BAE: a company out of control On 14 December 2006 the UK government…

BAE: a company
out of control
On 14 December 2006 the UK government dropped              decision that would be incommoding to British
the Serious Fraud Office investigation into BAE Systems    Aerospace". Tony Blair went out of his way to promote
arms deals with Saudi Arabia. The Attorney General         arms deals for the company (in Saudi Arabia, South
and Tony Blair tried to justify the decision in terms of   Africa, India) and overruled cabinet colleagues to
"national security" but it was clear that the              approve controversial arms export licences (to
determining factors were the interests and influence of    Tanzania, Zimbabwe). But the company's influence is
BAE Systems.                                               far broader and more engrained than this, not least
                                                           from spinning the revolving door to provide jobs for
                                                           influential political and military figures, and having
The arms company ­ BAE Systems                             executives on an array of high-level advisory bodies.

BAE Systems, the company that was British Aerospace
before it became too `global' for `British', is the        The buyer ­ Saudi Arabia
world's third largest arms producer. It makes fighter
aircraft, warships, tanks, armoured vehicles, artillery    The object of BAE's long-term attention is a royal
systems, missiles, munitions and much more. Its only       family that is oppressive and corrupt. It has an
significant non-military business, Airbus, was sold off    appalling human rights record with even the UK
in 2006.                                                   Foreign Office identifying Saudi Arabia as a "major
                                                           country of concern" in its 2007 Human Rights Annual
These arms are sold indiscriminately around the world      Report. King Abdullah's succession to the throne in
and the company thrives on insecurity. Its 2005            August 2005 was expected in some quarters to lead to
Annual Report candidly states that "New threats and        improvements. However, Human Rights Watch has
conflict arenas are placing unprecedented demands          reported that not only were these expectations not
on military forces and presenting BAE Systems with         met, but that there were "signs of backsliding on
new challenges and opportunities...". The company          issues of human rights defenders, freedom of
claims to have military customers in "some 130             association, and freedom of expression". Amnesty
countries", with its foremost markets being the            International's 2006 Report relates an escalation in
repressive Saudi Arabian regime and the US, to which       killings by security forces and armed groups which
BAE Systems has steadily been moving its business.         "exacerbated the already grim human rights situation".
Strides in this direction were the purchases of combat     Women continue to face severe discimination and little
vehicle and munition manufacturer United Defense           protection against violence in the home. This situation
and armoured vehicle maker Armor Holdings, giving          is paralleled for the millions of migrant workers.
BAE a major stake in the US's ground fighting in
Afghanistan and Iraq. Other export deals to areas of       No one appears to dispute that the Saudi regime is
conflict and widespread human rights abuse include         corrupt. And this corruption is much more than an
sub-systems for Israeli F-16 fighter aircraft and Hawk     afterthought when it comes to arms deals. It is a
light combat aircraft to Indonesia during its repression   motivation. In the words of the Financial Times the day
of East Timor.                                             after the investigation was dropped, "Military
                                                           spending... is used as a mechanism for distributing
Allegations of corruption in the aftermath of a major      wealth and power within the top ranks of the House of
BAE deal are a common occurrence. Once the Serious         Saud."
Fraud Office (SFO) had begun its investigation with
regard to Saudi Arabia, its investigation spread,          Lord Gilmour, Defence Secretary in the 1970s, stated
encompassing deals with six other countries.               in 2006 that in relation to Saudi Arabia, "You either
                                                           got the business and bribed or you didn't bribe and
The government backing: The UK government                  didn't get the business" (Newsnight 16.6.06). And a
provides astonishing levels of political and financial     1971 letter from the UK Ambassador to Saudi Arabia
support to the arms industry in general, and BAE in        to the MoD alleged that Defence Minister Prince Sultan
particular. Perhaps most importantly, the company had      had "a corrupt interest in all contracts". These two
a loyal servant in Tony Blair. In his autobiography,       examples might seem a long time ago, but they are
former Foreign Secretary Robin Cook observed "I            just as relevant now. Most strikingly, Prince Sultan is
never once knew number 10 come up with any                 STILL the Defence Minister! He is also now, with the
 Ongoing SFO investigations
 On 23 January 2007 the Solicitor         South Africa                            Czech Republic
 General confirmed that BAE               In October 2006 the SFO raided          In November 2006, the sale of
 Systems' dealings with six other         the offices of John Bredenkamp,         Gripen fighter aircraft to the
 countries were still under               alleged by the Guardian to be           Czech Republic became linked
 investigation.                           BAE's agent in the £1.6 billion         with the SFO investigation. The
                                          sale of Hawk and Gripen jets to         Guardian had said in 2003 that
 Chile                                    South Africa in 1999. In January        the US had accused BAE of
 In September 2005 the Guardian           2007 a Johannesburg newspaper,          "corrupt practice" following
 reported that BAE had secretly           the Mail & Guardian, published          reports from the CIA and rival
 paid £1 million to General               details of a leaked "mutual legal       arms companies, and that the
 Pinochet in return for help over         assistance" request from the SFO        Czech police had confirmed
 arms deals. The payments were            to South African authorities. The       bribery attempts by BAE. In
 said to have appeared in US              document contained details of           February 2007 a senior Swedish
 banking records, unearthed by a          alleged secret payments and             prosecutor started an investigation
 Chilean judge pursuing General           allegations that "there is              into the contract due to the
 Pinochet for tax evasion, and were       reasonable cause to believe" that       involvement of Saab, the part-
 made between 1997 and 2004. A            BAE and named executives had            BAE-owned manufacturers of
 SFO team is reported to have met         "committed offences of                  Gripens. Czech police re-opened
 the judge in Santiago.                   corruption."                            their inquiries.

