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The Times: Al-Yamamah an echo of 1980s sleaze

February 21, 2007
David Robertson, Business Correspondent

The al-Yamamah arms-for-oil deal between Britain and Saudi Arabia is the largest export order signed by the UK, but even after 22 years its controversial legacy clings to those involved.

The names linked with al-Yamamah read like an encyclopaedia of the past two decades. They include Margaret Thatcher, Michael Heseltine, Mark Thatcher and Tony Blair.

BAE Systems, Britain’s prime defence contractor, has been the biggest beneficiary of al-Yamamah, which means “dove of peace” in Arabic, racking in $43 billion (£21.9 billion) from the Saudis since the deal was signed in 1985.

However, BAE’s relationship with Saudi Arabia has become the focus of much attention and both the company’s and Britain’s reputation is being dragged through the mud.

The Serious Fraud Office (SFO) began an investigation into BAE’s involvement in al-Yamamah in 2004 amid allegations of corruption, bribery and the use of a slush fund to entertain members of the Saudi royal family.

The investigation ground on month after month, gaining little traction outside the antiarms industry lobby. However, when the SFO tried to gain access to Swiss bank accounts with Saudi links, all hell broke loose. The UK’s relationship with the oil-rich nation was in danger of breaking down and the Prime Minister decided late last year to put national interests before the pursuit of justice.

The Government chose to make the announcement on December 14 — the same day that Mr Blair was interviewed in the cash-for-honours inquiry and that the inquiry into the death of Diana, Princess of Wales, reported its findings.

Lord Goldsmith, Attorney-General, told the House of Lords that because of a lack of evidence and national security concerns, the Government was shutting down the SFO inquiry.

BAE had just ten minutes’ notice of Lord Goldsmith’s statement and has been dealing with the fallout ever since. It has been found neither innocent nor guilty, but because of the allegations raised, and the way that the investigation was shut down, there is an impression that something fishy must have been going on.

For this reason, The Times is examining the al-Yamamah deal and BAE’s involvement.

The revolution in Iran and the subsequent war between Iran and Iraq convinced the Saudi royal family during the 1980s that it needed to bolster its armed forces. The Saudis had being buying planes from the British for years, but for most of the early 1970s had favoured the US, buying a large fleet of F-15 and F-5 fighter jets.

When the Israeli lobby held up further sales of the F-15, the Saudis began negotiations with the French to buy Mirages and the British to buy Tornados.

The French were the early front-runners, but Margaret Thatcher, then Prime Minister, was determined that the order should go to the UK. She aggressively courted both King Fahd and his brother, the Defence Minister, Prince Sultan.

Mrs Thatcher’s son, Mark Thatcher, was subsequently accused of receiving commission payments for helping to set up the deal, which he denied.

Al-Yamamah 1, as the Tornado contract is called, was agreed in 1985 and signed by Prince Sultan and Michael Heseltine in February 1986. A further order, al-Yamamah 2, was completed in Bermuda in 1988.

Last year Saudi Arabia announced its intention to go ahead with another defence contract with the UK. It will buy 72 Eurofighter Typhoons to replace the now ageing Tornados in a deal that could be worth £20 billion for BAE over the life of the aircraft.

The new deal, which The Times can reveal will be called al-Salam, or “peace”, differs from the 1980s contracts because the Saudi Treasury will pay for all the equipment.

The first two al-Yamamah deals were complicated oil-for-arms arrangements that cost Saudi Arabia a certain number of barrels of oil a day. This oil was transferred to BP and Shell, which in turn paid the value of the oil into an escrow account from which BAE received its money.

However, the ink dry on the first al-Yamamah contract was barely dry when allegations began circulating about huge commission payments to middlemen such as Wafic Said, the billionaire financier and benefactor of Oxford University’s business school. Mr Said denies receiving any money from al-Yamamah.

A National Audit Office investigation into the deal found that the UK government had paid no bribes, but the 1992 report has never been published and BAE’s role never clarified. The bribery suspicions intensified after the Government accidentally released to the National Archive documents detailing the cost of Tornados under al-Yamamah.

These documents, subsequently reclassified, were in the form of a telegram from Sir Colin Chandler, who was head of the defence export council and is now chairman of easyJet. The telegram showed that the price of the Tornados was being increased by a third to £21.5 million each, or an extra £600 million on the contract.

