The Shadow World

I experienced BAE’s pernicious impact on developing countries at first hand. In 1994, as South Africa became a democracy after over 300 years of racism and injustice, I was elected an ANC Member of Parliament. I had first come into contact with the ANC in the squatter camps of Cape Town in the mid-1980s where I worked as head of a student welfare agency.

In the early years of the new South Africa, under the inspirational leadership of Nelson Mandela the country defied the tawdry politics of much of the world to become a bastion of reconciliation, unity of purpose, progressive human rights and good governance.

However, as Thabo Mbeki succeeded Mandela, non-racism was replaced by a less inclusive Africanism, a sense of the national interest superseded by the needs of the party. Open accountability gave way to a closing of the ranks in which loyalty to the party and its leader became the crucial political currency.

At the time I was the ranking ANC member on Parliament’s Public Accounts Committee, a body which vigorously and in a non-partisan manner reviewed government spending and instigated action against the misappropriation of public funds. We were at the apex of the accountability chain, a role in which I revelled.

It was also a role that would bring me into direct contact with the arms trade for the first time. With the end of apartheid the ANC had undertaken to reduce spending on the military in favour of the country’s dire socio-economic needs. So it came as something of a surprise when the government announced a massive purchase of military equipment in 1999. Estimated to cost roughly $3bn at the time – although this disguised the true cost of the deal by at least 250 per cent – it secured South Africa a range of military hardware, including Hawk and Gripen jets from BAE and Saab, submarines and frigates from Germany, and helicopters from Italy. By far the largest portion of the deal in terms of cost – over 50 per cent – was the purchase of the jets.

The procurements, known collectively as the ‘arms deal’, were wracked by allegations of corruption from the start. When the country’s Auditor General presented the Public Accounts Committee with a damning report into the deal, replete with allegations of malfeasance, we set in motion a series of public hearings and investigations.

I was approached by myriad sources, some apparently reliable and well intentioned, others with clear agendas and a few bordering on the mentally troubled. After countless overt and covert assignations and the receipt of thousands of pages of evidence from the Auditor General and intrepid journalists, a close colleague and I pieced together a frightening tale of corruption and deceit, with BAE the main villain of the piece.

We established that, at the time he was claiming the government had insufficient resources to provide life-saving medication to the millions of South Africans living with Aids, Thabo Mbeki had entered into contracts for arms that by their conclusion in 2018 will have cost the country over £6bn.1 This, despite the reality that South Africa faced no external threat.

About $300m was paid in commissions and bribes to middlemen, senior politicians, officials, their associates and the ANC itself. The bribes were a key motivator in the deal, especially the need to finance the party and upcoming elections.2

From the time of the country’s constitutional negotiations, which started in late 1991 and in which I acted as a facilitator, international defence companies began to interact with key people in the ANC, including Mbeki and the former head of the ANC’s armed wing, Joe Modise. In December 1993, Modise and the head of the state arms company, Armscor, were invited to the UK as guests of Britain’s Defence Export Services Organisation (Deso).3 It was a brazen move – Modise had not yet been installed as the Defence Minister. During official visits successive UK Prime Ministers punted British weapons to the new government. In 1994, during John Major’s first visit to the newly democratic South Africa, he handed a private letter to Mandela asking him to consider arms purchases from the UK.4 British officials set about persuading the South Africans that a big arms deal was not only a good way to keep the apartheid generals happy but was also useful to raise party and personal funds. Unless seen in this way, many of the decisions made defy logic, especially the awarding of the largest contract to BAE and Saab for the supply of trainer and fighter jets.

The decision-making process comprised three main tiers: technical committees; an Arms Acquisition Council (AAC) on which the then Defence Minister, Joe Modise (assisted by his political adviser, Fana Hlongwane), and the head of procurement in the Defence Force, ‘Chippy’ Shaik, were the key players; and a Ministers’ Committee chaired by the Deputy President, Thabo Mbeki.

With respect to the jets contract the joint British and Swedish bid, which was heavily punted by Tony Blair on visits to South Africa, by the Swedish Prime Minister on a special trip and even by the British royal family, did not make the initial shortlist which the relevant technical committee sent to the AAC. It failed to meet certain of the technical criteria and was over-specified in other respects. The Hawk trainer jets and Gripen fighter planes were also unfamiliar to South African pilots, who had flown mainly Cheetahs. Not unimportantly for a country facing a multitude of socio-economic challenges, the BAE/Saab option was two and a half times more expensive than the Italian Aermacchi jet favoured by the technical committee.

Beyond cost, BAE faced another major hurdle. When the South African Air Force (SAAF) reviewed its needs in the mid-1990s, it decided that it had to cut its clothes to fit the cloth. Knowing that South Africa needed to reduce defence spending, it suggested that only one type of plane be bought. This plane would serve a dual function: it would act as a training jet and could also be used in conflict.5 This, however, immediately disqualified BAE/Saab from the running as they were offering separate training jets (the Hawk) and fighting jets (the Gripen). BAE could offer no plane that could both train and fight. Other suppliers could, especially Aermacchi, the Italian plane-maker, which offered a dual-fighter at a much lower cost.6

