Sunday, December 17, 2006

BAE arms deal with Saudi Arabia

Scandalous inquiry

Leader / Editorial

Daily Telegraph 15 December 2006

Yesterday's announcement that the Serious Fraud Office is to suspend its investigation into BAE Systems' multi-million pound arms deal with Saudi Arabia was made, in the words of the Attorney General Lord Goldsmith, "in the wider public interest". That is to say, in plain language, it was made under political pressure from Downing Street.
The SFO's decision brings to an end a rather absurd episode in which a country which is a major ally in the war on terror, as well as being Britain's largest foreign defence customer, was provoked to the point of threatening to withdraw a major contract from a British company. The collapse of the contract with BAE Systems would have been likely to have put thousands of defence industry jobs at risk.
The origins of this near-calamity, which saw the SFO examining an alleged £20 million slush fund linked to Saudi arms deals, involved probing apparent offences that occurred in the 1990s when the kind of questionable payments that provoked the investigation were legal.
In effect, the SFO seemed to have taken it upon itself to make the 2001 Anti-terrorism, Crime and Security Act – which does outlaw such payments – retrospective (in spite of the fact that the wording of the legislation does not make it so). Thus, by maintaining the letter of the law, the Government has been able to order the winding up of an officious investigation that should never have begun.
In the end, the Prime Minister (and the Attorney- General) had their hands forced by an ultimatum from Saudi Arabia: that, if this investigation was not halted within 10 days, it would take its business – which included the commissioning of Eurofighter jets – elsewhere, presumably to France.
The loss of this hugely valuable contract and its immediate consequences for Britain's defence industry, not to mention the more long term-effect of such an estrangement with Saudi Arabia, seem to have concentrated the minds of the Government in the nick of time. As for the SFO, whose track record is less than glorious, it once again faces the challence of having to rebuild its credibility.

The BAE affair sends all the wrong signals

Leader / Editorial

Observer 17 December 2006

Political debate is like a card game in which principle and pragmatism are bid against one another like rival suits. Then the government plays 'national security' as if it were the ace of trumps, hoping to clear everything else from the table.
In the case of BAE and the al-Yamamah contract to supply arms to Saudi Arabia, principle called for respecting the law. The company was accused of bribery in securing the deal, an investigation by the Serious Fraud Office was under way, it ought to have run its course. Pragmatism, however, warned that thousands of jobs and billions of pounds of investment were in jeopardy and, since the investigation might never lead to a prosecution, shouldn't it rather just go away?
Last week, it went away, dismissed by political fiat. The Prime Minister signalled his sensitivity to economic arguments. But he insisted they were not what swayed him. 'Leave that to one side,' he said. 'Our relationship with Saudi Arabia is vitally important ... in terms of counter-terrorism, in terms of the broader Middle East.'
The attorney general acknowledged 'the need to maintain the rule of law', but decided it was subordinate to 'the wider public interest', chiefly 'UK/Saudi security, intelligence and diplomatic cooperation'. Neither Lord Goldsmith nor Mr Blair explained what Britain gets from Saudi Arabia that is so precious as to outbid the law. Such details are confined to secret briefings. National security, the ace of trumps, end of argument.
There is no doubt the Saudis were upset by the SFO investigation. They had threatened to take their custom elsewhere. BAE executives, who denied any wrongdoing, were equally displeased. Both parties are adept at lobbying government to bend to their will. Nor is there doubt that Britain's relationship with Saudi Arabia is of strategic importance. The Gulf kingdom is the world's largest oil exporter. As guardian of Mecca and Medina, two of Islam's holiest cities, it has a good claim to be the most important Muslim country in the world. Its chief rival for that status is Iran, a country deeply hostile to UK interests.
Saudi Arabia backed Britain and its allies in the first Iraq war and was quiescent in the second one. It is a source of intelligence on terrorist suspects. Saudi wealth and military capability cannot be ignored in any facet of Middle Eastern diplomacy. The Saudis may be prickly allies, but as enemies they would have tremendous opportunity to do us harm.
So the government decided that the Saudi alliance was more important, in the long-term, than anti-corruption law.
But the long-term view accommodates many variables. Saudi Arabia is an ally today. It is also a theological epicentre of Islamic extremism and, despite official attempts to contain them, an exporter of jihadi mercenaries and terrorist finance. It is a brittle regime, held together by repression. Should the House of Saud fall, there is no predicting what use might be made of billions of pounds of British armaments.
Meanwhile, Britain has signalled to the world that, where defence contracts are concerned, it has a flexible code of business ethics. It appears not to frown on the use of prostitutes or payments to slush funds to help secure a deal. It has also signalled that the office of the attorney general is not independent, as it ought to be in a democracy, but takes its orders from the Prime Minister. Those signals also carry consequences, corroding public trust and damaging the reputation of British business.
The real long-term view recognises that upholding the rule of law is not in conflict with the 'wider public interest'. It is what gives government legitimacy, without which it has no authority to dictate what is or is not a matter of national security.

