11. The Ultimate Cop-Out

In early 2010, I was invited, together with Sue Hawley, the widely respected anti-corruption researcher and campaigner, to meet the relatively new Director of the SFO. While the government could have appointed a pioneering outsider, Richard Alderman’s long career in the deeper reaches of British bureaucracy made him a safe pair of hands. His owlish features and Mr Bean-like physical mannerisms were in contrast to his quite outspoken statements. Alderman told us that he had placed a final offer on the table for BAE, in relation to the SFO’s investigation of the company’s corruption-tarnished arms deals in South Africa, Tanzania, the Czech Republic and Hungary. The company rejected the offer that Alderman had let slip to the media would require an admission of guilt and a fine in the region of £200m to £500m. He insisted defiantly to us that he would not be returning to the negotiating table but instead would press the Attorney General for permission to charge the company with corruption and bribery. While the director didn’t seem to grasp all aspects of his brief, his fortitude and openness were laudable.

Three days later, on Friday, 5 February, I was back at the SFO’s slightly depressing offices on Gray’s Inn Road near London’s King’s Cross station. I’d been there often over the previous few years. This time it was to provide another formal witness statement to the team investigating the South African arms deal. The team members interviewing me repeated what their colleagues had been saying for all the years I had been interacting with the investigation: that while they were struggling to get cooperation from the South African justice ministry, they were, nevertheless confident of their case.

Soon after I had left, the investigators started to receive the message from Alderman that RLI02, the codename for the overall BAE investigation, had been settled. The company would pay a paltry £30m for accounting irregularities in relation to the Tanzanian transaction, while the investigations into South Africa, the Czech Republic and Hungary would be dropped unconditionally.1 To complete the capitulation, the SFO also gave an astonishing undertaking not to allege that BAE was guilty of corruption if prosecuting others linked to the company’s nefarious activities.2

The investigators, who had devoted years of their lives to these inquiries, were furious and confused. One was so angry and frustrated that she couldn’t hold back the tears, while another stormed out of the office and drank himself into oblivion. A third, incandescent that the senior investigators hadn’t even been consulted, muttered darkly that ‘Alderman knows nothing about the case. He has no idea what he’s doing.’3

As I was driving home, at virtually the same time as the SFO staff were receiving the shocking message, I was called by a contact in the US government. He was leaving the courthouse where the US had just reached a simultaneous settlement with BAE. But in the US the company was forced to accept guilt on the Saudi, Czech and Hungarian deals and acknowledge that it paid unauthorized commissions about which it didn’t inform US authorities. In addition, BAE had to acknowledge the existence of its maze of offshore companies through which covert payments were made. The company admitted writing a false letter to US authorities in 2000, denying it was paying any secret commissions. The Americans fined BAE $400m, the largest penalty ever imposed on a British company.4

The following day, as part of its undertaking, the UK dropped all charges against Alfons Mensdorff-Pouilly and released him from his brief sojourn in jail. He had spent a week in Pentonville prison after being charged with conspiracy to corrupt in the Austrian, Hungarian and Czech deals.

Where the US settlement was devastating, imperilling BAE’s legal competence to export arms from the US, the UK settlement was derisory. It was a slap in the face for the people of the countries BAE has corrupted, the British taxpayer and the British justice system. It reinforced the belief that BAE is above the law and can effectively pay its way out of trouble, very cheaply.

The lack of action against individuals involved suggests that, in the arms business, one can act with impunity. In what other sphere of criminal wrongdoing would suspects against whom there was strong evidence be let off with such regularity? The settlement suggests that BAE doesn’t have just the keys to the back door of 10 Downing Street, but those to the front door, the alarm code and a comfortable spot in the Prime Minister’s bedroom.

The Liberal Democrats’ deputy leader, and the UK’s Business Secretary at the time of writing, Vince Cable, was angry that BAE had succeeded in ensuring key details of its arms deals would remain hidden. ‘The one positive thing is we have now had an acknowledgement from BAE that unacceptable practices were being conducted. But nobody has been brought to account.’ He added: ‘The British government was up to its neck in this whole business. Government ministers were almost certainly fully aware of what was happening.’5

The former Labour minister Peter Kilfoyle remarked: ‘I certainly think there is now an argument to be made for an independent judicial inquiry into the whole affair. This raises serious questions on what [Blair’s] motivation was in intervening in the [Al Yamamah investigation] and what influences were brought to bear on him.’6

In Washington, the Deputy Attorney General, Larry Grindler, was clear: ‘Any company conducting business with the US that profits through false statements will be held accountable. The alleged illegal conduct undermined US efforts to ensure that corruption has no place in international trade.’7