 Romania                                  Tanzania                                Qatar
 In June 2006, with the arrest of a       In November 2006 both the Times         Following the sale of a package of
 BAE agent, it emerged that the           and the Guardian reported that          UK arms to Qatar in 1996, BAE
 2003 sale of two ex-Royal Navy           the SFO was investigating the sale      paid a £7 million "commission"
 frigates to Romania by BAE was           of a BAE military air traffic control   into three Jersey trust funds under
 under investigation by the SFO           system to Tanzania. In January          the control of Qatar's Foreign
 and MoD Police. Payments of £7           2007, following interviews with         Minister. A criminal investigation
 million in "secret commissions"          two Tanzanian middlemen, the            began in Jersey in 2000 but
 were allegedly made to clinch the        Guardian alleged that                   ended in 2002 on "public interest"
 £116 million ship refurbishment          commissions of $12 million, 30%         grounds. The Qatari Foreign
 deal.                                    of the value of the deal, had been      Minister denied any wrongdoing
                                          paid into Swiss bank accounts by        but agreed to pay Jersey £6m for
                                          BAE.                                    "perceived damage".


succession of King Abdullah (who was the                        on a £40 million deal for fuse assemblies for Tornado
Commander of the Saudi Arabian National Guard in                bombs (Guardian 14.11.94), and in 1997 a
the 1970s), Crown Prince.                                       Panamanian company served a writ against Rolls Royce
                                                                alleging that the company was willing to pay only £23
                                                                million of owed commissions in excess of £100 million
The deal ­ Al Yamamah                                           (Private Eye 9.1.98). Mark Thatcher was the subject of
                                                                allegations in the mid-1990s, as was Jonathan Aitken
The BAE-Saudi corruption allegations that were under            who was subsequently jailed for perjury. But none of
investigation by the SFO all relate to the massive Al           these seemed to concern the government. In 2001,
Yamamah deals between the UK government and                     when the SFO wrote to the MoD's top civil servant
Saudi Arabia. These deals were signed in 1985 and               about allegations, he not only prevented the MoD's
1988 and revolved around the sale of Tornado fighter            Fraud Squad from investigating, but also tipped off
and ground-attack aircraft by BAE, to be paid for in a          BAE's Chairman. (Guardian 13.10.03)
convoluted oil barter arrangement. The deals have
continued over the entire intervening two decades.              The investigation
BAE's Chief Executive has stated that, over this period,
the package has netted the company over £40 billion.            There seemed little likelihood that there would be a
                                                                way past BAE's blanket denials and the government's
Rumours of corruption surfaced within weeks of the first        refusal to act. However, from September 2003
Al Yamamah agreement and in 1989 the National                   Guardian reporters David Leigh and Rob Evans wrote
Audit Office launched an investigation. The resulting           a series of articles about an alleged BAE "slush fund"
1992 report was read by only two MPs at the time and            involving sports cars, prostitutes, gambling trips and
was never published. As the deal continued, so did the          yachts, and alleging that the company was "running
allegations. In 1994 the Chairman of Thorn EMI                  an international system of secret commission
admitted to paying huge commissions of 25 per cent              payments, using Swiss banks and a tiny island in the
Caribbean." The newspaper handed evidence to the           forward on finalising the Typhoon contract" (Financial
SFO and the following year, in November 2004, the          Times 28.11.06). Reports that the deal could go to
SFO announced that it and the MoD police had               French or US companies made the threats more
"commenced an investigation into suspected false           concrete. On 2 December the Daily Telegraph said
accounting" with regard to BAE and arms deals with         that Saudi Arabia had given the UK a ten day deadline
Saudi Arabia.                                              to halt the SFO investigation or lose the Eurofighter
                                                           contract. Shortly afterwards the Defence Industries
Threats to the investigation were reported almost          Council, consisting of the major arms companies,
immediately with the Sunday Times (14.11.04)               wrote to each member of the Cabinet complaining of
warning of an end to contracts if Saudi royals were        the "uncertainty" caused by the investigation.