In November 1997, however, under the strict instruction of Joe Modise, the Air Force was compelled to drop this approach. Instead, as per Modise’s directive, the SAAF announced that it needed two discrete planes: one to train new pilots and one in which to fight.7 BAE could now become a contender, as it was in prime position to submit both types of jet for consideration. Beyond benefiting BAE, it was an incredibly strange decision. In effect, the Air Force had agreed to purchase more jets without increasing combat capacity. In addition, as a series of auditors were later to discover, every single supplier that had been approached confirmed that pilots could make the transition from the training planes South Africa already had to a fully functional jet fighter – meaning that there was absolutely no need for the additional training rung on which BAe would eventually hang the Hawk.8

Even with this gerrymandering, BAE faced another obstacle. After receiving the bids, a shortlist drawn up by a technical committee listed the Hawk and Gripen as the least desirable planes of their respective types: for trainers the Air Force preferred the Aermacchi MB339FD, and for fighter jets Daimler-Benz’s AT2000.9 In each case, the fact that the Hawk and Gripen were by far the most expensive options, did little to help their cause.

The Gripen, however, was able to sneak through on a technicality. A major part of the bid was the proposal to finance the deal, which was weighted at 33 per cent of a final score given to each bidder. When reviewing this, the members of the selection committee claimed that only BAE had submitted a full financing proposal, despite repeated calls to the other bidders to do likewise.10 This fatally hamstrung the other bidders, and the Gripen moved into first place by default,11 despite being the most expensive and least technically suitable option. It stretches credulity to believe that BAE’s competitors would not have submitted such important information if asked. And when auditors looked into the deal they could find no evidence that any of BAE’s competitors had been informed of the need to submit the financing proposal.12 Here, selective silence had worked in favour of BAE.

To select the Hawk, a more gauche approach was taken. When the shortlist was presented to the AAC, placing the Hawk last, the minister, Joe Modise, was furious. So, in what was later described by his Cabinet colleagues and cowed investigators as ‘a visionary decision’, Modise decided to exclude cost as a procurement criterion on the single largest contract in the democratic South Africa’s history. There were now two parallel shortlists. One factored in cost and ranked the Hawk last. Another excluded cost, which, while not placing it first, gave the Hawk enough points for it to be able to win with a considerable offsets bid. The non-costed option, which was the only shortlist considered, kept the Hawk in play when the SAAF had demanded the opposite.

To improve their prospects even further, BAE/Saab were then asked to make an improved economic offset offer, an opportunity not given to the other companies.13 They came up with a package roughly ten times larger than that of any of their competitors. However, when the offset proposals were reviewed by the South African Department of Trade and Industry it was discovered that their value had been ‘grossly inflated’ by the evaluation committee, from $245m to $1.6bn.14

Offsets, sometimes known as countertrade, are programmes in which the supplier company agrees to invest in the industry of a purchasing state, to offset the economic impact of the transaction. Case studies and the literature on these so-called benefits suggest they are so much economic sophistry: useful for politicians to justify spending billions on weapons but very seldom delivering the promised benefits, especially in developing countries. They are also a clever way to channel bribes and benefits to key decision-makers. So controversial are they, that the World Trade Organization bans the use of offsets as a criterion for contract evaluation in all markets other than the arms trade.15

The South African experience of offsets has largely chimed with that elsewhere in the world. When the arms deal was announced it was promised that offsets would create 65,000 jobs in the country and generate R104bn (roughly £10bn) in economic activity. Despite the fact that 65,000 jobs was actually an incredibly poor return for such a huge investment of money and implied an absurdly high cost per job, even these expectations were unfounded. In 2010, the government department overseeing offsets – the Department of Trade and Industry (DTI) – confirmed that only 28,000 direct jobs had been created,16 roughly £107,000 per job at the underestimated stated cost of the deal, or £214,000 per job at the close to £6bn (at current exchange rates) that the arms deal will actually cost by 2018. By comparison, it cost on average £3,870 a year, as of August 2010, to employ a South African teacher.17 The staggering figure of fifty-five teachers could thus be employed for a year for the same price as a single direct job created by the offsets programme.18

Even the paltry number of jobs created by the offsets programme has to be taken with a large pinch of salt. The DTI has denied any review of how companies have been awarded credits under the offset system. The department claims that the activities of the arms deal companies are embargoed due to ‘commercial confidentiality’.19 Even the investigatory team that examined the arms deal with Parliament’s blessing but Executive interference was not allowed to review the details of the programme.20 Clearly, DTI is concerned that the realities of the offset programme will make for underwhelming reading.

The offsets credit system is applied in such a way that arms deal companies can be granted hundreds of millions of dollars of credits based on minuscule investment and an only tangential relationship to economic activity. The example of McArthur Baths makes the point graphically. In 2001, Saab spent R15m (roughly $3m) upgrading a set of heated pools in the coastal town of Port Elizabeth and undertaking marketing activities in Sweden to attract tourists to the South African town.21 For this tiny investment Saab had claimed $218m in offset credits by 2005 alone.22 The company was able to do so by claiming $3,830 for every Scandinavian visitor to South Africa and not just Port Elizabeth. Saab received this credit for every Scandinavian visitor until 2011 – effectively meaning that the company was granted offset credits for each Swedish tourist who travelled to South Africa to watch the football World Cup in 2010.23 How many offset credits have been awarded subsequent to 2005 has yet to be disclosed, but if the programme was managed along the same lines, Saab would be in line for offset credits in the high hundred millions for an investment of a paltry $3m.

