/ 5 December 2008

How arms-deal ‘bribes’ were paid

New evidence of corruption in the arms deal is disclosed in documents used by the Scorpions to motivate for last week's raids on premises countrywide.

Dramatic new evidence of corruption in the arms deal is disclosed in documents used by the Scorpions to motivate for last week’s raids on premises countrywide.

The documents, seen by the Mail & Guardian, show that ‘commissions” paid to agents by British defence giant BAE Systems total more than £115-million — a staggering R1,73-billion at today’s exchange rate.

They also argue BAE could not produce evidence of legitimate services by their agents which could justify the huge amounts paid to them.

The documents — affidavits by South African and British investigators, financial statements and correspondence — formed the basis for the Scorpions’ secret application to the Pretoria High Court to search seven premises linked to BAE and its agents last week.

They disclose:

  • How the vast majority of BAE’s commission payments — £103-million — were ‘covert” and made through a secret front company;
  • How the covert payments were made to a series of undisclosed agents — including Fana Hlongwane, who served as special adviser to then defence minister Joe Modise at the time BAE was chosen as preferred bidder;
  • How BAE allegedly tried to hide the extent and timing of their relationship with Hlongwane from investigators. The M&G has previously disclosed his receipt of hundreds of millions of rands as a ‘consultant” to BAE;
  • How two highly unusual commission payments were authorised just before South Africa signed the final contracts in December 1999; and
  • Details of interventions by Modise and then defence procurement boss Chippy Shaik which advantaged the BAE bid.

BAE led the successful bid, with Sweden’s Saab as junior partner, to supply BAE Hawk trainer jets and Saab Gripen jet fighters worth more than R21-billion in today’s money.

The documents detail evidence obtained by the British Serious Fraud Office (SFO), which is conducting an investigation parallel to the Scorpions.
The SFO evidence includes:

  • A statement under oath by a former BAE executive about how Zimbabwean-born arms-and-tobacco baron John Bredenkamp, whose company received the largest ‘commission” payments from BAE, suggested to him that ‘key decision-makers” needed to be identified with a view to ‘financially incentivising” them;
  • How the former executive was allegedly told that Bredenkamp’s team had boasted that ‘we can get to Chippy Shaik”;
  • How a memo obtained from Bredenkamp’s British operations chief spoke of the ‘Third World procedures” required to win the South African bid.

BAE has consistently maintained it acted legally. Hlongwane has in the past failed to talk to the M&G. Bredenkamp has maintained his innocence.

The latest disclosures will add to pressure on the government to launch a full judicial inquiry into the arms deal. This week Archbishop Desmond Tutu and former president FW de Klerk added their voices to calls by Cosatu, Judge Chris Nicholson and others for an inquiry.

The government has consistently denied corruption in the main arms deal contracts. It repeatedly quoted the finding of the 2001 Joint Investigation Team (JIT) report that: ‘No evidence was found of any improper or unlawful conduct by the government.”

Critics dubbed the JIT report a whitewash. The Scorpions’ main affidavit in the Pretoria High Court is more diplomatic, saying ‘the [Scorpions] criminal investigation process is distinct from the JIT process — The JIT’s findings are not and do not purport to be findings reached by way of criminal investigation.”

Now the Scorpions believe they have a reasonable suspicion of racketeering, corruption, money laundering and fraud. The evidence gathered is compelling.

According to the Scorpions’ affidavit, the SFO investigation reveals that BAE operated a system of ‘overt” and ‘covert” advisers in its worldwide marketing efforts.

Red Diamond
After a United States Justice Department investigation of BAE’s activities in Chile, the company adopted a ‘least transparent system” to pay its covert agents, using Red Diamond Trading, registered in the British Virgin Islands.

It continues: ‘Mike Turner [a past BAE chief executive] in his interview with the SFO claimed that the reason for such an opaque system was to ensure commercial confidentiality and to avoid intrusion by the media and anti-arms campaigners.

‘The SFO suspects that a primary reason behind the inception of Red Diamond was to ensure that corrupt payments could be made, and that it would be more difficult for law enforcement agencies to penetrate the system.”

Hlongwane allegedly received payments of R280-million from BAE through four vehicles.

Two were overt: BAE itself and Sanip, a local company set up by BAE and Saab to manage their offset obligations. Two were covert: Arstow Commercial Corporation, registered in the British Virgin Islands, and Commercial International Corporation (CIC), registered in Jersey.

According to the SFO, former BAE executive Allan McDonald has confirmed that Arstow’s ‘controlling mind” is a certain Alexander Roberts.

The Scorpions note that Roberts ‘states in his interview with the SFO that BAE told him to pay a portion of Arstow’s — fees to Fana Hlongwane. Mr Roberts paid Fana Hlongwane — over R60-million — for his great assistance to BAE.”

This was supposedly for helping with the offset and black empowerment requirements of the Hawk/Gripen campaign.

‘Neither Mr Roberts nor BAE could supply the SFO with any written evidence regarding the legitimate work Fana Hlongwane did that could reasonably justify compensation in the magnitude of R60-million.”

The Scorpions affidavit adds that Hlongwane’s companies also received over R120-million directly from BAE, which ‘could not produce any significant records — of work done that could reasonably justify [such] compensation” — as well as another R51-million through Sanip, the local BAE-Saab company.

CIC was a Jersey company run by offshore financial consultants Hugh Thurston and Leonard Day. According to the Scorpions, the SFO interviewed Day in Jersey, who said Thurston asked him to purchase CIC ‘as a vehicle for use by Fana Hlongwane”.

The Scorpions affidavit continues: ‘Red Diamond entered into a consultancy agreement with CIC on November 11 1999 for what appears to be services provided post-signature of the contract between BAE and the government of South Africa.”

