The new slave trade

The mountain kingdom of Lesotho holds a unique reputation in the international annals of corruption busting.

The Lesotho Highlands Water Scheme is a plan through which the apartheid government during the 1980s sought both to increase water supplies to Johannesburg, and to counter the growing banking sanctions campaign.

About 40% of the water in the Senqunyane river basin is to be diverted to the Vaal Dam south of Johannesburg. The estimated cost of the project, which is due for completion in 2020, is $8.7 billion.

The World Bank was asked to finance the construction project to be built by a consortium of major international civil engineering companies. According to Transparency International (UK), dam construction runs second only to the arms trade for its propensity towards corruption.

With European governmental agencies and banks, the World Bank connived to launder payments through a London trust fund to disguise the reality of South African involvement.

Bribes were paid to Lesotho officials to cast a blind eye on environmental and other problems. The bank pressured the Lesotho government to block investigation, insisting it would result in cost overruns.

The South African National Defence Force in September 1998 invaded Lesotho. Its mission ostensibly was to restore law and order but, in reality, the SANDF was there to protect dam construction. Maseru was left in ruins, and about 17 people were killed near the Katse dam.

By September 1999, even the World Bank could no longer contain the scandal. The Lesotho government insisted on prosecuting the foreign construction companies and local officials for corruption.

Swiss banks were prevailed upon to co-operate in the forensic auditing of bribery payments. The foreign construction companies were incensed that an upstart Third World minnow could press charges against them.

A Lesotho court in 2002 decided that, irrespective of whether the contracts were drawn in Canadian, German, English or Italian law, the harm done was to Lesotho, and Lesotho would take jurisdiction. The court also decided there must be at least two parties to a bribery transaction - the one which paid a bride and the one who accepted it.

Corruption, like prostitution, has too often been considered a victimless crime. Even now, the World Bank impedes demands that its clients who engage in bribery should automatically be disbarred from future contracts.

At last, there is growing recognition that corruption undermines democracy and good governance, and that the poorest people in poor countries are its major victims.

But it remains alarming that government agencies in rich countries, such as the UK's Export Credit Guarantee Department (ECGD), are complicit in bribery by UK corporations.

BAE Systems, ECGD's largest client, has a reputation for creating front companies and bank accounts in offshore banking centres to launder bribes to politicians and parties.

The ECGD is one of the major vehicles through which the British government heavily subsidises British arms exports. Those subsidies are estimated at £852 million annually. No other industry receives such financial support, calculated at more than £13 000 per job.

A two-year investigation by the British organisation for social justice, The Corner House, released in February 2003, found 95% of Third World debt owed to the UK was owed to the ECGD. Some of this debt is for projects from which Third World people have seen little benefit.

The report said: "Of the £4bn-£5bn of UK exports and overseas investment the ECGD backs each year, large percentages go to defence equipment (30%-50%), power plants (25%) and oil and gas projects (15%).

These projects have consistently been controversial and environmentally damaging, and the worst offenders when it comes to corruption. Our two-year investigation has found that the ECGD has been pervaded by an institutional culture of negligence when it comes to corruption."

Corruption is not a victimless crime. It undermines democratic accountability and increases poverty. In poor countries, it diverts scarce resources away from crucial areas to wasteful projects. Projects riddled with corruption are often poorly designed and perform badly.

They are over-priced because companies that pay bribes seek to claw back the money by inflating costs. These costs are usually passed on to the consumer or taxpayer.

While the money of UK taxpayers has been used to support such projects, it is the people of the Third World who usually foot the bill. The ECGD seeks to recover losses from the government of the country where the project takes place.

First World governments frequently exert pressure on behalf of politically well-connected corporations, and then threaten to suspend foreign aid when governments baulk at projects that make no positive contribution to economic development. The argument is: "If we British don't sell weapons, the French or Americans will."

It is an argument akin to government sponsorship of prostitution or drugs. Archbishop Desmond Tutu rightly describes the arms trade as the "modern slave trade".

Britain's financial and political power was built on the back of the slave trade. The original Barclays brothers were slave traders in the West Indies.

Barclays Bank today is the lead bank to BAE Systems, and is financing the 20-year loan agreements that give effect to the arms deal's warplane contracts.

