Arms and the middlemen

By David Leigh (THE GUARDIAN, 07/12/06):

All the Chicken Lickens in Britain's business press have been running about for the past fortnight shouting: "The sky is falling! The sky is falling!" The cause of this hysteria, adroitly stoked up by our biggest arms firm, BAE Systems, is that the economy is allegedly in danger because the Saudi royal family may take away a warplane contract worth £10bn.

But a senior British diplomat, Stephen Day, said publicly this week what many sensible people have been thinking for some time. He told the Financial Times that Britain might be better off if it ended its corrupt liaison with Saudi Arabia. The former ambassador to Qatar said there were no political or strategic grounds for continuing with these monster arms deals: "The UK now risks fuelling the perception that the British are shoring up a corrupt regime without sound military reasons ... Britain really has to sit back and think from first principles how it can help the Middle East ... Selling arms to Saudi Arabia is not the way."

These words are heresy to the arms industry, and no doubt to the entourage of political actors on its payroll, which has included: Lord Powell, the brother of the prime minister's chief of staff; Michael Portillo, the former Tory defence secretary; and Sir Kevin Tebbit, the recently retired permanent secretary at the MoD, now on the board of Smiths Group, a major BAE subcontractor.

The Saudis are said to be displeased with the Serious Fraud Office, which is making belated headway in a huge corruption investigation, homing in on accounts in Swiss banks. The Saudis are also put out, it is said, that Whitehall files have surfaced revealing how a former British ambassador reported that Crown Prince Sultan "has a corrupt interest in all contracts". Other defence ministry files, later hastily retrieved from the national archives, let out the awkward information that the price of previous BAE-Saudi arms deals had been inflated by £600m, allowing room for gigantic commissions.

The prime minister is now said to be agonising about whether honesty is the best policy, or whether the country (and his MPs' marginal seats) can withstand the alleged loss of 50,000 British jobs. All these scare stories are heavily exaggerated. The real target of the SFO investigation is not the Saudi regime, but BAE at its Farnborough headquarters. And the investigation, well-informed sources say, is not about arms deals long ago. It has unearthed what looks very like a well-organised conspiracy, run through British Virgin Islands front companies and discreet lawyers in Geneva, to channel almost £1bn in secret payments to the Middle East over the last five years.

But every time the SFO makes a breakthrough, BAE's political machine seems to try to derail it. The trade department and the MoD previously attempted a Whitehall coup to stop the SFO serving orders on BAE that would disclose its secret middlemen. That 2005 assault on the integrity of the attorney general was renewed again last week, with the same appeal to the "national interest".

Even more embarrassingly, US state department files show how Sir Kevin Tebbit, while still in post, was summoned to Washington to be berated by an administration official. The assistant secretary of state Anthony Wayne went on to "underscore our concern about persistent allegations that BAE pays bribes to foreign public officials ... We urge you to use your new legal measures to investigate serious allegations vigorously. The continuing absence of any investigation by the British government of allegations of BAE bribery would be difficult for us to understand."

This is the sort of humiliating tone that might be used to an errant banana republic. It would surely be better for Britain's international reputation if we took Stephen Day's advice and just ditched the Saudi contract.