1. Sins of Commission

‘Here I am, a profiteer in mutilation and murder’ is the proud self-description of Andrew Undershaft, the munitions manufacturer who bestrides George Bernard Shaw’s Major Barbara. Unlike the often one-dimensional Lords of War and Merchants of Death who have littered literature, television and film in the more than hundred years since Shaw wrote his play, Undershaft embodies the complexities and contradictions of the manufacture of and trade in weapons.

He suggests there are only two things necessary to salvation: ‘money and gunpowder’. Of government, ‘that foolish gaggle shop’, he says:

you will do what pays us. You will make war when it suits us, and keep peace when it doesn’t. You will find out that trade requires certain measures when we have decided on those measures. When I want anything to keep my dividends up, you will discover that my want is a national need. When other people want something to keep my dividends down, you will call out the police and military. And in return you shall have the support and applause of my newspapers, and the delight of imagining that you are a great statesman.1

The true faith of Shaw’s ‘Armorer’ lies in selling ‘arms to all men who offer an honest price for them, without respect of persons or principles … tak[ing] an order from a good man as cheerfully as from a bad one’. But, interjects a foppish man-about-town with designs on Undershaft’s daughter, ‘the cannon business may be necessary and all that: we can’t get on without cannons; but it isn’t right you know.’2

Shaw’s inspiration for Andrew Undershaft was Basil Zaharoff, godfather of the modern BAE, together with the Swedish and German armaments magnates, the Alfreds Nobel and Krupp. Known variously as ‘the super-salesman of death’, ‘the mystery man of Europe’, ‘the Monte Cristo of our time’, Zaharoff was the world’s first flamboyant, larger-than-life arms dealer, providing the template for those who followed him.

As Anthony Sampson, the renowned author of The Arms Bazaar, notes:

Zaharoff was a figure of historical importance; for he was not merely a master of salesmanship and bribery, but an operator who understood the connections between arms and diplomacy, between arms and intelligence, and who could serve both as salesman and spy. He represented all the mixed loyalties of the burgeoning arms business: ‘I sold armaments to anyone who would buy them. I was a Russian when in Russia, a Greek in Greece, a Frenchman in Paris.’3

Everything about Zaharoff’s cosmopolitan life, including his date and place of birth and his original name, are shrouded in mystery and intrigue, largely of his own making and in no small measure to facilitate his business interests.4 A Greek of humble origins, probably born between 1849 and 1851, Zaharoff initially worked as a tout for local brothels. He was also a member of the Tulumbadschi, the Constantinople firemen-gang who would only put out fires for a bribe, and frequently started blazes in order to solicit the money. He soon travelled the world, under the identity of Prince Gortzacoff, the son of a Russian officer.

Arriving in Cyprus almost penniless, Zaharoff moved into arms dealing, first selling hunting guns and then cheap military equipment. He claims to have sailed the coast of Africa in a ship loaded with war materials which he sold to the chiefs of two warring West African tribes. He later said: ‘I made my first hundreds gun-running for savages. I made wars so that I could sell arms to both sides. I must have sold more arms than anyone else in the world.’5

Back in Athens in 1874, an influential political journalist, who would later become Prime Minister of Greece, arranged Zaharoff’s first job in the trade which became his métier.6 During his early years with the Swedish weapons-maker Nordenfelt, Zaharoff rapidly increased his knowledge of weaponry, persuading the company to sell its new submarine not only to Greece but also to his homeland’s bitter rival, Turkey: ‘He considered it an unpatriotic act and somewhat immoral to sell submarines to the mortal enemies of [Greece], namely the Turkish navy, but he always had the strength to overcome such reservations.’7

It was during these early arms-trading days that the singular activities of his later life began: the dissemination of military propaganda to the press and the art of the bribe, leading one observer to comment:

Even a veteran armaments salesmen would hesitate before trying to sneak a five-digit check to a defence minister in the presence of the Parliamentary Control Commission. But hesitation was not for Zaharoff. He would not have been too timid to put bags of gold pieces on the Minister’s desk, even in the presence of the district attorney dedicated to suppressing corruption.8

