Publication: Mail and Guardian Issued: Date: 2007-01-12 Reporter: Evelyn Groenink

Arms Deal : Who Got R1bn in Pay-offs?



Mail and Guardian




Evelyn Groenink

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Explosive new allegations of dirty money and influence-buying at the heart of South Africa's multibillion-rand arms deal have emerged from a British investigation of BAE Systems, the defence conglomerate that secured a R30-billion South African order for Hawk jet trainers and Gripen fighters.

The allegations are contained in a formal application by the United Kingdom's Serious Fraud Office (SFO) for legal assistance from South African authorities.

The SFO document, which has been seen by the Mail & Guardian, requests cooperation in pursuing the investigation of more than R1-billion in "commissions" paid by BAE on the South African deal.

The money went to no fewer than eight entities in terms of "consultancy agreements" dating, in one case, as far back as 1992.

The request for mutual legal assistance is dated June 26 last year, but the South African response seems to have been marked by bureaucratic delays and buck passing, despite the fact that the suspected bribes dwarf the amounts featured in the Jacob Zuma case.

The SFO document mentions as beneficiaries of the suspected bribes, among others, former defence minister Joe Modise's adviser, Fana Hlongwane, and FTNSA Consulting, a company whose principal is, according to the SFO document, former Anglovaal and First National Bank (FNB) chairperson Basil Hersov.

BAE has always maintained that it merely pays "normal" commissions and not bribes. However, the SFO document states: "The whole [commissions paying] system is maintained in such conditions of secrecy that there is a legitimate suspicion concerning the real purpose of the payments."

The SFO also notes that "the failure of BAE to produce documentation believed to be located in office locations in Switzerland" adds to the suspicion that the "underlying documents which govern the payments cannot withstand scrutiny".

The SFO document names a "highly secretive unit within BAE" called Headquarters Marketing, or HQ Marketing *1, "which coordinates all agreements and contracts with agents". It discloses the main front company used for the commission transactions, Red Diamond Trading, a mystery offshore entity registered in the British Virgin Islands.

The document states that "between 2000 and 2005 *2, South African agents received over 70-million through Red Diamond and over 6-million and $4-million through HQ Marketing accounts".

It adds that "hardly any funds were paid to bank accounts within South Africa; the vast majority of payments being made to offshore accounts".

Suspected beneficiaries of the bribes mentioned in the document are: According to the SFO document: "Documentation disclosed by BAE has revealed that FTNSA was incorporated in Nevis in the West Indies in April 1992, and two months later entered into a consultancy agreement with BAE in relation to procurement of the Hawk aircraft in South Africa."

At the time, in 1992, the South African government was still led by the National Party, with FW de Klerk as president. Apparently, BAE expected that FTNSA/Hersov's influence would continue to allow "access to the very top" and help secure the desired Hawk contract after the elections and the installation of an African National Congress government in 1994. According to the SFO request, FTNSA was paid, like the others, after delivery of the contract, between 2000 and 2005. It received a sum of 5,5-million (R77-million).

The SFO has asked the South African authorities to compel Nedbank and FNB to produce banking documentation on accounts belonging to Hlongwane, Osprey Aerospace and a company called Measuring Instruments Technology (MIT), registered in Pretoria in 1993.

It is not clear where MIT fits in. Though it was an agent for certain BAE components, the company says it had nothing to do with the arms deal. MIT MD Maurice McDowell said he was unaware of the SFO request, but added: "There'll be no problem; it's all open."

In the United Kingdom, the SFO is investigating "principally" the affairs of BAE itself and those of four named individuals: group marketing director Michael Peter Rouse, former chairperson Sir Richard Harry Evans *5, BAE chief executive Michael John Turner and Julia Aldridge, the deputy head of the secretive HQ Marketing unit.

The SFO says "there is reasonable cause to believe that all the above-named persons and company have committed offences of corruption".

The BAE investigation flows from allegations of pay-offs and sweeteners being used to secure the massive al-Yamamah deal with Saudi Arabia, first concluded under the Conservative government but whose additions and extensions have been assiduously pursued by the government of British Prime Minister Tony Blair.

The long-running Saudi investigation was controversially halted by Blair in December last year as the Saudis threatened to pull out of a huge new deal with BAE. Blair cited reasons of "national security" *6, and there were claims that the Saudis had threatened to end intelligence sharing if the probe went ahead.

However, it appears that some of the same commission channels were used by BAE in other contracts, notably in South Africa, the Czech Republic and Chile, and those investigations continue.

The South African response to the SFO request for help appears to have been exceptionally ponderous. The original request was sent in June, both to the Director General of Justice and Constitutional Development, Menzi Simelane, and to the National Directorate of Public Prosecutions, according to a follow-up fax sent via Interpol.

The M&G understands that the Department of Justice and Constitutional Development first asked for advice from the Foreign Affairs Ministry, and then contacted Scorpions investigators working on the Zuma case. They responded that they had their hands full and asked if other investigators could be appointed to handle the BAE matter.

Apparently, other such investigators were not found within the Scorpions *7. It was after this that the police were approached.

A fax from Interpol to the South African Police Service, dated October 10 last year, attached a copy of the SFO request and asked the police to appoint an investigating officer as well, but noted that the request still needed Justice Department approval.

The request remained with the police's Office for Serious Economic Offences until, finally, the matter was recently referred back to the National Prosecuting Authority (NPA), which told the M&G this week: "We confirm receipt of a request for assistance and will assist within the framework of international cooperation in criminal matters."

Additional reporting by Sam Sole and Nic Dawes

With acknowledgements to Evelyn Groenink and Mail and Guardian.

*1       Probably the new incarnation of British Aerospace's IMSO or International Marketing and Sales Organisation, previously headed by Allan McDonald, which was structured so as to provide an arms length between the legitimate operational divisions and the wonga splodgers.

*2      Yet the allegations were made in 1999 and 2000.

Clearly either the dates are wrong or the money was actually paid by BAe only once Armscor's advance payment was made to them and Saab in April 2000 and subsequent progress payments were made at the beginning of each financial year.

*3      Clearly Osprey Aerospace was BAe's overt agent receiving a mere 2 million while their covert agent received a more deserving 25 million or more.

*4      For more than three years now is has been suspected that Osprey Aviation was merely the local "agent" while the true "agent was Aviation Consultancy Services owed by John Bredenkamp.

*5      When it comes to BAe, Sir Dick is always a usual suspect.

One wonders why Allan McDonald is not listed.

*6      I think Blair cited reasons of "national interest".

*7      Me thinks the powers that be would not want to be too successful in a South African re-investigation as it will :

In the UK, successful prosecutions of bribers and bribees, could (should) lead to the end of the institution known as British Aerospace - one of the most corrupt entities in the western world.