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The Ministry of Defence and detecting bribery in Saudi arms deals

Two of the biggest UK arms deals with Saudi Arabia have been investigated by the Serious Fraud Office.  The investigation into Al Yamamah (now known as the Saudi British Defence Co-Operation Programme) ended in 2006.  The investigation into the SANGCOM project is on-going.

The US investigation into Al Yamamah resulted in the conviction of the prime contractor (BAE Systems) for dubious conduct in that and other arms deals.  In particular, “the actions of BAE Systems impeded U.S. efforts to ensure international trade is free of corruption”.  In the UK, the Serious Fraud Office’s investigation was curtailed after heavy pressure from the Saudi Arabian Government and British establishment.

This left some mysteries unresolved – what did the UK’s Ministry of Defence know about the questionable practices that went on during the Al Yamamah deal?  What, if anything, did officials do about it?  But, much more importantly, what has the Ministry of Defence done since to prevent a recurrence?

After all, one would expect the UK Government to be particularly vigilant in seeing that these two arms deals are squeaky clean.  Unusually they are Government-to-Government deals.  The Ministry of Defence places a contract with a prime contractor to carry out the tasks agreed with the Saudi Arabian Government, and thus carries a responsibility to ensure these deals are free of any suggestion of corruption.  Moreover, the UK Government has signed up to the OECD Anti-Bribery Convention.

Throughout Government in the UK officials undertake reviews of past problems with the aim of preventing recurrences by improving procedures and practices.  This is common sense.  So, given the nature of the well-publicised allegations about Al Yamamah and the conviction of BAE Systems in the US as a result, how has the Ministry of Defence responded?  After all, the structural factors which make corruption likely in UK arms deals with Saudi Arabia are still present, as I have previously explained.

Recent Ministry of Defence responses to Freedom of Information requests, kindly passed to me by a correspondent at Private Eye, as well as a recent answer to a Parliamentary question, shed some light on what has happened.  The following remarks are, undoubtedly, not based on the full picture, and this is obviously unsatisfactory.  But the fault is not mine, and is one almost all political commentary suffers from.  If the Ministry of Defence were to be transparent about the arrangements concerning its Saudi deals, I would be able to correct any errors in the following.

The Private Eye correspondent was asking about the current SANGCOM deal which is being investigated by the Serious Fraud Office.  The Ministry of Defence (MOD) says:

As a result of negotiations that involve both the Saudi customer and the Prime Contractor, the MOD reaches agreements with the Saudi customer on the supply of goods and services. These will include the agreed prices to be paid. The MOD is not a party to the commercial arrangements between the Prime Contractor and its sub-contractors, which will include the payment terms. This is no different from the general approach applied elsewhere within defence procurement. The MOD only pays the Prime Contractor the sums of money agreed within the contract between MOD and the Prime Contractor, subject to satisfactory performance. It is the Prime Contractor’s role to manage its commercial arrangements with sub-contractors.

However, as is now well established from information in the public domain, it was the relationships between BAE Systems and its sub-contractors/offshore entities that were at the heart of the investigations of Al Yamamah undertaken by the Serious Fraud Office and the US authorities.  By saying now “it is the Prime Contractor’s role to manage its commercial arrangements with sub-contractors”, the Ministry of Defence is claiming such arrangements are none of their business and so as a result they are “not a party” to them.  It is difficult to imagine a more inadequate response to evidence of wrong-doing in Saudi arms deals, deals for which the Ministry of Defence is responsible.  If the Ministry of Defence is not party to such arrangements, plainly it will be much more difficult to detect and deter any wrong-doing.

The Ministry of Defence also claims that the procedures it uses for the Saudi arms deals are the same as for other defence procurement deals.  There is no justification for this stance.  After all, the Ministry of Defence’s other procurement deals have not been subject in recent years to two Serious Fraud Office investigations, one investigation in the US, nor have there been such lurid and substantiated allegations about them.  It is this background which should result in Saudi arms deals being treated very differently to other defence procurements by the Ministry of Defence and subjected to far greater scrutiny.

In Parliament last year former Defence Minister Gerald Howarth told Stephen Pound MP:

The Ministry of Defence is committed to the prevention, deterrence and detection of bribery. Contracts supervised by the Saudi Armed Forces Project Office are therefore subject to the same procedures and processes as all other Ministry of Defence (MOD) contracts.

Additionally, as part of the verification of supplier processes and prices, and with the support of the Saudi Arabian Government, senior officials within the Project Office seek assurances from the project prime contractor that procedures are in place for the prevention of bribery, in accordance with the detailed guidance published by the Ministry of Justice.

The MOD has well-established procedures through which staff can report concerns about bribery or any other forms of financial irregularity.

The assurances are obtained from BAE Systems by the Ministry of Defence in respect of the Saudi British Defence Co-operation Programme and the new Al Salam deal.  But it is the very same BAE Systems that was convicted four years ago in the US for breaching assurances the company had given the Pentagon about its compliance with US anti-corruption standards!

So, in addition to keeping itself in ignorance of the area where dubious practices are most likely (arrangements between the prime contractor and sub-contractors/offshore entities), the Ministry of Defence then simply accepts the word of the prime contractor that nothing is amiss.  It is difficult to imagine a set of procedures less likely to be able to “detect” bribery in Saudi arms deals.

Given the previous OECD complaints about the termination of the Al Yamamah investigation, the Ministry of Defence’s failure to put in place any procedures that have any chance at all of preventing a recurrence is a very pointed snub to the OECD as it tries to curtail corruption in international trade.  And, unfortunately, as I explained previously, this failure sadly goes unchallenged by the UK’s Parliamentarians.

As the Ministry of Defence and the Select Committee system have failed so lamentably what is needed is a commission of suitably qualified and independent outsiders, with uninhibited access to official documents, to:

  1. Review what the Ministry of Defence knew about the aspects of the conduct of BAE Systems during the Al Yamamah deal which led to the company’s conviction in the US.
  2. Develop a set of procedures for Saudi arms deals which would demonstrably enable such practices to be easily detected by the Ministry of Defence in the future.
  3. Propose an arrangement whereby regular independent audits of the Ministry of Defence’s compliance with such procedures are undertaken and published.
  4. Propose changes in the law or terms of the contracts with the prime contractor for Saudi arms deals which would make the prime contractor liable in the UK for heavy penalties and other sanctions for failing to provide to the Ministry of Defence or any independent auditors full details of all its arrangements with sub-contractors/offshore entities on demand.

Naturally, for the public and Parliament to have any confidence that procedures were in place to prevent future wrong-doing, the report of the commission would need to be made public.

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