Richard Alderman described the deal as ‘pragmatic’. In the days and weeks after the announcement, as criticism of the SFO mounted, Alderman tried to intimate, at least in private, that the Department of Justice had pulled the rug from under him by the size and breadth of the US settlement. I heard a very different story from two sources in America. One suggested that the US authorities were expecting the SFO’s settlement figure to be similar to theirs and to contain serious admissions of guilt. When I asked why there would have been a sudden change, my source just shrugged his shoulders and shook his head. Two sources close to the negotiations confirmed that a deal of over £100m and acknowledgement of two counts of corruption had been agreed until Richard Alderman blustered into the negotiations, seriously weakening the SFO’s position. ‘He made these ridiculous statements in the media and took over the negotiations. He demanded a billion-pound fine because that’s what he’d said to the media and BAE thought: “He’s a joke.”’ Was he trying too hard to prove how tough he was, or did he have an agenda to close the whole thing down as quickly as possible?

After his statements in the media Alderman avoided calls from the Attorney General. His failure, or refusal, to consult all the key investigators was not just bad practice; it was contrary to the Attorney General’s established guidelines.8

The arrest of Count Mensdorff-Pouilly a few days before the settlement showed how out of his depth Alderman was. ‘You can’t arrest someone while you’re negotiating, then have to release him a few days later. That’s just a flashing neon sign to the world that you don’t know what you’re doing.’9

As if to emphasize the mishandling of the case, it took ten months before the settlement was reluctantly approved by the courts. This was because in an unrelated case, the SFO was heavily criticized by the judge for acting as prosecutor and judge in settling with the company and presenting the court with a fait accompli.10 A source close to the SFO revealed that in the months between the settlement and the court decision, the SFO parted company with two sets of lawyers brought in to assist them.

The settlement was finally brought before a judge in south London on 20 December 2010. With respect to the ‘false accounting’ in Tanzania, BAE and the SFO agreed that ‘There was a high probability that part of the $12.4m would be used in the negotiation process to favour British Aerospace Defence Systems Limited.’11 The SFO insisted that intentionally creating a hidden system of ‘covert’ and ‘overt’ agents was part of a ‘legitimate commercial aim’. This was even though the SFO possessed a note written by BAE’s head of HQMS which detailed the company’s reasons for keeping payments to agents confidential:

1. Rules or regulations in the relevant country (including clauses in Government sales contracts) forbidding the appointment of intermediaries, agents etc.

2. Tax implications when the adviser wishes to pass on money to a third party but cannot declare this to his authorities

3. General embarrassment or possible press interest due to a large fee or a sensitive subject.12

When the judge questioned this practice, the SFO and BAE responded that ‘in the arms trade, confidentiality is paramount’. After the SFO suggested there was not enough proof of bribes and that Vithlani was just a highly paid lobbyist, the judge offered the SFO and BAE the opportunity to call evidence to show that lobbying not corruption was the purpose of the money sent to Vithlani by the company. They declined.13 The judge decided that the money passed to Vithlani was clearly for corruption, and resolved: ‘I am not prepared to sentence on this basis without evidence, that these were mere lobbying payments … The payments were made to pay whoever needed to be corrupted.… on the basis of the documents shown to me it seems naïve in the extreme to think Mr. Vithlani was simply a well-paid lobbyist.… [BAE] were concealing from the auditors and ultimately the public the fact that they were making payments to Mr. Vithlani, 97% of them via two offshore companies, with the intention that he should have free rein to make such payments to such people as he thought fit in order to secure the Radar Contract of the defendants, but that the defendants did not want to know the details.’14

The SFO not only attempted to defend BAE from allegations of corruption so that it could prove a minor accounting offence, but also provided the company with a legal get-out-of-jail card on all its cases. In the plea agreement the SFO agreed to terminate all its investigations into BAE, not to prosecute any member of the BAE Group for any conduct preceding 5 February 2010, ensure that there would be no civil proceedings against any member of the group in relation to any matters investigated by the SFO, and that no member of the group ‘shall be named as, or alleged to be, an unindicted co-conspirator or in any other capacity in any prosecution the SFO may bring against any other party’. Even Judge Bean was ‘surprised to find a prosecutor granting a blanket indemnity for all offences committed in the past, whether disclosed or otherwise’.15

In the original settlement BAE were required to give £30m to the people of Tanzania, less the court’s penalty. This created the perverse situation that the higher the fine imposed, the less money would be given to the victims of BAE’s crime. For this reason the judge was reduced to fining BAE £500,000 with £225,000 in costs.16

The SFO, after more than five years of investigating, could only pull together a sham case, an inappropriate charge, a lack of evidence to fit it and a poorly thought-through plea deal. In this shameful episode, BAE, through a combination of its political power and the incompetence of those at the helm of the Serious Fraud Office, defeated justice.