When the spooks approached me in mid-1999, they alleged that Al Baraka Bank, a bank headquartered in Bahrain with two branches in Cape Town, was the banking conduit for Saudi and Pakistani financial interests which were trying to resurrect the operations of the defunct Banque de Commerce et Credit Internationale (BCCI).

A common denominator in South Africa in these transactions was the role of businessmen (particularly the Shaik brothers) in using connections in Indonesia, Malaysia and Saudi Arabia to raise funds for the ANC. The quid pro quo would be government contracts in post-apartheid South Africa.

The government, the spooks said, would cast a blind eye to criminal activities because of funding contributions to ANC coffers.

The explanations were coherent and worrying. Given my banking background, the BCCI references gave credibility and seriousness. BCCI was known widely as the Bank for Crooks and Criminals International.

Its operations had included support of terrorism, arms trafficking and the sale of nuclear technologies, prostitution, smuggling and illegal immigration, illicit purchases of banks and real estate.

BCCI had been connected with international criminal financier Marc Rich, who was the main oil sanctions buster during apartheid.

South Africa's relatively sophisticated banking system, but poor policing, makes it an ideal centre for criminal activities.

To test the allegations, I obtained the registration details for Tony Yengeni's Mercedes-Benz 4x4 in July 1999. The spooks had also told me Yengeni chaired the Xhosa Nostra, a shadowy grouping of former MK leaders, and that he was considered to be President Thabo Mbeki's point-man for the Western Cape.

Yengeni had meanwhile been promoted from chair of the parliamentary defence committee to the ANC's chief whip.

The township communist had quickly acquired tastes for capitalist extravagances. I asked the Cape Times to investigate the allegations against Yengeni, but the story was too hot. Eighteen months later, in March 2001, the Sunday Times took up the matter, sparking a sensational uproar around the arms deal.

Michael Worfel - who organised the discounts on behalf of European Aeronautical Defence and Space Company (EADS), a beneficiary of the arms deal contract - insisted his company throughout the world adhered strictly to the law.

After vehement denials, full-page advertisements denying any wrongdoing were paid for by the same group of road accident lawyers that Judge Willem Heath had found were bilking their clients. Yengeni was eventually convicted of fraud because he lied to parliament.

He was sentenced to four years' imprisonment, but then embarked on lengthy appeals to thwart the conviction. The corruption charges against him were dropped because of possible repercussions in Germany in terms of the OECD Conventions Against Bribery of Foreign Officials. The prosecutor's office in Munich also complained of deliberate foot-dragging by their South African counterparts.

In township slang, the term for a 4x4 vehicle remains a Yengeni. Yengeni's behaviour sent the message that members of the new political elite considered themselves beyond the law, and that public office gave them a right to line their pockets.

Although the media initially considered the briefing to Patricia de Lille as too far-fetched, its essential issues have subsequently been substantiated. It included a draft copy of the bribery agreement between the German steel giant Thyssen Krupp and a company styled Futuristic Business Solutions (FBS). Joe Modise and family, with political fix-it men such as Schabir Shaik, would be the financial beneficiaries.

The government's overreaction was in fact more interesting than the content. Foreign governments were accused of trying to destabilise South Africa, and it was evident the government was only interested in punishing whistleblowers.

Within days the operatives produced files to substantiate the allegations, including material from Richard Young and his company, c2i2.

Based in Cape Town, c2i2 produces state-of-the-art software to control a warship's firepower. Although the company supplies the US navy, its expertise was deemed inadequate for the SA navy.

Thomson CSF, at a considerably higher price than c2i2's tender, through its black empowerment partner, African Defence Systems (ADS), was selected to instal 20-year-old obsolete French technology on the German-built warships.

The political guarantee for ADS was no less than Schabir Shaik, brother of Chippy, whose companies since 1994 obtained an estimated R10bn worth of government contracts, such as toll roads and drivers licences. FBS and Shaik's Nkobi Holdings were each given 20% shareholdings in ADS.

Shaik was not only then Deputy President Jacob Zuma's financial adviser, he was also a major financial contributor to the ANC.

In addition, and in conjunction with Malaysian interests, Shaik had his eyes on the redevelopment of the Durban waterfront. A company within Nkobi Holdings, Floryn Investments, was simply a vehicle through which kickbacks would be paid to the ANC.

With acknowledgements to Terry Crawford-Browne and Cape Times