Cash for Dishonour

The background to the Saudi case is complex — the conclusion is unfortunate

Leader / Editorial

Times 15 December 2006

With all of yesterday’s dramatic news, it was no bad day to bury the most awkward of announcements. The decision by the Serious Fraud Office to drop the two-year fraud investigation into a multibillion-pound arms deal leaves an acid taste.
The explanations that have been offered for this sudden move are too flimsy to hold weight, or are frankly incredible, in this inquiry of such extreme political sensitivity.

Of the several reasons offered yesterday, the most provocative is the Serious Fraud Office’s statement that “it has been necessary to balance the need to maintain the rule of law against the wider public interest”.
The public will want to know far more than the blithe phrases offered yesterday about the Government’s definition of that public interest to be satisfied that a principle so fundamental has been set aside with due cause.
The roots of the row over the arms deal involving BAE Systems stretch back many years. The heart of the investigation is whether the terms that originally secured the deal for Britain were legal, or whether incentives that might be deemed bribes were paid. BAE, which has repeatedly said it was co-operating with the Serious Fraud Office, has insisted that it had done nothing wrong. But the allegations were serious and a formal investigation was essential.
Lord Goldsmith, the Attorney-General, offered one, comparatively uncontroversial reason yesterday for the quashing of the investigation. The decision, he said, was based partly on his assessment of “the evidence and likelihood of a prosecution, coupled with legitimate public interest considerations in proceeding with an uncertain investigation”. There is little room to argue with a judgment that the case would fail on its own merits, if that were the whole of the reasoning. But the scepticism — and anger — that greeted yesterday’s decision is driven by suspicion that this is far from the whole picture, and Lord Goldsmith made clear that there was an important political dimension to his decision.
Saudi Arabia had made obvious to the Government its opposition to the inquiry. At the same time, Britain is now in competition to secure a contract for 72 Eurofighter Typhoon combat jets. It is impossible not to speculate that the fate of the deal has hung on the fate of the investigation.
That is why the SFO’s assertion that “no weight has been given to commercial interests or to the national economic interest” provoked incredulity. There must also be a question about whether Saudi Arabia might withhold wider cooperation in Iraq and in the fight against terrorism should relations with Britain cool. Recent weeks have brought new tension in its relations with the US, and a clear warning from Riyadh that should the Americans pull their troops precipitously out of Iraq, then the Saudis might feel obliged to back Sunni militants.
Our society is based on the rule of law. The explanations that have been offered are nugatory or unconvincing. That the investigation was uncertain is insufficient reason for dropping it. So is the Attorney-General’s judgment at this stage about the likelihood of a prosecution. When this fundamental principle of the rule of law in our society is set aside, for whatever reason, we are a lesser country.

We've changed in three years: have you?