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The response to the settlement announcement in the affected countries was angry and profound.

Patricia de Lille, leader of the opposition Independent Democrats in South Africa, mayor of Cape Town and the person who first made public the allegations of corruption in the arms deal, suggested that the UK had lost the moral authority to talk about good governance and fighting corruption to others: ‘They are no better than any of the rogue leaders in Africa who have used funds from bribes in arms deals to stay in power,’ she said.17 The opposition Democratic Alliance spokesman, David Maynier, remarked: ‘We have been shafted by the decision to reach a plea bargain agreement and not to prosecute BAE. The details of the various investigations will remain hidden as a result of the plea bargain agreement and nobody – whether they bribed or whether they took bribes – will be held to account.’18

A couple of years earlier an investigation into ThyssenKrupp, the main German beneficiary of the South African deal, had been launched by German prosecutors. The company allegedly tried to claim tax credits on commissions paid to secure the contract to build four frigates. The matter was settled with the company admitting tax violations and paying a fine. Despite documentary evidence of ThyssenKrupp having paid a bribe to ‘Chippy’ Shaik and Patricia de Lille brandishing in Parliament copies of cheques paid to the ANC and charities associated with party luminaries, the German authorities made no mention of the bribes paid by the company.19

The South African government made little comment on either decision. Just before his election to the country’s presidency, Jacob Zuma’s legal slate was cleared. The charges against him were controversially dropped despite the National Prosecuting Authority reiterating that it had a ‘strong, substantive case against Mr. Zuma’.20 His financial adviser, Schabir Shaik, who was jailed for corrupting him, was released after just two years of his sentence. ‘Chippy’ Shaik, the head of procurement in the Defence Force at the time of the deal, and the recipient of German largesse, is back in the country, a thriving businessman, while the third brother, Mo, was made head of the country’s Secret Service. In making the appointment, it was announced that his responsibilities would include addressing the problems of gun and drug running into South Africa.21

The majority of South Africa’s legal community was highly critical of the Zuma decision, the most brazen political manipulation of a prosecutorial decision since the demise of apartheid. Its equivocal and controversial nature ensured that Jacob Zuma assumed office with the stain of corruption upon him. He soon appointed as the new head of the National Prosecuting Authority a former Director General of Justice, Menzi Simelane, who in that role ensured that international investigators received as little assistance from South Africa as possible on their arms deal inquiries. On his first day in his new role Simelane told his stunned staff that he had been deployed as head of the constitutionally independent body to do the bidding of his political party, the ANC.22 Soon afterwards he announced that South Africa would not attempt to maintain a preservation order freezing Fana Hlongwane’s funds. Simelane came to his decision that ‘there is no evidence of criminal conduct based on the investigation so far’, despite hundreds of documents to the contrary.23

Since then the flagrantly irresponsible decision taken by Simelane has come in for severe criticism. In May 2011, the Swedish television station tv4 ran a series of documentaries that I had worked on with them about Swedish involvement in the South African arms deal. In particular the programmes caused waves by showing the consultancy agreements between Hlongwane and Sanip, the entity through which Saab and BAE were running their offset programmes.24 Sanip, when it was formed, belonged entirely to Saab, although Saab claims that the operation of the company was handed over to BAE in 2004.25

Initially Saab denied that there had been payments to Hlongwane via Sanip. Soon after and following an internal investigation, Saab quickly changed its tune. In June 2011, the company admitted that Hlongwane had been paid via Sanip.26 Saab, however, claimed that the agreement with Hlongwane had been reached by a BAE employee working at Sanip who had failed to disclose the matter to Saab.27

Unsurprisingly, the payments were made furtively, with funds being transferred to Sanip by BAE and then onwards to Hlongwane but without being reflected in Sanip’s financial statements.28 The admission by Saab was the first time that payments to Hlongwane by BAE/Saab had ever been officially acknowledged. Their secretive nature has given further credence to the suspicion that they were made with corrupt intent.

Only a few days later the MP David Maynier announced that he had access to amendments to consultancy agreements between the companies and Hlongwane.29 The documents include one amendment in which Hlongwane’s tasks were updated to include the facilitation of ‘face-to-face’ meetings with South African officials on BAE’s behalf, as well as advising on a ‘contact map’ of ‘key Customer [SA] personnel and in particular the decision-makers with respect to the selection of products and services’.30 This only intensified suspicions that part of the payments to Hlongwane had been intended for the key political and military leaders and officials with whom he worked.