Despite the inherently suspect nature of offsets, by including a massively improved offset offer, BAE/Saab’s bid nudged into first place on the non-costed shortlist.

Clearly unsure of their ground, Modise and his accomplices arranged an informal meeting of a few of the members of the Ministers’ Committee. Two Defence Force representatives who were at the get-together were shocked the following morning when ‘Chippy’ Shaik asked them to sign minutes of the meeting, confirming that it had been formally decided to buy the Hawks and Gripens. The officials argued that the meeting was not formally constituted, that alternatives to the BAE/Saab offer had not even been discussed and that no decision had been made.24 Nevertheless, despite these procedural irregularities and the South African Air Force making clear that it would only accept the Hawk/Gripen if forced to do so by politicians,25 the British–Swedish joint venture was awarded the prized contract.

Our investigations on the Public Accounts Committee made clear that South Africa had been taken for a ride. The arms companies had persuaded political leaders and military officials that they needed far more equipment than had originally been envisaged. They charged a premium, in one instance 35 per cent more than others paid for the same equipment, and promised unrealizable economic benefits from the contracts.

There was immediately clear evidence of conflicts of interest and possible corruption. For instance, we were made aware that the Defence Minister had acquired shares in a company called Conlog in 1997 through a complex transaction that resulted in him paying nothing for the shares.26 Conlog was identified by BAE during the bidding process as a potential recipient of substantial offset contracts.27 Using insider information Modise purchased Conlog shares, anticipating that their value would increase in the aftermath of the arms deal as a result of BAE’s offset commitments.28 This gave Modise considerable inducement to ensure BAE’s selection. On retiring from government in early 1999, Modise was appointed chairman of Conlog.29

Fortified with this information, myself and the committee chairperson, an opposition MP, won the support of the Public Accounts Committee for a massive investigation by a multi-agency team to get to the bottom of the deal. We pushed a resolution approving the proposal through Parliament. When the ANC leadership realized what we had done, they reacted angrily. We were called to a meeting of the party’s senior leadership at which President Mbeki’s closest ally in Cabinet screamed at me across the meeting room table: ‘Who do you think you are, questioning the integrity of the President, the cabinet and the government.’30

They developed a strategy to prevent further meaningful investigation. It included the ANC members of the Public Accounts Committee using the party’s majority to water down our resolution, excluding any investigators who were not sympathetic to the ANC and unconstitutionally instructing the others as to who and what they could and could not investigate. These agencies were also severely hamstrung in their efforts to work with international investigators.

I refused to cooperate with the cover-up and continued to pursue more information. A number of senior party members tried to persuade me to fall into line. One told me that this was a battle I could not win, that the party would close ranks around the deal because we had received money from the successful bidders which was used to fund our election campaign in 1999. The Minister of Finance suggested to me privately: ‘We all know Joe Modise [who had a history of corruption, even during the ANC’s years in exile]. Of course there was shit in the deal. But they’re not that stupid. No one will ever uncover it. Just concentrate on the technical aspects of the deal, which were sound.’31

Thabo Mbeki and his inner circle were happy to undermine key institutions of the new-won democracy, including Parliament and important components of the judicial system, in order to safeguard the interests of the party and to protect some of its senior leaders.

I was removed from the Public Accounts Committee. My attempts to continue to investigate the deal were met with constant disciplining from the party leadership until, under the terms of South Africa’s proportional representation system, I was forced to resign my parliamentary seat.

On arriving in the UK in November 2001 I was besieged by people from all over the world who had followed the South African arms deal. I began to understand that this event was just one in a long history of systematic bribery and corruption by arms companies. The SFO was, at the time, engaged in multiple investigations into BAE. In addition to the Al Yamamah deal and a more modest investigation into South Africa, it was also examining similar transactions in Tanzania, the Czech Republic and Hungary.

After telling investigators all I knew about the South African deal it was clear that BAE used similar routes and methods to pay off South Africans as it had others.

Together with South Africa’s anti-corruption unit, the Scorpions, which was subsequently disbanded by the government, the SFO revealed the web of companies used to pay the bribes. In an affidavit submitted to South African courts in an application for search warrants, the agencies claimed ‘reasonable suspicion that BAE devised a system of payments … designed as bribes to achieve success … and to seek to obtain undue advantage over its competitors in the bidding process’.32 This was done through a system of ‘overt and covert’ advisers. The SFO alleged that Red Diamond Trading Ltd was created ‘to ensure that corrupt payments could be made and that it would be more difficult for law enforcement agencies to penetrate the system [of covert payments]’.33

The SFO investigation revealed that £115m of commissions had been paid by BAE to agents and key political leaders and officials in South Africa. From 2002 to 2007, Fana Hlongwane, Modise’s political adviser, received significant payments from BAE, including a total of £10m paid in instalments between September 2003 and January 2007 directly from BAE shell companies, with a further amount of £9.15m to be paid by other BAE shell companies or in the form of bonuses.34 These payments were made through BAE itself, via Sanip – a company in South Africa established by BAE and Saab to manage their offset obligations – and two covert entities: Arstow Commercial Corporation, registered in the British Virgin Islands, and the Jersey-registered CIC (Commercial International Corporation). It appears that CIC was bought by financial consultants ‘as a vehicle for use by Fana Hlongwane’. BAE ‘could not produce any significant records … of work done that could reasonably justify [such] compensation [to Hlongwane]’.35

The company tried to suggest that it only became involved with Hlongwane after it had won the contract, but the SFO then seized documents indicating that it was working with him during the contract negotiation phase.

