE and the Serious Fraud Office have declined to comment for "national security" and economic reasons. Mr Blair said the completion of the investigation would have led to the "wreckage of a vital interest to our country" and the loss of "thousands of British jobs".

Prince Bandar insists there were no secret commissions or "backhanders". The payments were in the contract and any money paid from the accounts was "exclusively for purposes approved by the Saudi Arabian ministry of defence and aviation", he says. On another occasion, when asked about payments, he responded more robustly. "So what?" he said. The Saudis had created a successful country from very little and that was a great achievement, he added.

So far, the new allegations have changed nothing, but pressure on the Government is growing. There is concern that BAE will suffer from the termination of the investigation: South Africa is under investigation over a BAE deal and although President Mbeki is co-operating with the SFO, he is furious over the different treatment of his country and is expected to put Britain under pressure to drop the inquiry.

Washington, too, remains suspicious. For years, US defence companies have refused to buy from BAE, because it might fall foul of America's Foreign and Corrupt Practices Act. They are unlikely to feel better about it now.

Meanwhile, the Saudi princes continue to party, albeit more discreetly "They are a bit less flash nowadays," the British businessman said. "But they still like to live it up in London." And still the stories come.

Two months ago, it was claimed that, in 2001, two British actresses were paid tens of thousands of pounds from a slush fund, set up by BAE, to entertain another Saudi prince involved in the al Yamamah deal. And in October, last year, the 24-year-old model girlfriend of a Chelsea footballer was exposed as a former £1,000-an-hour prostitute, paid to take part in orgies and sex shows for rich Arabs.

"They love the capital's nightlife and they love London's women," says one former diplomat. "They are really off the leash when they come over here."

With oil prices high and the Saudi economy booming, it seems the hedonistic London parties are far from over for the desert kingdom's elite.