Nordenfelt’s competitors – which included the large British manufacturers Vickers and Armstrong, the German giant Krupps and the Schneider–Creusot company of France – adopted the view that the cheapest offer had the best prospect of acceptance. Zaharoff applied the opposite method: ‘He offered his guns for twice the competition’s price, and slipped the politicians deciding the sales three times more in bribes than his competitors would dare to offer.’9

He was always happy to stoke conflict to ensure the prosperity of his business. It has been suggested that one of the key reasons peace was not restored in the Balkans from the late nineteenth century until after the First World War was because ‘A few thousand gold francs paid to the editor of a normally peace-loving newspaper, a few hundred leva to a border guard who had never before fired a shot – and a new incident was created. The parliaments approved new armaments credits; the ministerial offices allocated – for still higher percentages of still higher priced bids – new orders for weapons.’10

Zaharoff was also accused of chasing, if not helping incite, wars between Bolivia and Paraguay and Spain and America, among others.11 He sold weapons to both sides in the Boer War and the Russo-Japanese conflict, clashing with an opposition MP, Lloyd George, who took issue with the practice.12

He expended enormous energy and money ingratiating himself to the courts and chancelleries of the world.13 Stories proliferated in European capitals of Zaharoff’s corruption and deviousness. Even a historian for Vickers, who had bought Nordenfelt in part to secure Zaharoff’s services, concluded: ‘There is evidence that on two or three occasions in Serbia in 1898, in Russia later, and probably in Turkey, Zaharoff paid secrecy commissions, or bribes.’14

The reasons for the bribes were those that apply today: as the commission increased, officials might well favour bigger orders, beyond the capacity or needs of their country, to ensure that their share would be greater. A story was told of a salesman who paid a succession of commissions to officials on a contract with a European government for a cruiser, until one official made such an exorbitant demand that the Englishman exclaimed: ‘How can I build the cruiser?’ The official replied: ‘What does that matter, so long as you get paid and we get paid?’15

In the lead-up to the First World War Zaharoff seemed to be everywhere, involved in everything that could increase profits. He stayed one step ahead of his competitors not only through straightforward corruption, but also through his mastery of influence and information.16 There were very real fears, especially among some British politicians, that the arms companies in general and Zaharoff in particular were setting their own foreign policy and having undue influence over government.17 When, on 28 July 1914, the war so badly desired by the industry was declared, Zaharoff was perfectly positioned to take maximum advantage. At the time he was arming both sides, as he probably did up to 1915.18 In fact, for the thirty years leading up to the war, the British arms industry did as much to support the enemy’s military as anyone else. Armstrong-Whitworth built thirty-six naval ships for the Royal Navy, but over 100 for foreign fleets, twenty-six of which went to the eventual enemy.19

Nevertheless, Zaharoff grew close to the former arms industry critic, Lloyd George, during his time as Minister for Munitions and then later as Prime Minister. The arms dealer even acted as a spy king, working directly for Lloyd George.20 Of course, Zaharoff used his espionage activities as further justification for arms sales to all and sundry, arguing that ‘the nation which sells [arms] to other nations understands best the real military and naval positions inside those countries to which it sells’.21

The First World War ran its course, taking the lives of millions and causing unimaginable destruction, but for Zaharoff ‘it brought high honours and made him a multimillionaire’.22 He was knighted by the King of England, received the highest orders of merit and was appointed adviser to the British Prime Minister for peace negotiations.23 In reality, whenever peace sentiment was making headway among any of the war-weary allies in the later years of the conflict, the arms salesman declared himself in favour of carrying on the war ‘to the bitter end’.24