The affidavits also revealed a scramble by BAE to make two highly confidential commission payments to seal the deal prior to the signature of the final contract with the South African government in December 1999. On 2 December, the day before the contract was signed, BAE approved payment of $4m to Huderfield Enterprises Inc., a covert company set up by BAE’s agent, Richard Charter, alongside his overt consultancy. A special payment of £100,000 had been made to Arstow on 5 October 1999, after the South African government announced the purchase of the Hawk and Gripen aircraft. These two payments were approved through an extraordinary ‘ex-committee’ procedure attended by only a handful of BAE’s most senior executives. It is assumed these payments, or a part thereof, were intended for Hlongwane and others.36

Besides the Briton Richard Charter, the Zimbabwean John Bredenkamp was identified as one of BAE’s covert agents on the deal. A former Rhodesian international rugby captain, Bredenkamp, who admits to breaking arms sanctions in place against Rhodesia’s racist Ian Smith government,37 is alleged by EU and US authorities to have been close to Robert Mugabe or people within his inner circle.38 Bredenkamp denies this, instead claiming he has not met Mugabe since 1981, has been subjected to false arrest and imprisonment by the regime, before being cleared, has had his passport rescinded and had his farm listed for seizure on two occasions.*

It was alleged in court documents submitted by the SFO that Kayswell Services Ltd, one of Bredenkamp’s commercial vehicles, was paid more than £37m by BAE on the South African deal.39 Allan McDonald, a former BAE executive, claims that Bredenkamp and his team’s only contribution towards the selection of BAE as preferred bidder was to advise the company which ‘key decision-makers’ needed to be identified with a view to ‘financially incentivising’ them to make the right decision with regard to the Hawk/Gripen contract. He was told that Bredenkamp’s team had boasted that ‘we can get to Chippy Shaik’ and that they had actually been speaking to him about the Hawk. Bredenkamp’s UK operations chief spoke of the ‘Third World procedures’ required to win the South African bid – an assumed reference to bribery.40

The obvious conclusion drawn is that at least part of these exorbitant alleged payments were used by Hlongwane and Bredenkamp to bribe others. The Scorpions concluded their submission in support of the warrants as follows:

In view of the huge sums of money involved, there is at the very least a reasonable suspicion that Bredenkamp and/or BAE’s South African representative Richard Charter, used some of the money they received to induce or reward Fana Hlongwane and/or certain other officials involved in the evaluation of the various bids … Alternatively, there is at the very least a reasonable suspicion that Fana Hlongwane may have used some of the huge sums of money he received, either directly or through the various entities which he controlled, to induce and/or reward such officials for such assistance.41

This would account for the complete undermining of the procurement criteria, at the insistence of Joe Modise and his henchmen, that led to BAE being awarded the contract to supply the Hawk over the Aermacchi jet.

Bredenkamp denies paying bribes or providing covert assistance to BAE. He stated in correspondence with the author that he was simply an investor in companies which assisted BAE in their bid.

In late 2010, it was reported that Hlongwane had granted a sizeable home loan to Siphiwe Nyanda, the chief of the South African National Defence Force (SANDF) at the time of the deal. Allegedly Nyanda only paid back a fraction of the loan before it was written off when he was appointed Minister of Communications in 2009, suggestive of a deal to transfer funds to Nyanda with a minimal paper trail.42 After leaving the SANDF in 2005, Nyanda became chief executive of Hlongwane’s group of companies, Ngwane Defence.43 Nyanda was the SANDF chief during the selection and negotiation process and also, crucially, during a 2004 review of the purchase that resulted in the decision to pursue additional tranches of the BAE–Saab deal. The bonus payment to Hlongwane in 2004 was conditional on South Africa agreeing to the additional tranches.44

Around the same time as they raided the homes and offices of Hlongwane and Bredenkamp, investigators froze five bank accounts belonging to Hlongwane in Switzerland and Liechtenstein, blocking funds of more than R160m. The Swiss initiated their own money-laundering inquiry.

Other alleged recipients of arms deal largesse suffered mixed fates initially. South Africa’s then Deputy President – now President – Jacob Zuma was fired for corruption in relation to the deal after his financial adviser, Schabir Shaik – the brother of the head of procurement in the Defence Force, ‘Chippy’ Shaik – was sentenced to fifteen years in jail for fraud and corruption for paying Zuma to further his business interests.