embarrassed. But one year later, after visits by Tony
Blair and Defence Secretary John Reid to argue BAE's
case for more sales, the Saudis were reassured             The political intervention
enough to sign an "understanding" under which BAE
would supply 72 Eurofighter Typhoon jets. Guardian         Tony Blair could not resist intervening on behalf of
(27.9.05) allegations that the negotiations had been       BAE. The Attorney General who only a few weeks
stalled because the Saudis had made three demands,         before had said "I would not stop a prosecution on
one of which was the end of the SFO investigation,         political grounds", who was still struggling to regain
were denied.                                               any credibility after the fiasco of legal advice around
                                                           the invasion of Iraq, and whose role was also under
The Eurofighter "understanding" became an                  pressure due to cash-for-honours, capitulated.
"agreement" (signed by Prince Sultan of the "corrupt       Concern over his embarrassment was insignificant
interest in all contracts") and the government             compared to that over any caused to Saudi princes
confirmed that the Export Credits Guarantee                and a consequent threat to BAE's profits.
Department (ECGD) would renew insurance cover for
arms sales to Saudi Arabia, including the Eurofighter.     The only questions remaining were when to announce
All appeared to be progressing smoothly...                 the end of the investigation, who would take
                                                           responsibility for it and how it would be justified.
Until it seems the SFO got too close for comfort. The
Sunday Times (19.11.06) reported that the SFO had          When: There was a tight timetable. Whether or not
persuaded a magistrate in Switzerland "to force            the Saudi ten day deadline was real, it indicated the
disclosure about a series of confidential Swiss bank       level of urgency and Tony Blair was shortly due to
accounts" and on discovering this, in September            leave for six days in the Middle East. Fortunately, on
2006, the Saudis had "hit the roof", threatening to cut    Thursday 14th, the day before he was due to leave,
diplomatic links, intelligence co-operation and            the report into the death of Princess Diana was to be
payments on Al Yamamah, and delivering a 12-page           released. Add to this the widespread public concern
letter to Blair demanding an explanation of why the        over the serial killings in Ipswich and overall it seemed
investigation was continuing. From that point on, there    to be a very good day for burying bad news, so good
was a steady stream of press articles about the            that it might cover not only the dropping of the SFO
potential loss of the Eurofighter contract.                investigation, but also Blair's police interview over
                                                           cash-for-honours.
Both BAE and the Saudis were said to have briefed
Lord Bell's public relations company and a media and       Who should take responsibility: Though it was
lobbying campaign had obviously begun. The focus of        clear who must be seen to make the decision ­ the
the campaign was employment, the only argument             Director of the SFO ­ number 10 either forgot this or
that might hold some sway with the public and most         couldn't bear to be out of the limelight. Shortly after
MPs. The Daily Mail (25.11.06) reported that "this silly   the Attorney General had been very careful to say that
fraud probe" would cost 50,000 UK jobs. This               the SFO had taken the lead, Blair went out of his way
extravagant figure was also used by several other          to claim "full responsibility". And then Blair's
papers despite even a Eurofighter-commissioned             spokesman decided that the Attorney General's
report indicating that the real figure was less than a     assessment had been key. (Guardian 16.12.06)
tenth of this. The lower level of jobs, BAE's steady
relocation of its activities abroad, the costs to the      How to justify it: The only fig leaf available to the
taxpayer of subsidising arms exports, and the loss to      government was "national security". But it was
the civil economy of skilled workers, all combine to       reported that even MI6 could not sign up to this
give a very different picture of the economic              (Guardian 16.1.07). The Financial Times asked the
arguments.                                                 wider question of whether pouring arms into Saudi
                                                           Arabia really advanced UK and western strategic aims,
But the media campaign wasn't about a debate, it was       suggesting that "A bloated absolutist monarchy
about ending the investigation. On 27 November,            squandering fabulous public wealth is not exactly a
BAE's Chief Executive raised the temperature of the        recipe for stability." (15.12.06)
coverage by stating "we are not currently moving
Understandably, the Attorney General appeared to feel       historic victory for the campaign groups, the High
that more justification was needed and attempted to         Court quashed the SFO decision to terminate the
suggest that it was unlikely that there would have been     investigation. In a strongly worded judgment, the
a prosecution. This was not the opinion of the SFO          Court described how BAE and the Saudi regime had
Director who had "perhaps a different view" (Financial      lobbied Tony Blair and his ministers to have the
Times 16.12.06) with an estimated 18 months of the          investigation dropped. The judges went so far as to
investigation yet to run. The Attorney General's            describe the Saudi threat as a "successful attempt by a
argument was also completely at odds with the many          foreign government to pervert the course of justice in
reports of the investigation "hotting up", not to mention   the United Kingdom".