In his later years in Monte Carlo, the one-time ‘super-salesman of death’ was primarily interested in destroying evidence of his past activities. And when, on 27 November 1936 he died at the age of eighty-seven in a wheelchair on the balcony of his Hôtel de Paris, he could afford a final wry, cynical smile: he had enjoyed his millions derived from wars, which gave him his titles, degrees and every possible luxury. But he took most of his secrets to the grave with him, leaving behind a template for the archetypal arms dealer: an aura of mystery, flamboyance and high living; friendships in the corridors of power; the habitual use of bribery and corruption; engagement in deception and covert intelligence activities; manipulation of public policy and opinion through ownership of, or influence in the media; involvement in financial services so crucial both to trading activities and to laundering of the resultant profits; the charm, ability and bloody-mindedness to sell anything to anybody. In short, a life spent operating in the opaque interstices between the legal and illegal, while buying respectability through gifts, endowments and the company of the rich and powerful.

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The First World War led to a broad backlash against the arms-makers.25 Zaharoff’s close associate Lloyd George recalled that, at the war’s conclusion, when the Allies gathered in Paris to sign the peace treaty ‘there was not one there who did not agree that if you wanted to preserve peace in the world you must eliminate the idea of profit of great and powerful interests in the manufacture of armaments’.26

The discovery that Zaharoff’s Vickers had armed Britain’s enemies heightened the antipathy. But the most influential critic of the arms companies was the United States’ President Woodrow Wilson, fired with his zeal for the League of Nations. It was he who inspired the historic paragraph of the Covenant of the League which agreed ‘that the manufacture by private enterprise of munitions and implements of war is open to grave objections’.27 This led to the establishment of a commission to reduce arms. Its 1921 report was a devastating indictment of arms companies, accusing them of ‘fomenting war scares, bribing government officials, disseminating false reports concerning the military programmes of countries and organizing international armaments rings to accentuate the arms race by playing one country off against another’.28

Despite this trenchant, far-reaching criticism, in practice little was done. The arms industry was in an unparalleled slump and Vickers and its rival, Armstrong, were in such bad shape that the British government forced them into a merger, creating Vickers-Armstrong.29

Between the world wars, all the large arms companies, including Vickers-Armstrong, agitated against the prospect of a permanent peace. At the Geneva disarmament conference in 1927 an ebullient arms lobbyist, William G. Shearer – employed by three big American shipbuilding companies at huge cost – was instrumental in sabotaging any moves towards international agreements on disarmament by stoking fears and spreading propaganda to encourage the building of warships. Shearer’s lobbying, however, had an unintended consequence, leading to an unprecedented crusade against the arms companies: soon after the Geneva conference, he filed a suit against the three companies that had employed him for $258,000 in unpaid lobbying fees, thus making public not only the exorbitant cost of his employment but also the arms companies’ opposition to disarmament.30

While over the previous decade the American public had been largely apathetic towards arms control, the Shearer revelations coincided with a growing wave of pacifism and an underlying distrust of big corporations made more intense by the Great Crash of 1929. The indiscretions of a single salesman became the passionate concern of a nation. At the end of 1933, pacifists won the support of a Progressive Republican junior Senator from North Dakota, Gerald P. Nye, who embraced the campaign against the arms trade with rhetorical fervour: ‘Was ever a more insane racket conceived in depraved minds or tolerated by an enlightened people?’31

In April 1934, the Senate established a committee with Nye as chairman. The press acclaimed the campaign. In the spring of that year Fortune magazine published a vituperative article entitled ‘Arms and the Men’, which calculated that in the First World War it had cost $25,000 to kill a soldier, ‘of which a great part went into the pocket of the armament maker’.32 A polemical book, The Merchants of Death, became a bestseller and the Chicago Daily News described how 200 firms were earning ‘cold cash profits on smashed brains or smothered legs’.33

Later that year, Nye’s committee delivered a stunning report. It uncovered correspondence between the president of the Electric Boat company and his counterpart at Vickers, revealing the general amorality of the weapons business in their disdain for any kind of control over the arms trade, their dislike of attempts to promote peace, and their willingness to use bribes.34 The committee asked Clarence Webster of the Curtiss-Wright aircraft company to explain what was meant by a commission: ‘In fact it would be bribery, would it not?’ He replied: ‘It would. It is rather a harsh word, but it would, strictly speaking.’