Mohammed bin Nawaf Al Saud

Sunday Telegraph 17 December 2006

Following weeks of speculation, and a three-year enquiry into events that happened 20 years ago, the British Serious Fraud Office (SFO) investigation into BAE Systems came to an end last week. In those three years we have seen wars and natural disasters devastate many areas of our world: we have witnessed the bloody invasion of Iraq. We have watched in horror an illegal wall being built across Palestinian territories by Israel. And we have fought an international battle against the evil of terrorism: bombs have reaped a heavy toll on both our capital cities.
But more positively in those three years we in Saudi Arabia have experienced our first ever transparent elections to local councils, seen the further expansion of our Shura Council, enacted new laws, joined the World Trade Organisation and pledged our loyalty to a new king.
Three years is not a short time. As our Foreign Minister, Prince Saud Al Faisal, said when asked to comment on the SFO investigation: "This is no way to deal between two friendly countries." We have been perplexed by the interest in events which happened so long ago. Twenty years ago Saudi Arabia was a very different country.
I want to make it absolutely clear that the government of Saudi Arabia today will not and does not condone fraudulent or corrupt behaviour of any kind and would take firm action against anyone found to be involved in fraudulent activity or found accepting or offering bribes of any kind. This is against the law. This should clarify any misperceptions about the Kingdom. We cannot rewrite the past, but we must look together towards the future.
We want to continue doing business with UK companies and we want that business to be transparent and positive. This year we have supported four conferences urging British businesses to take advantage of significant opportunities available to them in the Kingdom. We are going through a period of extraordinary growth with projects worth $624 billion being undertaken.
But our friendship for Britain is not based on economic interests alone; rather, it has grown out of mutual respect and a long-standing strategic partnership. We have supported one another during desperate times including the Second World War and first Gulf War.
My mission here is to develop and improve our relationship on every level: culturally, economically and politically. Our security services have worked closely and cooperated in joint efforts to defeat the evil of terrorism. This is an evil that goes against everything we both value. We as a country have been scarred by terrorism and terrorist activity. We are the victims of terrorism. These evildoers have targeted us as us much as all and any of our friends. We are absolutely determined to defeat this evil within our own community, within the region and within the wider world.
Beyond this strategic alliance we need to understand one another better. I have enjoyed visiting Britain for many years. Indeed, two of my children were born here and I am proud that two of my other children, like thousands of Saudi students, have graduated from your prestigious universities. I believe that it is only by visiting a place that you really begin to understand it and I would like to extend an invitation to all interested British people to visit Saudi Arabia so that they can get to know us better.
The Holy Quran says: "Oh mankind! We created you from a single (pair) of a male and a female, and made you into nations and tribes, that ye may know each other."
In a world grown smaller through information technology, we must celebrate our differences and learn to trust our friends, to understand what draws us together, our joint values of faith, family and belief in the sanctity of human life.
Today this is more important than ever. As the Custodian of the Two Holy Mosques, King Abdullah said at last week's Gulf Cooperation Council summit: "We are beleaguered with dangers making our region like a powder keg awaiting an exploding spark… We need no ambiguity… We need to stand together and speak with one voice."
We call on you to stand with us in confronting these dangers. Any withdrawal by British and American troops from Iraq should be considered carefully. We believe that precipitate action could lead to further violence.
In Iraq the daily tally of disaster and death is a gaping wound. Many people may wish the war in Iraq had never occurred, but we cannot go back. We cannot leave Iraq to implode. Instead we have to work together towards a better tomorrow. That peace, stability and unity has to come from a desire within Iraq: but together, as an international community, we must help the Iraqi people reach that goal. My country is part of the solution; we were never part of the problem.
It is also essential that we work together to find a just and comprehensive solution to the Arab-Israeli conflict. The ongoing despair of the Palestinians helps fuel terrorist activity infecting our world today. As the recent US Iraq Study Group report highlighted, resolution of this problem is central to the search for peace within the region. We are ready to play our part to the full. The King Abdullah peace plan, endorsed by all Arab countries, is already on the table. We ask that you help us in pushing that peace process forward. We welcome Mr Blair's current visit to the Middle East and his renewed attempts to bring this peace to fruition and to bring the suffering of the Palestinian people to an end.
We want to work with Britain in all these areas: as allies in the war against terror and in the search for peace in the Middle East; as business partners in further developing our country and our economy and as friends, learning to better understand and respect one another.