that the SFO had considered offering BAE a plea-
bargain shortly before the decision to end the inquiry.     Contrary to Blair's claim to be protecting the UK, the
                                                            High Court found that UK's adherence to the rule of
Meanwhile, Tony Blair knew that, despite the illegality     law had been undermined by the decision to drop the
of the argument, the only justification of any              investigation in the face of the Saudi threat. The
acceptability was `jobs' and he couldn't refrain from       judges, Alan Moses and Jeremy Sullivan, ruled that the
attempting the emotional blackmail. At his January          SFO's director "failed to appreciate that protection of
press conference he noted, "... That is leaving aside       the rule of law demanded that he should not yield to
the thousands of jobs which would have been lost            the threat". They added that surrender to a threat
which is not the consideration in this case but I just      "merely encourages those with power, in a position of
point it out". (Daily Telegraph 17.1.07)                    strategic and political importance, to repeat such
                                                            threats". It was the not the investigation, but the
                                                            decision to cut it short, that has endangered national
The fall-out                                                security.

There has been widespread condemnation of the               The judges were clearly annoyed that, as they put it:
termination of the investigation. Embarrassingly for the    "There is no evidence whatever that any consideration
government, the Organisation for Economic Co-               was given as to how to persuade the Saudis to
operation and Development (OECD)'s working group            withdraw the threat, let alone any attempt made to
on bribery wrote to the Foreign Office to ask why the       resist the threat". They then moved on to a vital point
SFO stopped its investigation, and a meeting of the         about motivations: "Too ready a submission may give
group in mid-January reported that it had "serious          rise to the suspicion that the threat was not the real
concerns as to whether the decision was consistent          ground for the decision at all; rather it was a useful
with the OECD Anti-Bribery Convention" (OECD                pretext. It is obvious, in the present case, that the
18.1.07). A further meeting in March humiliated the         decision to halt the investigation suited the objectives
UK government by deciding to send inspectors to find        of the executive. Stopping the investigation avoided
out why the investigation had been dropped and also         uncomfortable consequences, both commercial and
why the UK has yet to bring a single prosecution since      diplomatic."
incorporating the OECD's anti-bribery treaty into UK
law. (Guardian 15.3.07)                                     The Government almost immediately announced its
                                                            intention to appeal against the decision. The appeal
More widely, over 130 UK and international non-             will be heard by the House of Lords on 7 and 8 July.
governmental organisations including Amnesty                Considering the questions raised by the case to be of
International and Friends of the Earth wrote to the         general public importance, the High Court has
Prime Minister in January 2007 asking him to                ordered the Government to pay all the costs both for
reconsider. Major institutional investors Hermes and        the case so far and for the appeal regardless of the
F&C wrote to the government expressing their concern        outcome.
over the impact of the decision on the investment
climate and financial markets. An Early Day Motion          The High Court's decision means that the investigation
calling on the government to re-open the investigation      is technically reopened. However, the new director of
has been tabled by cross-party MPs. There have been         the SFO, Richard Alderman, has said that he will
Lib Dem sponsored debates in the Commons and                make no decision in practice until after the House of
Lords on the dropping of the inquiry, and Lib Dem           Lords has ruled on the appeal.
and SNP MEPs requested that the European
Commission investigate the decision.


The judicial review                                         Campaign Against Arms Trade
                                                            11 Goodwin St, London N4 3HQ
Shortly after the decision was announced, CAAT and          Tel: 020 7281 0297
The Corner House, a social and environmental justice        Email: enquiries@caat.org.uk
group, agreed to work to reinstate the SFO                  Web: www.caat.org.uk
investigation via legal action. On 10 April 2008, in a                                                   May 2008