Nye’s committee vividly revealed the arms industry’s ‘constant tendency towards bribery, and the playing off of one country against another to sell arms’. It also exposed the extent to which arms salesmen were supported by their governments: ‘It makes one wonder,’ commented the Senator, ‘whether the army or the navy are just organisations of salesmen for private industry, paid for by the American government.’35 A witness suggested that ‘the Vickers crowd are the dirtiest, they have almost an entire embassy in number working for them and use women of doubtful character freely’.36

The Nye Committee’s findings, while fairly widely criticized, at least led to the creation of a national Munitions Control Board. This didn’t give government the power to stop arms deals in peacetime but gave some hope of an international agreement on the issue.

In the UK the findings of the Nye committee, combined with popular pressure, led the Labour Party to demand ‘the prohibition of the private manufacture of arms’ in 1934. During the parliamentary debate, Clement Attlee, the future Prime Minister, compared the trade in arms to prostitution and slavery. After a ballot in Britain in which over 90 per cent of respondents felt ‘the manufacture and sale of armaments for private profit [should] be prohibited by international agreement’, the government was forced to set up a Royal Commission on the issue.37 It provided a wide-ranging, if muted, critique of the British arms trade but did include a fiery intervention from Lloyd George: ‘I think the less you leave to private manufacture, the less is the incentive to promoting agitation for war.’38 By this time, the ageing Zaharoff clearly had little influence over his old wartime friend.

Vickers’ spokesmen at the Commission made clear the company’s modus operandi:

Mr. Yapp [Vickers]: … We pay our agents a percentage of commission.

Dame Rachel Crowdy: A percentage?

Yapp: Yes, but as to what part of that goes into his own pocket or what he does with it we have no control.…

Crowdy: Therefore any entertainment has to come out of his commission, really.

Sir Charles Craven [Vickers]: Yes.

Crowdy: And any ‘palm-greasing’ has to come out of his commission?

Craven: Certainly.39

By the time the Committee reported, the state of British arms companies and of public opinion had started to shift in response to the aggressive behaviour of Nazi Germany, where Krupp had come to terms with Hitler and handed over his factories to the making of weapons. Britain’s massive rearmament in response was the saviour of its arms companies. The direct and menacing threat to the country, the accompanying war propaganda and the canonizing of the military put an end to criticism of arms manufacturers.

The companies received heavy state support to revitalize shipyards and factories and, thanks to strict government control over their profits, were insulated from accusations of war profiteering. The export of arms became less relevant and more strictly controlled. The Air Ministry had some acrimonious disputes with Vickers and other companies over late and inadequate deliveries and had to look to Lockheed in America to provide enough bombers. But the celebrated Spitfire, mythologized after the Battle of Britain, massively enhanced the image of Vickers and obliterated the memories of the late Basil Zaharoff. This was the high point of the company’s national role and public image.40

The Second World War signalled the creation of the military-industrial complex in Britain and elsewhere. This militarized economy, born out of an imperial system and expanding to vast proportions during the war, largely remained in place into the Cold War.

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For a decade after the war, the arms trade was virtually an Anglo-American monopoly.41 Britain’s industry was kept buoyant by the decline of Empire, for as countries gained their independence they sought arms to enhance their status and security. From 1945 to 1955, Britain sold arms worth over $2bn to private traders and $1.7bn to foreign governments, excluding warships.42 The formation of NATO and the flow of American aid to Europe provided extra opportunities for sales. The Americans, whose concerns were more diplomatic than commercial, bought equipment from Britain for the Continent. The two countries worked closely together, and by obeying unwritten understandings about areas of influence they avoided any drastic competition in arms sales.43

It is surprising, with the reaction to the First World War in mind, that there was not more public concern about the rush of arms sales in the aftermath of the most destructive war in the history of mankind. Certainly the problems of disarmament were discussed as never before, but it was nuclear disarmament which understandably dominated the arguments and conferences. Compared to the new danger of a nuclear holocaust, the problem of the export of conventional arms seemed relatively harmless, and inevitable as a by-product of the growing Cold War.