The ANC’s Chief Whip in Parliament, who attempted to stop me investigating the deal, also served a brief prison sentence for offences linked to gifts from EADS, a French–German arms company which also bid for contracts. He was carried shoulder-high into prison by senior leaders of the ANC and, on his premature release, was greeted as a hero. Today he serves on the highest decision-making body of the party and runs the ANC’s influential Political School. ‘Chippy’ Shaik had to flee the country after evidence emerged that he had received $3m from ThyssenKrupp, which was part of the consortium that won the contract – in highly controversial circumstances – to build frigates. The work was effectively awarded to a Spanish company before the then Deputy President, Thabo Mbeki, made a visit to Germany. Thereafter the tender was reopened. The third Shaik brother, an intelligence operative called ‘Mo’, was briefly deployed to Hamburg, where the German Frigate Consortium was headquartered, as the country’s Consul General. The consortium was awarded the contract, allegedly paying $25m in bribes. The awarding of a submarine deal to a consortium led by Ferrostaal was also highly contentious.45

Jacob Zuma was charged with 783 counts of racketeering, fraud and corruption, for receiving payments related to the deal through Schabir Shaik. In return South Africa’s current President intervened to ensure the businessman won a lucrative subcontract through the French company Thomson-CSF, now Thales. When Thomson-CSF was considering dumping Shaik as its partner in 1998, the businessman flew Zuma to London to meet the company, where he reassured them that Shaik was well regarded throughout the ANC, including by Mandela and Mbeki – an untrue statement. Subsequently, in an encrypted fax, the company agreed to pay Zuma R500,000 a year to further the interests of the company and to protect it from any possible inquiry into their role in the arms deal. South Africa’s Constitutional Court, when deliberating on Schabir Shaik’s appeal against his conviction, stated:

Counsel for the appellants [Shaik and his companies] very properly conceded in argument that, given the criminal conviction of Mr Shaik, it must be accepted for the purpose of these proceedings that Mr Shaik did pay bribes to Mr Zuma …

The payments were made by Mr Shaik in order to influence Mr Zuma to promote Mr Shaik’s business interests and, in attending the meeting [with Thomson-CSF] in London in July 1998, Mr Zuma did, as a matter of fact, promote Mr Shaik’s interests.46

After unseating Thabo Mbeki as ANC President and just ten days before he was elected South Africa’s President, the charges against Jacob Zuma were controversially dropped by a prosecutor who was made an acting High Court judge after the election. The statement announcing his decision drew heavily – in some sections, near verbatim – from a judgment delivered by Justice Conrad Seagroatt in a commercial case in Hong Kong. Seagroatt later pointed out that his own judgment was made under a different legal system, in a commercial not criminal case and, most importantly, was overturned on appeal, making it an invalid legal precedent. He even went on record saying that the Zuma trial should have gone ahead.47 Schabir Shaik was released from jail less than two years into a fifteen-year sentence on compassionate grounds, using legislation intended for prisoners in the final stages of a terminal illness. He was suffering from high blood pressure and depression. Since his release he has been spotted in a nightclub and playing golf, and has been accused of two separate assaults.48

South Africa continues to pay for this deal in lives. A Harvard University study conservatively estimated that, over the five years following the deal, 365,000 South Africans died avoidable deaths because the state, in thrall to Thabo Mbeki’s Aids denialism and fiscal discipline on everything but the purchase of unnecessary weapons, would not provide the antiretroviral medication they needed to live.49

It is estimated that the arms deal will have cost the country up to R71bn by 2011.50 This figure dwarfs what has been spent on what were and remain far more pressing priorities. By 2008, South Africa had spent a paltry R8.7bn in its HIV/Aids and STI programme;51 for every rand spent on keeping South Africans with Aids alive, an equivalent R7.63 was spent on the arms deal.52 In the same period R41bn had been spent to provide housing to the millions of South Africans left homeless by apartheid, R30bn less than spending on the arms deal.53 South Africa could have built close to 2 million houses with the money spent on the weapons or employed 1.1 million maintenance workers and cleaners for a year – the equivalent of 100,000 jobs per year for ten years, in a country with a formal unemployment rate of close to 30 per cent.54

South Africa’s prosecutorial and investigative bodies were left in disarray by the arms deal and have continued to deteriorate sharply. Parliament has never recovered from being turned into a rubber stamp which approves all important executive decisions without meaningful interrogation. The deal and its cover-up were the point at which the once-proud ANC lost its moral compass. It heralded the start of a series of similar corrupt transactions that have continued to benefit the ANC, and some of its key leaders, while undermining the provision of basic social services. Even the country’s Deputy President lamented the pervasive corruption that infects the ANC and all levels of government.55 As the country’s premier political newspaper opined: ‘much of what is going wrong [in South Africa] has its roots in the arms deal’.56

As for the weaponry, only eleven of the twenty-four Hawks have ever been operational. The Air Force can only afford to let the Gripen squadron, comprising the eleven planes so far delivered, fly for a paltry 250 hours a year, or just over twenty hours for each operational plane a year – 250 hours is the minimum a combat pilot needs to fly in order to retain accreditation.57 The Hawks, while cheaper to fly, have only been granted 2,500 hours per year due to cost, roughly half of what the Air Force believes is needed in order to maximize its use of the planes.58 Remarkably, the Air Force has confirmed that the lack of flying hours for the Hawk means that some pilots are without the flight time needed to graduate to flying the Gripens, a problem that could have been avoided if the original decision to purchase only a single type of jet had been kept to.59

In addition, South Africa continues to pay millions for maintenance on the aircraft. For the Hawk alone, South Africa has shelled out R268m for maintenance to BAE since 2006.60 Other equipment has also struggled to live up to the hype. In the most high-profile case, one of the three submarines purchased from German suppliers has been beset by a ‘litany of problems’. As a result, it has spent much of its life in South Africa waiting for repair on a dry-dock.61

On 1 October 2009, the Serious Fraud Office announced that it was seeking permission to prosecute BAE for overseas corruption in Africa and Eastern Europe. A plea bargain was offered to the company in terms of which BAE would have to admit guilt and pay penalties of around half a billion pounds. The shocked company rejected the deal as its share price plummeted.

