Deception in High Places: A History of Bribery in Britain's Arms Trade

by Nicholas Gilby

Overview

Deception in High Places reveals the corruption endemic in Britain's biggest arms deals over the last fifty years.

Based on painstaking research in government archives, collections of private and court papers and documents won by the author in a landmark Freedom of Information Tribunal against the Foreign and Commonwealth Office, the book illuminates a shadow world of bribery and elite enrichment.

Deception in High Places charts British government involvement in arms trade corruption and presents the fullest history yet of bribery in Britain’s arms deals with Saudi Arabia. It includes the backstory of the controversial termination of a Serious Fraud Office corruption investigation following pressure by the Saudi Royal Family and the British establishment.

Product Details

ISBN-13:	9780745334264
Publisher:	Pluto Press
Publication date:	05/16/2014
Pages:	256
Product dimensions:	5.30(w) x 8.30(h) x 1.10(d)

About the Author

Nicholas Gilby led the Campaign Against Arms Trade's efforts to expose corruption in Britain's arms deals with Saudi Arabia. He is the author of The No-Nonsense Guide to the Arms Trade (2009) and his research has featured in the Guardian, BBC's Newsnight and Al Jazeera.

Read an Excerpt

CHAPTER 1

The Chancer: Negotiating BAE's First Saudi Deals (1963–66)

Fifty years ago, Saudi Arabia was for businessmen with a pioneer spirit. Britain's Ambassador remembered when it was untouched by the modern world, known by diplomats as a land of 'sandy wastes and rocky wilderness'. Just after the Second World War, he recalled, Jedda, halfway down the Arabian peninsula on the Red Sea coast and nowadays Saudi Arabia's second largest city, sat behind 'an ancient wall sheltering the cluster of tall coral houses'. Water 'came from a rusty "condenser" which reluctantly took the salt from the sea water, the finished product being delivered to us in old petrol tins by sweating porters'. Riyadh, the capital, was a place of 'mud houses and forts and ... crenellated towers', only reached 'by desert track ... [in] five days by car'.

The discovery of oil in 1938 changed the country. By the early 1960s, Jedda was 'sleepily emerging into the twentieth century'. It now had 'broad roads, tree-lined avenues, modern villas, flats and offices which have herded back the old town into an untidy heap in the middle'. Riyadh had 'wide avenues, flanked by modern buildings housing the various Ministries'. The Saudis kept alive centuries-old traditions with 'flowing robes ... endless cups of bitter coffee and their fierce bedouin retainers'.

Ibn Saud, after whom Saudi Arabia takes its name, conquered Arabia's desert tribes in the first decades of the twentieth century. His sons have ruled Saudi Arabia since his death.

The Saudi Princes saw the kingdom as their 'fief'. As one British Ambassador put it:

I doubt if there are any among them, not even King Faisal himself, who have seriously questioned the inherent right of the [Saudi Royal Family] to regard Saudi Arabia as a family business, or to regard the promotion of the interests of the family business as taking priority over everything else.

After Ibn Saud's death in 1953, the Saudis lived lavishly on oil money, spending their new riches on 'pleasure, palaces and Cadillacs'. The rule of the new King, Saud, 'a man of the utmost folly', left the country almost bankrupt by 1958.

Years of austerity began. King Saud's (half-)brothers forced him to give real power to his younger half-brother, Feisal. Feisal cut back Princely allowances by two-thirds over six years. In Riyadh visitors noticed palatial houses abandoned half-built. To maintain their lifestyles the Princes needed new sources of income.

At the same time, Saudi Arabia, with few educated people, could not develop without help from foreign companies. But the country was not an easy place with which to do business.

In 1963, there were only six British businessmen in Saudi Arabia. Few could face dealing with the 'truly massive incompetence' of the Government bureaucracy. Saudi officials were 'more often than not inefficient, idle and corrupt' whose working day lasted, London was told, an average of 45 minutes. Doing business was made even harder by 'the inefficiency of the mails, the telegraph office and Saudi Arabian Airlines'.

Saudi Arabia was ready for a big arms deal. In 1962 in neighbouring Yemen, Army officers inspired by the Egyptian leader General Nasser overthrew the ruling Imam. Nasser hated Arabian sheikhs, blaming them for the Arab world's backwardness. He sent troops to prevent the Imam returning to power. The Saudi Princes took fright because they 'suddenly found themselves confronted with a Power on their borders ... devoted to the overthrow of monarchical régimes'. They now wanted modern weapons. With Saudi oil revenues growing at over 10 per cent per year, they could afford them. The senior Princes could also use bribes from arms deals to restore and increase their incomes.

Geoffrey Edwards

To win a major deal in Saudi Arabia, British arms companies needed a business agent to work in the shadows. Then, as now, many companies looking for a deal in a country where they were not already well established, used agents. Agents could fulfil a number of legitimate roles. One British Ministry of Defence official pointed out they could

lobby officers and officials ... find out about the availability of funds and perhaps suggest to people that availabilities might be created; they sniff out the activities of our competitors and they sing the virtues of our equipment and our services.

However, often they were also central to bribery schemes.