It appears Hlongwane received nearly R5-million from BAE through CIC. Documents seized by the SFO suggest BAE tried to claim their financial relationship with Hlongwane began only in 2003. The Scorpions note: ‘The SFO believe that BAE have sought to conceal from the SFO the involvement of Fana Hlongwane during the [contract] negotiation phase.”

Two special payments
The SFO’s evidence suggests there was 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 December 2, the day before the contract was signed, BAE approved payment of $4-million (R40-million) to Huderfield Enterprises, a covert company set up by BAE’s overt agent, Richard Charter, alongside his overt consultancy, Osprey.

According to a contemporary handwritten note obtained by the SFO, senior BAE executives were concerned about how Charter would repay the money if ‘anything goes wrong”.

Earlier a special £100 000 payment (R1,5-million) was made to Arstow on October 5 1999, after the South African government announced the procurement of the Hawk and Gripen aircraft.

These two payments were approved through an extraordinary ‘ex-committee” procedure that only a handful of BAE’s most senior executives attended.

The Bredenkamp way
The Scorpions affidavit recounts the extraordinary evidence of ex-BAE executive McDonald, who told the SFO he had personally also received £5-million from the deal.

‘Allan McDonald told the SFO in an interview that when he first met John Bredenkamp and Julien Pelissier regarding their consultancy arrangements in South Africa, John Bredenkamp suggested identifying the key decision-makers, with a view to ‘financially incentivising’ them to make the right decision with regard to the Hawk/Gripen contract.

‘Mr McDonald went on to state that during his tenure on this campaign — Mr Bredenkamp and his team contributed nothing towards the selection of BAE as preferred bidder … In this context it should be remembered that Kayswell [the covert company owned 60% by Bredenkamp] was the highest paid BAE adviser, receiving over £40-million.”

It appears this negative view of the Bredenkamp organisation’s contribution filtered back to them. Among documents the SFO summonsed from Pelissier — Bredenkamp’s right-hand man — was an indignant memo he sent his boss.

‘I find it extraordinary coming from people who had no involvement and therefore no knowledge whatsoever on the inputs and activities over a period of four years in a ruthlessly competitive market, incorporating both first-world and third-world procedures, towering egos of all the key players and continuous rival attempts to undermine our position as representatives.”

The Scorpions affidavit says the reference to ‘third-world procedures” is regarded as a veiled reference to the payment of bribes.

Chippy Shaik
The affidavit says further: ‘Mr McDonald also told the SFO that Richard Charter complained to him that Mr Bredenkamp’s team had been speaking to Chippy Shaik, chief of acquisitions, about the Hawk without the prior knowledge of the campaign team on the ground, [and] Mr McDonald also stated that the Bredenkamp team told him ‘we can get to Chippy Shaik’ and that they knew the contents of Chippy Shaik’s diary.”

In an interview with the SFO, Bredenkamp distanced himself from any operational involvement in Kayswell’s activities.

The Scorpions affidavit states: ‘He accepted that he was the majority shareholder, but expected the other shareholders to run the business.” However, this was contradicted by McDonald, who maintained that Bredenkamp was ‘the boss” of Kayswell and that Bredenkamp gave progress reports directly to then BAE director Mike Turner.

Concluding their request for authorisation of the raids, the Scorpions note: ‘In view of the huge sums of money involved, there is at the very least a reasonable suspicion that — Bredenkamp and/or — Pelissier and/or 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.”

The R1,55-billion that kept ‘advisers’ in the shadows
BAE Systems used ‘the Red Diamond system” to pay a staggering £103-million (about R1,55-billion) to its covert ‘advisers” on the South African arms deal, according to an affidavit by British Serious Fraud Office (SFO) investigator Gary Murphy.

The British arms giant set up Red Diamond Trading in 1998 in the British Virgin Isles, a haven of corporate anonymity. Red Diamond’s records were kept in Switzerland.
The payments included:

  • About £40-million (R600-million) to Kayswell Services, also registered in the Virgin Isles. John Arnold Bredenkamp holds 60%, with 40% shared by his associates, Julien Pelissier, Trevor Wilmans, Rick Passaportis and Walter Hailwax. The Scorpions raided Bredenkamp, Pelissier and Wilmans’s South African homes last week.
  • About £15-million (R225-million) to Arstow Commercial Corporation, also in the Virgin Isles. Swiss resident Alexander Roberts, Jersey resident Dr Hugh Thurston and Liechtenstein-based Johannes Matt are involved. Roberts and Thurston are closely connected to former British prime minister Margaret Thatcher and her family, the M&G has established, with Thurston acting as the Thatcher family’s financial adviser. Roberts is understood to have been an associate of Denis Thatcher, Margaret’s late husband. Roberts told the SFO that more than £5-million (R75-million) was on-paid to Fana Hlongwane.
  • About £26-million (R390-million) to Huderfield Enterprises Inc, also in the Virgin Isles. According to a BAE internal memo, Richard Charter was the controlling mind behind Huderfield. Charter, BAE’s declared agent in South Africa, died in a canoe accident in 2004.
  • About £290 000 (R4,3-million) to Commercial International Corporation, incorporated in Jersey. Jersey financial consultants Hugh Thurston, Robert Chapman and Leonard Day became directors of CIC in 1999. Evidence suggests CIC was a vehicle for Hlongwane.
  • About £5-million (R75-million) to FTNSA Consulting, an offshore company run by veteran South African businessman Basil Hersov.
  • About £8,5-million (R128-million) to Brookland Management Ltd, a Virgin Isles company. This company is believed to be operated by Sir Alan Curtis, another close associate of Denis Thatcher.