The United Kingdom’s Serious Fraud Office is investigating ”substantial payments” made by BAE Systems to a senior South African Defence Ministry official who had influence over the controversial arms-deal contract won by the arms company to supply planes at nearly twice the price of a rival bidder, the Guardian reported at the weekend.
South Africa’s organised crime unit, the Scorpions, are handling a ”mutual legal assistance” request from the Serious Fraud Office to investigate the financial accounts of Fana Hlongwane, a politically well-connected businessman, in relation to the 1999 deal, the report said.
Hlongwane is a former special adviser to the then South African defence minister, Joe Modise, who died in 2001.
Modise has been named in allegations of corruption, including claims that he took a £500 000 (R7,03-million) bribe from BAE and $10-million (R72,8-million) from a German consortium that signed a contract to sell submarines. The Serious Fraud Office is also investigating John Bredenkamp, a tycoon who is BAE’s agent in Southern Africa and whose British home and offices were raided in October.
South African sources told the Guardian that Serious Fraud Office detectives were expected to travel to Pretoria within weeks.
Details of the investigation emerged soon after the British government abruptly halted a Serious Fraud Office inquiry into alleged bribes paid by BAE to Saudi royals.
British Prime Minister Tony Blair claimed Britain’s security would be endangered if the investigation continued, prompting criticism that the Saudi regime had blackmailed the British government and that BAE was above the law.
The Serious Fraud Office is also investigating allegations that BAE made corrupt payments to politicians and officials in Tanzania, Chile, the Czech Republic and Romania.
According to South African sources, the Serious Fraud Office is investigating whether payments were made while Hlongwane was an adviser on the arms deal to Modise. At the time, Hlongwane was also a director of South African arms company Denel.
Suspicion was cast on the aircraft deal after Modise changed the formula by which the contract would be decided to discount price as a factor.
South Africa’s air-force chiefs had selected Italian aircraft as cheaper and more modern, but the amended specifications shifted the balance in favour of the aging British Hawks — at nearly double the price.
The Hawks are part of a £1,5-billion (about R21-billion) package BAE and Saab put together to supply 24 Hawk fighter trainers and 28 Gripen light fighter aircraft to South Africa.
South African sources say the request to the police indicates that the British investigation extends beyond the sale of the Hawk aircraft to the payment of bribes in South Africa and other developing countries.
The sources also say that the Serious Fraud Office believes that information on South African bank accounts may also lead to offshore accounts in Mauritius and the Seychelles.
In the race to win contracts, BAE built a tangled web of relationships with South African officials, particularly Modise.
BAE acknowledges that it paid tens of millions of pounds in secret commissions to win the £1,5-billion contract. The arms company originally intended to pay 12% of the contract price in commissions but agreed to cut that back to 7% — more than £100-million — following questions from the British authorities underwriting the deal.
An internal British Foreign Office memo three years ago says BAE named the agent handling the commissions in South Africa as the company Osprey. BAE claimed Osprey had no links with anyone involved in awarding contracts but in truth, it had close ties with Modise. Among Osprey’s shareholders was Tsebe Properties, of which Hlongwane was a director.
BAE also made a donation to the ruling African National Congress just after the contract was signed.
BAE declined to comment on the specifics of the SFO request, or its relationship with Hlongwane. A spokesperson said the company was ”fully cooperating” with the investigation. ”As the SFO inquiry is a continuing criminal investigation, it would be inappropriate for us to comment,” he said.
Hlongwane was unavailable for comment.