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The Tanzanian anti-corruption unit, the Prevention and Combating of Corruption Bureau (PCCB), continued to investigate the deal for a while even after the SFO decision. While the UK investigation was in progress, the PCCB was kept waiting for key evidence from the SFO. The plea bargain meant that the SFO also dropped its charges against Andrew Chenge, Tanil Somaiya and Sailesh Vithlani.31

After the settlement Edward Hoseah of the PCCB wrote to the SFO demanding details of Britons involved in the radar deal, namely Michael Rouse, Dick Evans, Mike Turner and Julia Aldridge.32 Rouse has been BAE’s marketing director since 2002 and Aldridge his deputy.

The intention is to pay a significant part of the £30m fine to Tanzania. However, this is the subject of controversy in the country, where some feel the state should be reimbursed while others believe the payment should be made to humanitarian charities unsullied by any suggestion of corruption. BAE too would like to avoid a payment directly to the government which might be seen as an admission of guilt or part refund for the deal. If the money is paid to a third party, BAE will be able to claim that it implies no liability in any court case in Tanzania. Sue Hawley, now of Corruption Watch, suggests ‘this is a trick chosen by BAE to avoid being implicated directly by a third party’.33

On 4 November 2010, Andrew Chenge was elected to the Tanzanian Parliament again and announced his intention to pursue the position of Speaker. Three days later, the PCCB, itself an organization in peril, announced that it had found no evidence to link Chenge to corruption in the radar deal, in a decision that shocked Tanzanian anti-corruption campaigners.34

The decision, and the statement announcing it, threatened the credibility of the PCCB, with some people doubting the way the investigations had been conducted. The national chairman of the Civic United Front (CUF), Professor Ibrahim Lipumba, said he doubted the PCCB’s integrity because cleansing suspects was not among the core functions of the bureau. ‘With the PCCB background of protecting some government “big wigs” who have been involved in several scandals, I may conclude that I don’t have trust with PCCB,’ Professor Lipumba said. He continued: ‘Chenge has still failed to explain how he obtained the money found in his off-shore account, which is incomparable with his salary as public servant.’35

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Alfons Mensdorff-Pouilly’s release angered some Austrian MPs, who felt he was being protected. As he returned to the country, arguments were put forward to prevent him facing trial in Austria. His supporters claimed that he was protected by the Schengen Agreement, which stipulates that a suspect who has faced investigation in a member country can only be convicted or acquitted on that charge once within the Schengen area.36 However, Mensdorff-Pouilly was not acquitted as the charges against him were dropped without a court adjudicating on his guilt.

When CAAT and the Corner House attempted unsuccessfully to challenge the settlement, the SFO argued that it had ‘received advice from counsel to the effect that in a prosecution of Count Mensdorff … it would not be possible to proceed without making an allegation of corruption against BAE’.37 Lawyers familiar with the case questioned the logic, with one describing it as ‘startling’ and another suggesting: ‘I don’t think they needed to give it [the explanation]. I think it’s silly.’38 CAAT and the Corner House pointed out a glaring contradiction in the SFO’s view: ‘… the defendant [the SFO] maintains that the prosecution of Count Mensdorff could not go ahead because it would have involved unacceptable allegations of corruption being made by the prosecution against BAE Systems. This strongly suggests there was evidence to show corporate liability, or such allegations could have been legitimately made in Count Mensdorff’s case.’39 So the SFO had the Count charged because it suspected him of being involved in corruption on behalf of BAE. A week later, having settled ignominiously with the company, the SFO released him because to pursue a case against him would have led to allegations of corruption against BAE, which is why it charged him in the first place. So the SFO’s motivation for dropping the case against Mensdorff-Pouilly, just a few days after jailing him, was clearly to ensure that the Count’s case in no way undermined their risible settlement with BAE. I’m not sure who is the biggest ass in this instance, the law or the SFO.

As Sten Lindström, the Swedish police officer who pushed his government to investigate the Bofors affair, said: ‘The primary lesson of the Bofors story is that the truth will always come out. It may take years, in this case over a decade, but you cannot hide the truth.’40

The truth in the case of BAE’s arms dealing, with the active connivance and protection of the British government, is that it brings immiseration and suffering to many parts of the world that can least afford it. It is not the well-paid company executives or the politicians or government functionaries who have to suffer the consequences. It is the ordinary citizens of the buying and selling countries who are made to pay for the wasted fiscal resources and the diminution of democracy and the rule of law.

While the fate of the brave and committed anti-corruption officials, such as Helen Garlick, Matthew Cowie, Edward Hoseah and countless others, is usually to be fired, to leave their jobs in frustration, to face professional marginalization, even exile, they, like me, cling to the hope that the truth will ultimately out.