As the Cold War extended and British influence diminished, so the Americans moved into traditional British areas in response to Soviet threats and the Soviet Union’s growing arms industry. By the early sixties, the United States was by far the biggest exporter of arms, forcing Britain to compete more desperately for her markets abroad.

Vickers-Armstrong’s attempts to remain the biggest arms company were futile. The battleship, which had been the jewel in Vickers’ crown for fifty years, was much less important after the war and the manufacture of jet aircraft was becoming too complex and expensive for a single British firm.44

Even in Europe Britain was being challenged by the re-emergence of France as a major manufacturer of arms and particularly aircraft. The French arms industry was championed by Marcel Dassault. The son of a Jewish doctor, Marcel was brought up in Paris at the end of the nineteenth century and developed an early passion for flight. He set up his own company to make planes during the First World War. After the fall of France in 1940 he was interned with other French aircraft designers. He refused to work for the Nazis in return for his freedom and in 1944 was transported to Buchenwald, where he still refused to cooperate and was sentenced to death, to be saved only by the arrival of the Allied armies. He emerged a frail-looking man of fifty-two, partly deaf, with weak eyesight, but still burning with ambition to build aircraft. After the war he changed his name from Bloch to Dassault (his brother’s pseudonym during the Resistance), formed a close political alliance with De Gaulle, was elected a Deputy of the French Parliament for seven years from 1951, and built an organization more compact and impressive than its Anglo-Saxon equivalents.45 His most glorious creation was the Mirage jet, famed for its Delta wing and rocket booster. It became one of the most successful of all French exports and a major factor in French foreign policy. With his immense wealth, dominance of the French arms industry, political connections and newspapers, Dassault became a one-man military-industrial complex.

However, neither the French nor the British could effectively compete in the long term with growing American exports. To address this the British government actively encouraged the rationalization of the industry, with Rolls-Royce, Hawker Siddeley Aviation and the British Aircraft Corporation (BAC) emerging as the main consolidated players.46 BAC was formed on 1 July 1960 as a result of the merger of Vickers-Armstrong’s aircraft division and three other smaller companies. It was 40 per cent owned by Vickers-Armstrong. Its only real success was a smallish civil airliner, the BAC 1-11, later Leonid Minin’s plane of choice. The government, fearing the company’s failure but unwilling to bail it out, eventually nationalized BAC in 1977 and merged it with Hawker-Siddeley and Scottish Aviation. The new group was named British Aerospace.47

In 1979, an election in the UK brought Margaret Thatcher to power. Her fundamentalist free market ideology was underpinned by a deep commitment to widespread privatization of the public sector. BAE’s short-lived nationalization came to an end in early 1981 when it was made a public limited company. In February the government sold just over 51 per cent of its shares, shedding its remaining holding in 1985, although it retained a Golden Share giving it the power to veto foreign control.48

In 1987, BAE bought Royal Ordinance, a collection of nationalized arms factories producing ammunition, small arms, tanks, artillery and explosives. Four years later the small-arms manufacturer Heckler and Koch was also purchased.49 British Aerospace became BAE Systems in 1999 after it merged with Marconi Electronic Systems. The name change was clearly intended to alter the company’s image of a purely British entity, given that it sells more to the US Department of Defense than to the UK’s Ministry of Defence.50

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The ‘new’ BAE’s early survival was dependent not on the Pentagon, but primarily on a desert kingdom of dubious reputation. Saudi Arabia came into being as a modern state in 1925 after a 24-year-long campaign by Abdul Aziz, also known as Ibn Saud, in which he subdued and drew together the various tribes of Arabia. The Saudi state is to this day an absolute monarchy, with the kingship and many of the most important ministries still in the hands of the children of King Abdul Aziz.51 The country’s wealth and status are determined by the vast oilfields in the east and the two holiest cities of Islam, Mecca and Medina, in the west. The combination of gargantuan oil wealth and strict, fundamentalist religion has produced one of the world’s great enigmas.

