Arms deal: Who got R1bn in pay-offs?

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.

Beneficiaries
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, ”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, 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:

• Hlongwane Consulting, incorporated in 1999 by Hlongwane, the then adviser to Modise. The SFO document states: ”Documents disclosed by BAE have revealed that Hlongwane entered into a general consultancy agreement with BAE in 2002 on a retainer of £1-million [R14-million] per annum. In 2005 there was an agreement to pay $8-million [R55-million] as a settlement figure to Hlongwane in relation to work done on the Gripen project.”

• Brookland Management, led by a Swiss-based David Clark, who has also registered companies in South Africa. According to the SFO, Clark entered into a consultancy agreement with BAE in 1997 and with Red Diamond in 1999 on the Hawk and Gripen projects. Brookland is suspected to have received about £8,5-million (R118-million) through Red Diamond.

• Huderfield Enterprises, incorporated in 1997 in the British Virgin Islands. The SFO has found that the man behind Huderfield was Richard Charter, BAE’s main and most public agent in South Africa in the run-up to the Hawk and Gripen contracts. According to the document, Huderfield was paid almost £25-million (R350-million) between 1999 and 2005, including a ”final settlement” of £5,5-million. Charter died in a canoeing accident on the Orange River in January 2004, so it is not clear who benefited from the final settlement.

• Osprey Aerospace, a South African company founded and run by Charter as the ”overt” agent for British Aerospace in South Africa. Says the SFO document: ”It is reasonably believed that Osprey [was] the ‘overt’ agent but that there is in existence a ‘covert’ agent, possibly Huderfield.” ”Overt” Osprey received, according to the document, just less than £2-million (about R27-million) from BAE between 2002 and 2005.

• Kayswell Services, incorporated in 1994 and contracted as a BAE consultant for the Hawk contract in the same year, was paid more than £37-million (R517-million). The contact at Kayswell, according to the SFO, is Jules Pelissier, a long-standing business partner of Zimbabwean arms dealer John Bredenkamp, who was also an agent for BAE in Southern Africa.

• FTNSA Consulting, a company registered in the West Indies, whose principal, according to the SFO document, is Basil Hersov, former chairperson of FNB and member of President Thabo Mbeki’s economic advisory panel. Hersov, now 80, is described as a man ”with considerable influence”. Agreements with him ”allow access to the very top”, according to BAE documents quoted by the SFO.

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, 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”, 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.

Response
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. 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