• Prince Mohammed bin Nawaf Al Saud is the Saudi ambassador to Britain and Ireland


Brutal politics lesson for corruption investigators

David Leigh and Rob Evans

Guardian December 16, 2006

A brutal moment came last Tuesday for the 15-strong team from the Serious Fraud Office, led by assistant director Helen Garlick. The team's leaders were ordered down to Lord Goldsmith's offices in Buckingham Gate with their boxes of files. These contained the fruit of more than two years' digging into allegations that huge Saudi bribes had been paid by arms group BAE Systems to get weapons deals.
In Switzerland, in the federal prosecutors' office in Berne, another box of files was also sitting, waiting to be collected. It was the hottest potato of all. The Swiss dossier contained print-outs of BAE's recent offshore banking transactions with key Saudi middlemen. The normally highly-secret bank records had recently been secured by the authorities at the British investigators' request.
The SFO believed the banking files could unlock the answer to three questions: Were members of the Saudi royal family receiving secret British pay-offs? Were offences committed under UK law? And had BAE lied to the Department of Trade and Industry to get insurance cover when the company recently claimed it had cleaned up its act and got rid of its confidential Saudi agents?
But the events of the next 48 hours ensured that the SFO would not be allowed to collect those files. Instead came a sudden harsh lesson in the realities of power and politics in Blairite Britain.
In trawling through the case-papers, the attorney general appears to have had both an agenda and a careful timetable. Within 48 hours, he had informed his own law enforcement officers that there were severe technical and legal difficulties in bringing any prosecution.
His timetable, critics suggest, required him to make his statement on the day the Diana death inquiry was published, which would distract attention. Even more significantly, the announcement allows the prime minister to depart for the Middle East this weekend with the SFO's surrender in his pocket.
Message
The prime minister had already said that he did not want "ill-feeling" with the Saudi regime. Des Browne, the defence secretary, chimed in with the same message. A well-orchestrated PR campaign, involving BAE's own lobbyists, veteran fixer Tim Bell and the BAE-dominated "defence exports services organisation" at the MoD, was already setting up a chorus that the latest Saudi arms contract, for 72 Typhoon aircraft was in danger, threatening up to 100,000 jobs.
Newspapers repeated these scare stories uncritically, although a York University study says the deal only involves 5,000 British jobs. Trade unionists and MPs with BAE factories in their constituency were briefed to complain to Downing Street about the alleged threat.
Tory MP Michael Jack said that he spoke out after Mike Turner, the BAE chief executive, warned in the Financial Times that negotiations over the fighter jet deal were stalled. "It was the first time he had done that. It was a serious matter. I speak regularly to BAE." His Fylde constituency includes 3,000 Eurofighter workers.
Lindsay Hoyle, Labour MP for Chorley, whose constituency contains many BAE workers, said he also spoke up in parliament about how long the SFO inquiry had been running, but insisted that he was working independently from BAE. "I don't mix with higher management," he said.
At the other end of the industrial scale, company chairmen not only from BAE but also from big engine and avionics suppliers such as Rolls-Royce and the Smiths Group were organised to send a joint letter last week to the trade secretary, Alistair Darling. The theme was the same: that the British economy was in danger from Saudi displeasure.
But all these pressures were, in a sense, normal. Ever since the SFO began its inquiries in 2003, following a handover of evidence obtained by the Guardian, BAE had been mounting a campaign to get the police off the company's back.
In autumn 2005, BAE had refused to comply when the SFO served compulsory production notices on the company to obtain details of its secret offshore payments to the Middle East, BAE's lawyers, Allan & Overy, besieged the attorney's office with complaints about alleged leaks to the press. The Foreign Office made it known that Saudi Arabia wanted the SFO inquiry dropped in return for placing its expected lucrative Eurofighter order.
By Christmas 2005, the attorney general had been subjected to a so-called Shawcross exercise - the MoD, the Cabinet Office and the Foreign Office, presented him with submissions that the "national interest" would be damaged if the SFO was allowed to enforce its requests. That attempt was more determined than usual, but Goldsmith did not crumple to the Shawcross exercise then.
Loophole
What changed this Christmas, to destroy the Saudi inquiry in such a sudden fashion? One answer is that the attorney general and his fellow cabinet members found a new legal loophole.
The SFO had been able to argue that it could not be forced to drop a criminal investigation on grounds of commercial damage to British interests, or even on grounds that it would sour relations with a foreign country. These excuses had been specifically ruled out by the OECD anti-bribery convention which Britain, had, tardily and reluctantly, ratified.
But now the SFO's director, Robert Wardle, was on the receiving end of a novel Foreign Office attack. The official FO line was that Britain occupied the moral high ground in the fight against corruption. Launching a glossy DVD, junior minister Ian McCartney pronounced: "Corruption affects every country. What many people see as a way to get things done is, in fact, a crime."
However, senior diplomats were conveying a different message to Mr Wardle, on the instruction of the foreign secretary, Margaret Beckett. One senior source says: "Wardle was told he was pissing the Saudis off big-time, and that this involved security, terrorism, the whole future of the Middle East."
The SFO director had pushed the Saudi inquiry further, and harder, than anyone had believed possible. But against the claim that "national security" was in peril, he had no answer except to cave in.