Saudi Arabia holds approximately one fifth of all the world’s proven oil reserves,52 and has long been the world’s largest oil exporter, although Russia may have recently overtaken it.53 The black gold – which accounts for 80 per cent of Saudi budget revenues, 90 per cent of its export earnings and 45 per cent of its GDP54 – was first discovered in 1938 after King Abdul Aziz’s English adviser, Jack Philby, persuaded the King to allow prospecting. Philby, who was the father of Kim, the notorious Briton unmasked as a Soviet spy, was dismissed by the British government as a bit player and was taken on by Standard Oil of California. He secured a prospecting concession for his new employers, which cost $175,000 in gold up front and loans of $600,000. The agreement was good for sixty years and covered 360,000 square miles and was surely the steal of the century. For a generation after its discovery, the Saudi oil business was effectively controlled by ARAMCO (The Arabian American Oil Company), a consortium of Saudi and American oil companies.55

The country’s oil riches have enabled it to forge a symbiotic relationship with the West, in which oil flows plentifully in return for an unwritten guarantee of protection, and a seemingly insatiable appetite for arms deals. The US and the UK, who are party to laws and agreements obliging them to consider human rights before agreeing to arms exports, are blind to the kingdom’s autocratic, oppressive and misogynistic rule when it comes to selling weapons. Human rights abuses are frequent. The practice of any religion other than Islam is illegal and political parties are outlawed. Amnesty International described the situation in 2009:

Thousands of people continued to be detained without trial. Human rights activists and peaceful critics of the government were detained or remained in prison, including prisoners of conscience. Freedom of expression, religion, association and assembly remained tightly restricted. Women continued to face severe discrimination in law and practice. Migrant workers suffered exploitation and abuse with little possibility of redress. The administration of justice remained shrouded in secrecy and was summary in nature. Torture and other ill-treatment of detainees were widespread and systematic, and carried out with impunity. Flogging was used widely as a punishment. The death penalty continued to be used extensively and in a discriminatory manner against migrant workers from developing countries, women and poor people. At least 102 people were executed.56

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Geoffrey Edwards, a rugged Yorkshire businessman with a commanding voice, big chin and leonine head, who had travelled to Saudi Arabia in 1960 looking for civil construction projects, saw the potential for arms contracts. He contacted UK companies and became an agent for a consortium of BAC, AEI and Airwork. Edwards lived in Jeddah, developing a close relationship with Prince Sultan, the Minister of Defence and Aviation from 1962, King Faisal’s half-brother and father of Prince Bandar. Edwards shrewdly employed Prince Sultan’s brother, Prince Abdul Rahman, as an agent, offering him half the commission he was receiving from AEI. The Englishman also consulted Gaith Pharaon, an influential Saudi financier whose father was the King’s physician. Edwards later said that he paid Pharaon £80,000.57

At the time, the Saudis coveted the latest-generation jet fighter aircraft. However, Edwards was not alone in bidding for Saudi Air Force contracts. There was stiff competition from Dassault and the American companies Lockheed and Northrop. Initially, a prospective deal was of little interest to the Foreign Office, who regarded Saudi Arabia as the Americans’ preserve. But when a Labour government came to power in 1964 faced with a financial crisis, the right-wing Edwards saw an opportunity. He gained access to the then Aviation Minister and persuaded him of the enormous economic benefits of the deal. The minister dispatched his Parliamentary Secretary, John Stonehouse, to support the negotiations. Stonehouse later remarked:

Most people in Government frowned upon Geoffrey Edwards as an arms salesman grasping after his fat commissions. I did not. In an area such as Arabia much of the commission would any way have to be spent in bribes and, anyhow what was the point of adopting a ‘holier-than-thou’ attitude when Britain’s factories sorely needed that business and our balance of payments need the foreign currency.58