Poverty No Barrier

As the SFO charge sheet illustrates, South Africa was not the only African country afflicted by BAE. While trumpeting his Commission for Africa’s recommendations for improved governance on the continent, Tony Blair persuaded the President of Tanzania, one of the world’s poorest countries,62 to purchase an air radar system for military aircraft at a cost of over $40m. At the time Tanzania had an air force of eight planes, most of which were in various states of disrepair. Bribes of almost $10m were allegedly paid on the deal.63

In 1997, BAE bought a company, Siemens Plessey Systems (SPS), which had been negotiating with the Tanzanian government since 1992 for a deal to sell radar equipment. As part of the transaction BAE took on SPS’s agent, Sailesh (or Shailesh) Vithlani. At the time the agent requested amendments to his consultant relationship because of ‘commitments’ and ‘promises’ made to Tanzanian government officials.64 The original deal, an unaffordable £110m,65 had been blocked by the World Bank and the UK’s Overseas Development Administration.66 In 2000, the deal re-emerged with BAE splitting the project into two phases to make it appear cheaper.67 Clare Short, the UK’s Secretary for International Development at the time, recalls that ‘It came back as half a project. The thing was so grubby from beginning to end and, of course, it was so old that the technology was overtaken. Tanzania didn’t have military aircraft. It needed civil air traffic control improvement in order to improve its tourist industry.’68

Despite vigorous opposition from Short and the Foreign Secretary, Robin Cook, the deal went through in 2001 with BAE selling Tanzania a £28m Watchman air traffic control system.69 The radar was transportable and packed with anti-jamming devices.70 The sale was funded through a loan from Barclays Bank, the bankers on BAE’s South African deal.71 In October 2001, a report by the UN’s International Civil Aviation Organization (ICAO) made clear the absurdity of the deal:

The system as contracted is primarily a military system and can provide limited support to civil air traffic control purposes. The purchase of additional equipment … would be required to render it useful for civil air traffic control. However, if it is to be used primarily for civil air traffic control purposes, the proposed system is not adequate and too expensive.72

BAE accused the ICAO of making false cost comparisons,73 but a World Bank spokesman confirmed the folly: ‘We are concerned that such a large expenditure is going to purposes who’s [sic] justification is not clear to us. To put it in context, $40m is about one third of basic national education expenditure in Tanzania. So it really is a large amount of money and it is competing with priority programmes such as education and health.’74

Norman Lamb, a Liberal Democrat MP and the party’s spokesman on international development at the time, said a modern system could have been provided for 10 per cent of the cost. He claimed: ‘The Department of Trade and Industry, with the apparent support of the prime minister, has colluded with British Aerospace and Barclays Bank in foisting an expensive and unnecessary arms deal on the desperately poor people of Tanzania.’75 Lamb’s outrage never dimmed. In 2009, he called the deal ‘morally indefensible’, adding: ‘it’s outrageous that it’s gone on for so many years. We had the inquiry launched by BAE Systems, in the name of Lord Woolf, which was a complete whitewash. What we need is decisive action by the SFO, to make it clear that that culture is no longer acceptable. I also believe we need a public inquiry into how this export licence was allowed to be granted.’76

Clare Short was particularly angry about the deal she had opposed in Cabinet. A £35m aid package for education development in Tanzania was effectively wiped out by the expenditure on the air traffic control system. She placed the blame squarely at the door of the Prime Minister, Tony Blair: ‘Tony was absolutely dedicated to all arms sales proposals,’ she says. ‘Whenever British Aerospace wanted anything, he supported them 100 per cent. He didn’t seem to understand that there are matters of principle concerned. He had also been duped and bought the argument that it’s always good for the British economy, which is absolutely not so.’77

Cabinet discussion on the deal had been heated, especially after it was revealed that the Ministry of Defence had given BAE the go-ahead before the export licence process had decided on the legality of the deal.78 So intense was the Cabinet dispute that in late 2001 an ad-hoc committee was set up to analyse the deal and adjudicate whether an export licence should be granted. John Prescott, at the time Deputy Prime Minister, chaired the committee. Clare Short hoped for support from the Chancellor, Gordon Brown. ‘I talked to everybody individually and he [Gordon Brown] said he would back me. But then, when it came to the meetings convened by John Prescott, he sent a junior minister and didn’t stand. The press was briefed that Gordon was supporting me but, when it came to the crunch, he didn’t make an issue of it with Tony.’79 Blair argued that the 280 British jobs at stake on the Isle of Wight were more important than the government’s international anti-poverty goals.80 He was supported by the Trade and Industry Secretary, Patricia Hewitt, the Defence Secretary, Geoff Hoon, and the Foreign Secretary, Jack Straw,81 all known for their uncritical support of BAE.82

Colonel Gaby Komba, military attaché to the Tanzanian embassy in London, who was surprised by the vehemence of the debate, defended the deal: ‘It is wrong to say it is basically a military system because it’s not. It is going to be used for both (military and civilian) purposes,’ adding: ‘You can get a cheaper system, but for the purposes of what we want this would have been the best.’83 He admitted there was a ‘military element’ to the equipment but the system as a whole would be used to ‘maintain the integrity of Tanzania’s airspace’.84 The deal was expected to help Tanzanian tourism and raise $3m to $5m per year in air traffic charges.85 Defenders of the deal failed to mention that Tanzania only possessed eight, unsophisticated, underutilized military planes.86