It has been alleged that this money was paid as bribes to Saudi officials and commissions to middlemen. However, after speaking to sources linked to al-Yamamah for much of the past 20 years, The Times believes that the picture is considerably more complicated.

These sources have revealed that the increase in the price of each Tornado was kept secret, partly because the Saudis asked for a weapons upgrade that it wanted to keep hidden from its aggressive neighbours, as well as Israel.

Secondly, money almost certainly was paid to middlemen, although it is important to note that this was not illegal for BAE before the introduction of antibribery laws in 2002.

Thirdly, a slush fund is believed to have been created (some estimates put its value at £60 million) to pay for “entertainment” of Saudi royalty and officials while they stayed in Europe. Some playboy Saudis did not want to pay for these allegedly lurid entertainments themselves in case word got back to their families in Saudi Arabia, a strict Muslim country.

Finally, sources familiar with al-Yamamah have alleged it was members of the Saudi royal family who asked for the increase in the contract’s value so that money could be diverted to Saudi-owned Swiss accounts.

It might seem strange for the Saudis to pay more to BAE and then ask the company to put that money back into their own bank accounts, but in an all-powerful monarchy, a prince who falls out with the King can lose a substantial income.

Al-Yamamah was a chance to create a rainy-day fund without it becoming obvious. No wonder that there was such consternation when the SFO began digging for dirt in Zurich.

There is little doubt that al-Yamamah, like many defence contracts, was a murky affair and through the Government’s poor management of the SFO inquiry the probity of all British business has been tainted.

It seems that al-Yamamah will not be remembered as the UK defence industry’s greatest success, but rather as a sleazy affair that typified the attitudes of the 1980s.

Players in controversial contract

Margaret Thatcher: The Prime Minister was heavily involved in persuading Saudi Arabia to buy British fighter jets. A Ministry of Defence briefing noted: “When, in the autumn of 1984, they seemed to be leaning towards French Mirage fighters, Mr Heseltine paid an urgent visit to Saudi Arabia, carrying a letter from the Prime Minister to King Fahd.” The King is reported to have become an admirer of Mrs Thatcher.

Mark Thatcher: The former Prime Minister’s son has been accused by Tam Dalyell, the former Labour MP, and others of receiving commissions from the al-Yamamah deal. One report suggested he got £12 million.

Mark Thatcher is alleged to have been working as a back-channel negotiator for Wafic Said, an adviser on the deal. Both Mark Thatcher and Mr Said have denied receiving money through al-Yamamah.

Jonathan Aitken: As Defence Procurement Minister in 1992-93, Mr Aitken was involved in renegotiating part of the rolling al-Yamamah contract. He was accused of having a stay at the Ritz in Paris paid for by a Saudi businessman, which the minister denied. Mr Aitken was later proved to have perjured himself when he claimed that his wife paid the bill. Also at the Ritz that weekend was Wafic Said.

Doing deals

1966: Britain sells Lightning and Strikemaster aircraft to Saudi Arabia for first time

1985: Margaret Thatcher and King Fahd agree al-Yamamah arms-for-oil deal’s first phase

1988: Al-Yamamah 2 is confirmed, taking deal to more than $40 billion

1992: National Audit Office refuses to publish findings on the al-Yamamah deal

1992-93: Jonathan Aitken, the Defence Procurement Minister, negotiating later part of al-Yamamah deal. It is to be the background to his perjury trial in 1999

2004: Serious Fraud Office looks at alleged corruption in al-Yamamah deal

September 2006: UK and Saudi Arabia sign statement of understanding to replace the Tornados bought in al-Yamamah 1 and 2 with 72 Eurofighter Typhoons to be built by BAE

November 2006: Saudi Arabia says the $20 billion Typhoon deal is at risk as the SFO tries to investigate Saudi bank accounts

December 2006: The Government cites “national security” for its ending of SFO’s Saudi Arabia inquiries

2007: SFO inquiries go on into BAE deals with Chile, Tanzania, South Africa, Czech Republic and Romania

Shopping lists

Al-Yamamah 1 included:

48 Panavia Tornado Interdictive Strike Aircraft (ground attack)

24 Panavia Tornado Air Defence Variant

30 BAE Hawk Trainers

30 Pilatus PC9 Trainers

2 Jetstream jets

Al-Yamamah 2 included:

48 Tornados

60 BAE Hawks

90 helicopters

Al-Salam:

72 Eurofighter Typhoons

http://business.timesonline.co.uk/tol/business/article1415469.ece

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