Edwards was aware that Prince Sultan wanted British Lightning aircraft. He heard that the Prince was frustrated with the Americans and was keen to shift away from dependence on them. The Saudi royal may well have dropped these encouraging hints as a ploy to increase the competition and gain better terms from the Americans. The situation was complex as the British and Americans were still wary of trespassing on each other’s turf. By September of 1965 the British seemed to have lost out to the US. However, because the Americans were not keen on Saudi Arabia acquiring the Lockheed Starfighter, which was so advanced that it would upset the balance of power in the region, particularly in relation to Israel, high-level diplomacy between London and Washington resulted in a joint offer being made to the Saudis. In December 1965, the Saudis accepted the joint offer, which from the British side comprised forty-two BAC Lightning Fighters and an AEI radar system, with Airwork providing training. It was announced as Britain’s biggest ever export deal.

While negotiations were taking place between London and Washington the companies and their agents made mischief. Every company had its own group of agents, some of whom clandestinely represented more than one of the bidders. Each accused the others of bribery. Kim Roosevelt, the Northrop agent, had been in charge of the CIA coup to overthrow Mossaddegh and restore the Shah to power in Iran, and was not averse to using his deep intelligence contacts, telling Northrop executives: ‘my friends in the CIA are keeping an eye on things’.59 Prince Mohammed, another Northrop agent, kept the King informed of the bribes Lockheed were paying. Adnan Khashoggi, then a young, virtually unknown arms dealer who would later emerge as the Basil Zaharoff of his era, was hired by Lockheed. He developed close links with Prince Sultan and was used extensively as a deniable conduit for bribes.60

At least £7.8m was paid in commissions on the British contracts with the knowledge of three separate UK government entities: the Export Credit Guarantee Department, the Treasury and the tax authorities.61 Geoffrey Edwards, who was instrumental in securing the Lightning contract for BAC, charged 1.5 per cent commission, worth over £2m, a staggering sum at the time.62 He nonchalantly suggested that ‘the payments were normal practice, legal and out in the open. They were for business services rendered.’63 To cover these massive commissions, BAC inflated the price of each Lightning jet by £50,000, listing the cost as ‘Agency Fees’. The commissions went not only to Gaith Pharaon but also to five Saudi princes.64

After the deal Edwards sued AEI, which was refusing to pay him commission on its contract, instead rewarding a shady agent who was later murdered in Paris. Edwards was himself sued by three agents, including Prince Abdul Rahman, who insisted that the Yorkshireman owed them money on the deal.65 Edwards retired to the island of Jersey, working briefly as an agent for Lockheed before setting up his own company dealing with the Middle East. It later transpired that the original British contract and the commissions paid to Edwards were dwarfed by the contracts with Lockheed and Northrop and the colossal commissions paid to Khashoggi.

John Stonehouse, who had been so important in pushing the deal through, had clearly been exposed to the dark side by his Saudi experience. After rising in government service, he soon began speculating in private ventures, which led him into considerable debt. He disappeared off a beach in Miami in 1974, was discovered living under an assumed name in Australia and in 1976 was convicted of fraud and forgery and sentenced to seven years in jail.66

The deal was hardly a triumph for the Saudis. The Lightning aircraft were more suited to the coastal defence of Britain than the vast deserts of Arabia.67 After numerous technical problems with the jets as they were being delivered, a Lightning crashed on a demonstration flight over Riyadh in September 1966. However, the biggest problem the Saudis had to contend with was the inadequacies of Airwork, the providers of the training and maintenance contracts. The company’s commitments proved beyond its resources. The Ministry of Defence was compelled to become more deeply involved. Ex-RAF pilots were recruited to fly the planes, becoming, in effect, sponsored mercenaries to the Saudis; and eventually the British government had to set up its own organization in Riyadh, jointly with the Saudis, to supervise the programme. What began as an apparently simple commercial sale ended up, like many future arms deals, as a major government commitment.68