The deal was financed with a $39.5m loan from a commercial bank, Barclays,87 which was strange as Tanzania had recently received $2bn of debt relief, under the terms of which it could not borrow money except on concessional terms, such as those available from multilateral development banks.88 Barclays claimed that the loan was at a concessional rate, explaining that the financing had been in place since 1999, that it was ‘not involved’ in the debate surrounding the sale, and that any loan it made had to conform with export-licensing laws.89 But Clare Short assumes that the bank merely inflated the original price of the deal and then dropped it a little so it could be called concessional.90 Indefensibly, a loan was available from the European Investment Bank to install a state-of-the-art radar system for Tanzania and its two neighbours that was less than half the price of the BAE system.91 In 2002, Short delayed £10m in aid money to Tanzania, arguing that the country had breached its commitments to alleviate poverty.92

Norman Lamb also criticized the financing, suggesting in the House of Commons that ‘The more sinister explanation [of the financing] is that the contract price was fiddled – artificially inflated so that it looked to the outside world as if Barclays were providing a concessional loan. If this is correct then it seems to me that there has been fraud. When you have the secretary of state alluding to corruption, surely it is time that the financing of this deal be thoroughly investigated. I have also been told that bungs have been paid to oil the wheels.’

Alan Johnson, then a junior trade minister, responded that the Department of Trade had ‘absolutely no evidence that there had been any fraud or bungs offered’.93 Benjamin Mkapa, the Tanzanian President, was adamant: ‘No one has given me an iota of evidence about corruption.’94 The reliability of his denial was inevitably questioned by his inappropriate purchase in 2002 of a brand-new Gulfstream jet for $40m, in a country in which the poorest third of the population live on less than a dollar a day.95

The agent on the jet deal was Tanil Somaiya, a business tycoon who owned the Shivacom Group of Companies with interests in telecommunications, construction, advertising, promotion, real estate and, the ubiquitous catch-all, ‘security’.96 His associate, the BAE agent Sailesh Vithlani, is a plump 42-year-old of Indian extraction. He has a UK passport and a mother and brother in south London, but in Tanzania ‘he is a power in the land’.97 Somaiya and Vithlani grew up together in Mwanza on the southern shore of Lake Victoria, before moving to Dar es Salaam, where they registered a company called Merlin International Ltd in 1986.98

When BAE’s nemesis, David Leigh, investigated the radar deal, the trail led him to these two men. He discovered them in an obscure office in the old Avalon cinema building down Samora Avenue in Dar es Salaam, just across from the ferry terminal to Zanzibar. He first interviewed Somaiya, who acknowledged that two parallel arrangements were made with BAE. In the first, a conventional agency agreement was signed. This above-board contract stated that 1 per cent commission was to be paid to Merlin International if the deal went through. But in terms of a second, under-the-table agreement, BAE’s Red Diamond Trading Ltd deposited £6.2m, representing 30 per cent of the contract price, in Switzerland.99 That money was controlled by the other BAE agent, Vithlani. The middlemen insist that this Swiss cash did not go to public officials in Tanzania. They refused to comment when asked if the money went to third parties outside Tanzania.100 Officials close to the Tanzanian investigation, however, confirmed that it was Vithlani who negotiated payments with senior government officials and made arrangements for the transfer of kickbacks from the Swiss bank account.101 A secret consultancy contract was held with a firm registered in Panama called Envers Trading Corporation, which acted as a ‘consultant’ for BAE on the deal. A legal power-of-attorney document allowed both Vithlani and Somaiya to act as agents of Envers, which was effectively their covert ‘dirty’ company.102

Vithlani eventually admitted that he arranged for the £6.2m to be paid secretly into the Swiss bank account by BAE.103 But the company, as always, protested its innocence: ‘We won the contract in open competition and it was completely above board. We operate a global company in a very above-board manner, which is the way we have to work nowadays. Everything is becoming more transparent.’104

In August 2007, an international arrest warrant was issued for Sailesh Vithlani and a criminal case filed in Tanzania charging him with perjury and lying under oath. The SFO had been looking into the case since mid-2004 and in July 2009 interrogated him.105 It is unclear why they didn’t have him arrested but speculation suggests that he might have agreed to turn state’s witness. Vithlani is reported to be enjoying a comfortable life in Switzerland. Somaiya, who belatedly withdrew from Merlin in 2007 after the corruption allegations first hit the headlines,106 has since denied any involvement in the deal.107

Somaiya and Vithlani had been making serious money from arms deals for many years before the radar purchase. They were involved in public procurement contracts worth well over $240m.108 In 2004–5, they won a multimillion-dollar tender from the defence ministry for the supply of around 650 trucks and buses for the Tanzania People’s Defence Force (TPDF). While the government paid the suppliers the full amount of the purchase price in 2006, only 350 of the vehicles had arrived in the country by 2009.109 In applying for the tender, Somaiya and Vithlani fraudulently claimed to be the owners of INCAR Tanzania Limited, the authorized dealer for IVECO trucks from Italy. It was not until 2006 that they actually bought the company. The INCAR company file has meanwhile mysteriously vanished from the Business Registration and Licensing Authority offices in Dar es Salaam. Concerns were raised in military circles that the fleet of IVECO trucks might not be appropriate to replace the army’s ageing vehicles, citing the high unit price, uneconomic fuel consumption and high maintenance costs.110