Fraud chief: this is Saudi blackmail

David Leppard and David Cracknell

Sunday Times 17 December 2006

THE head of the Serious Fraud Office has said he agrees with the view that ministers succumbed to “blackmail” by the Saudi government by dropping the criminal inquiry into allegations of corruption involving its royal family.
Robert Wardle, the SFO’s respected director, said his inquiry into a £60m slush fund run by BAE Systems was scrapped in the face of “obvious pressure” from the Saudis, who had threatened to ditch a £10 billion arms deal and sever diplomatic and intelligence ties.

Wardle said he felt “further investigation was justified”, effectively undermining claims by No 10 and his boss Lord Goldsmith, the attorney-general. Asked if the Saudi pressure amounted to blackmail, he replied: “Of course it is . . . I think if that (inquiry) happened the Saudis simply weren’t going to have anything to do with us. Call it blackmail, call it what you will.”
The move to end the criminal investigation was announced by Goldsmith last week. Opposition MPs and pressure groups said Britain was behaving like a “banana republic” in caving in, and campaign groups are taking legal advice about seeking a judicial review.
Although the decision was supposed to be one for the attorney-general, it has emerged No 10 sought the opinion of the Foreign Office and the Ministry of Defence on the implications of scrapping the deal for Britain’s relations with Saudi Arabia and passed this to Goldsmith.
Ministers said last night Downing Street would have known what the departments’ answer would be — that losing the deal could jeopardise Saudi help for Britain in the war on terror.
This has led to claims Tony Blair was effectively trying to “fix” Goldsmith’s opinion.
One senior minister said yesterday: “Ultimately this was a decision for the attorney-general, who is always very meticulous. But as you would expect, the prime minister and Downing Street were in the lead.”
The row followed an SFO investigation into whether bribes were paid by BAE employees to prominent Saudis to maintain the Al-Yamamah deal, Britain’s biggest-ever arms sale.
As revealed by The Sunday Times last month, the Saudis were infuriated when they learnt the SFO had obtained data from bank accounts in Switzerland last summer that suggested millions of pounds in secret commissions had been paid to middlemen.
Wardle said the decision to drop the case had been his: “It was my decision . . . He (Goldsmith) thought it would be a difficult one to get home (to trial) anyway. We felt further investigation was justified but . . . would cause damage.”
In subsequent remarks Wardle partly qualified his remarks. He said “blackmail” was “using an expression that is slightly wrong. I think if that (the inquiry) happened, the Saudis simply weren’t going to have anything to do with us. Call it blackmail, call it what you will. But you know they just didn’t want that to happen.”

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