Despite the dissatisfaction and renewed competition with US companies, a new deal was signed between the Saudis and the UK in 1973 for the purchase of ten Strikemaster fighter jets and maintenance, worth £253m.69 At least £30m in commissions was paid in this government-to-government deal.70 The British government was directly involved in passing on the payments, as the Ministry of Defence signed the contract with Riyadh and with BAC as the lead supplier. The officially controlled profit margin of the company was a fiction used to finance the commissions which flowed into anonymous Swiss bank accounts.71

Willie Morris, the British ambassador to Saudi Arabia between 1968 and 1972, wrote that ‘The Saud family regard Saudi Arabia as a family business.… The sheer effrontery is breathtaking of a prince who will keep on talking about rights and wrongs, when you know (and he probably knows you know) that his cut may be 20% of the contract price.’72 The world of Saudi arms sales, he said, was ‘crooked. The question of corruption is obviously crucial … the “system” is at best an infernal nuisance, and it is potentially explosive – a time bomb under the regime.… It is a jungle inhabited by beasts of prey in which one must move with caution and uncertainty.’ He added that Prince Sultan ‘has, of course, a corrupt interest in all contracts…’73

On assuming office in 1977, the new British Foreign Secretary, David Owen, was made aware of the tactics of bribing the kingdom’s royal family, being told in a dispatch: ‘To secure a contract, a company must secure the support not merely of a senior prince, often through an established agent through whom very substantial commissions have to be paid; but also of many ministers and officials down the line.’74

To legalize this practice, in May 1977 the Cooper Directive was issued. Named for its author Frank Cooper, Permanent Secretary at the MoD, this secret policy gave the senior bureaucrat the power to authorize commissions on government-to-government contracts and withhold information of their payment from the minister. The commissions would be regarded as acceptable as long as the UK firm involved confirmed that they were legitimate to the winning of the contract. The directive instructed officials to avoid ‘over-extensive inquiries’ of the companies.75 In 1994 the Cooper Directive was rewritten in more obscure terms: ‘Officials would no longer visibly “authorise” commission payments, or correspond about them. Instead, they were to merely “consider” and “advise”.’ According to the response to a Freedom of Information request this policy is still in place today.76

And so with the sweep of a bureaucratic hand and with the blessing of his political master, the Prime Minister, who had informally told fellow ministers that the UK could not hold to the same high standard as the US on corruption, Britain had irrevocably decided that it would break the law in arms deals with the kingdom of Saudi Arabia for evermore.77

This only enhanced the relationship. Appropriately, when King Faisal died in March 1975 it was the Secretary of State for Defence who was sent to represent the British government at his funeral. In 1976, Prince Sultan, still Minister of Defence and Aviation, made his first visit to London. The UK was by then interested in selling Jaguar aircraft to the kingdom.78 The Saudis had been steadily buying from the US. However, in 1976 Congress blocked the transfer of Maverick missiles to the kingdom and the liberal Jimmy Carter was elected President. During this time of uncertainty the Saudis wanted to strike rapid deals with its other arms providers.

In September 1977, BAC signed a follow-on contract to continue the ‘Saudization’ of the kingdom’s Air Force up to 1982. The contract was thought to be worth £500m.79 Commissions of £60m were paid with the certain knowledge of the UK government. The head of the government’s Defence Sales Organisation (DSO) described the size of the commissions as what was ‘commonly charged’, though ‘the sums involved are very large, and in future, as defence projects become more ambitious, the agency fees demanded will, unless some restraint is applied, become enormous’.80

The commissions, totalling 15 per cent of the contract value, were paid for by charging the Saudis ‘admissible costs’ of 10 per cent of the contract value, while the other 5 per cent was taken from BAC’s inflated profit margin.81

Throughout the 1970s, not just Britain but also the US and France continued to benefit from the munificence of Saudi arms spending. The total value of Britain’s 1967, 1973 and 1977/78 deals with Saudi Arabia was approximately £4.5bn in today’s money, with at least £500m paid in commissions.82

However, the real bonanza was still to come.