Somaiya and Vithlani are also alleged to have been involved in the provision of helicopters to the ministry, which they supplied even though they were not the chosen agents of the manufacturer, Agusta Bell. Two of the four helicopters have already crashed, leading to the loss of several lives. Apart from being overpriced, the helicopters were actually designed for civilian use.111 Inevitably, Somaiya and Vithlani were involved in the $40m purchase of the top-of-the-range Gulfstream business jet from the US in 2002 for the use of President Makapa.112

In April 2008, Tanzania’s Infrastructure Minister, Andrew Chenge, who was Attorney General at the time of the radar deal, resigned following allegations that £500,000 in a Jersey bank account belonged to him. Chenge did not dispute the money’s existence, but denied it came from BAE. As Attorney General he gave advice on key aspects of the transaction, which ultimately led the Tanzanian Cabinet to approve the deal. In particular, he advised that the commercial financing of the purchase was compatible with Tanzania’s application for debt relief.113 It was alleged that Sailesh Vithlani even sent a copy of Chenge’s legal opinion to Barclays. A payment to Chenge’s account coincided exactly with the delivery of his opinion in favour of the deal.114

According to a draft SFO report Chenge received six credit transfers totalling $1.5m between June 1997 and April 1998 from a Barclays Bank branch in Frankfurt. They were paid into a Barclays account in Jersey,115 owned by Franton Investment Limited, a company owned by Chenge for the sole purpose of transferring the money.116 In May 1998, he authorized the transfer of $600,000 to an account owned by Langley Investments Ltd, which was operated by the former Tanzanian Central Bank Governor, Dr Idrissa Rashidi. Rashidi was responsible for approving the financing arrangements of the radar deal, under the terms of which the Bank of Tanzania pledged its gold reserves to secure the Barclays loan. Rashidi was also responsible for Tanzania agreeing that English law, and not Tanzanian law, would prevail in the event of any litigation arising out of a possible default on the loan. On 20 September 1999, Chenge personally authorized the transfer of $1.2m from the Franton account to Royal Bank of Scotland International in Jersey.117

Displaying remarkable insensitivity, Chenge referred to the money in his account as ‘pocket change’.118 His foreign lawyers in the US and UK119 admitted that he gave legal advice to the government on some aspects of the deal, though they maintained that he in no way promoted the purchase from BAE.120 That he was able to retain the services of expensive British and American law firms in itself fuelled media speculation about the extent and origins of his personal fortune.121

The investigations into Chenge and the deal in the UK took an alarming turn in autumn 2006, when Norman Lamb had a meeting with SFO and MoD investigators in Portcullis House, where some British MPs have their offices. An SFO investigator suggested to Lamb that they should meet in the atrium because Lamb’s office might be bugged. The outraged MP wrote to the SFO’s Carl Brown on 5 June 2008: ‘You explained that during the course of your investigations … BAE Systems appeared to be aware of key findings and key information that you received as a result of interviewing witnesses. You indicated that you were left with the impression that they were able to listen to your interviews with potential witnesses.’ The SFO responded: ‘At that time, we were operating with an abundance of caution … it was considered prudent to take such precautions.’ The MP was left ‘pretty incredulous’ at the allegation: ‘My hope was it wasn’t true and that my office wasn’t being bugged. I didn’t [have it swept] because it might have alerted BAE that I knew they were bugging it. But I had hoped that it wasn’t true. Extraordinarily, the concern the SFO expressed was that they believed that their investigation was being monitored, that conversations were being bugged.’122

Figure 3: BAE’s web of payments in Tanzania

BAE called the allegations ‘preposterous’,123 after which Lamb added: ‘The suggestion the SFO had concerns [that] a company was bugging them is so serious it must be part of a public inquiry.’124 It seems less far-fetched when taken together with BAE’s history of dirty tricks against its opponents, such as the Campaign Against the Arms Trade.

Besides Lamb’s Liberal Democrats, even the Conservative Party, not known for its commitment to fighting bribery and corruption, challenged the government over the bribery allegations and the threat to sustainable development in Tanzania in a debate in 2007.125 This is particularly ironic in light of the party’s offer to the BAE chairman, Dick Olver, of a position as Trade Minister when it returned to government in 2010. He declined the offer.126

Lamb’s fears of surveillance paled by comparison with the experience of the Tanzanian prosecutor investigating the case. Edward Hoseah told US officials in 2007 that ‘his life may be in danger’ and that politicians in Tanzania were ‘untouchable’ over what he termed BAE’s ‘dirty deal’. He despaired of being able to prosecute the ‘big fish’ but was sure that ‘it involved officials from the Ministry of Defence and at least one or two senior level military officers’. Hoseah told them that he had received threatening text messages and letters and was reminded every day that he was fighting the ‘rich and powerful’. Hoseah, in a hushed voice, explained that ‘If you attend meetings of the “inner-circle”, people want you to feel as if they have put you there. If they see that you are uncompromising, there is a risk.’ Hoseah made it clear that if the threat against his life rose he would be forced to flee the country.127 His personal safety and future, as well as the crucial investigation which was having a deleterious impact on Tanzanian democracy, depended on the SFO and the British justice system.