Even today, it is often impractical for a company to monitor the activities of its agents abroad closely, and it certainly was in Saudi Arabia in the 1960s. So, rather than paying for their time, most companies paid agents a 'commission' – a percentage of the final selling price – as an incentive to work hard. These were, in effect, 'no win, no fee' arrangements.

British arms companies needed a chancer, someone who knew the territory, willing to endure the hardships and able to deal with Princes. That man was Geoffrey Edwards. In 1961, aged 40, he left St Aubin, Jersey, and rented a house in Jedda. Edwards, a heavy drinker, was likely to find this trying. While diplomats could smuggle alcohol into this dry Muslim country in the diplomatic bag, unfortunately, an agent of the British Aircraft Corporation warned, businessmen caught carrying alcohol would be 'sent out of the country on the next aircraft' and 'they DO search your bags'.

In Saudi Arabia, the King and his (half-)brothers made all the important decisions. Straight away, Edwards got chummy with the senior Princes – 'the only real way', said British diplomats, 'of doing business in the country'. He developed a close relationship with the Minister of Defence, Prince Mohammed bin Saud and his successor from 1962, Prince Sultan. British companies seeking contracts in Saudi Arabia learned about Edwards's excellent contacts, and a number hired him.

Edwards and the Thunderbird Missile Deal

In early 1963, the senior Princes were afraid of bombing by Egyptian aircraft based in Yemen. They toyed with stationing a mobile missile system, for shooting down aircraft, around Riyadh, Jedda and Taif (a resort in the mountains near Jedda, where the Saudi Royal Family rested during the hottest summer months).

At that time, the British Aircraft Corporation (BAC – now called BAE Systems) manufactured a mobile missile system called Thunderbird, used by the British Army. Edwards approached BAC claiming he was 'the sole person charged with a responsibility for the procurement of certain major items of defence equipment [including Thunderbird missiles] by Prince Sultaan [sic], Minister of Defence, and Prince Abdul Rahman'. Abdul Rahman was a 'major businessman', the brother of Sultan, and 'a power behind the scenes'. On a visit to London he met BAC salesman Alec Sanson and 'confirmed all that Geoffrey Edwards had told us'.

Associated Electrical Industries (AEI), makers of radars used by the Thunderbird system, confirmed to BAC 'that Edwards had in fact established himself in a most exceptional position with ... the Finance and Defence Ministries'. At the end of July 1963, Edwards arranged a meeting for Sanson at Sultan's house in Saudi Arabia with Sultan and Abdul Rahman. Suitably impressed, BAC decided to work with Edwards. To be at the heart of the deal, Edwards needed BAC's backing, and so BAC agreed to write a letter to Sultan, telling him:

Mr. Edwards has our complete trust and confidence not only in the transmission of documents [about Thunderbird and other equipment] between your Ministry and this Corporation, but also as regards the arranging of such guarantees and other financial matters as may be necessary in Saudi Arabia in connection with such transactions.

Personality politics dominated Saudi decision-making. One British Ambassador sneered:

I doubt if, even on important subjects, there is any systematic marshalling of information and argument, much less preparation of policy papers: [Feisal] absorbs in discussion with his advisers an undigested and unassessed pot-pourri of facts and opinions ... and forms his own opinion. This system – or lack of it – leaves him heavily dependent on his advisers for his knowledge of facts.

The Saudi Royal Family was full of what one Ambassador called 'complex jealousies'. But, Feisal was setting 'a personal example in various ways.' He was, thought British diplomats, 'by far the most impressive of all the Royal Family' and 'reputed to be above corruption. He indulges in none of the vices and excesses practised by most of his brothers.' He lived modestly, driving himself to his office every morning unescorted.

However, his example was ignored by many of his subjects and (half-)brothers. Diplomats in Jedda told London 'the level of business morality' was 'not particularly high, even by Middle East standards' because of the 'backstairs fixing going on'.

BAC soon learned about Edwards's methods. In December 1963, Sanson told Lord Caldecote, the BAC Director responsible for Saudi Arabia, that a deal for 100 Thunderbird missiles would be worth around £18 million (worth about £280 million today). Sanson said that, officially, the agent's commission would be a modest 2 per cent.

However, Sanson's memo to Caldecote suggests that BAC considered that other payments might be necessary. Sanson listed other promised payments, concealed in the price quoted, 'which have to be recognised by B.A.C. in the event that the sale is successful'.

The first entry on his list reads '(3a) 5% on the total value of the contract due to Prince Abdul Rahman – (Brother of Prince Sultaan [sic] – Minister of Defence and Prince Fahid [sic] – Minister of the Interior). This amounts to £900,000' (worth about £14 million today). The second entry was 'a "sweetening" payment made by G. Edwards to the Defence Sub committee' of officials. Their cut was £8,000 (worth about £125,000 today). Third was £80,000 (worth about £1.25 million today) earmarked as 'a payment to certain Defence Committee members'. Last was 'Prince Fahid [sic]', the Minister of the Interior, in line for a 'possible' £4,000 (worth about £62,500 today). He was a brother of Abdul Rahman and Sultan, and King from 1982 to 2005. Overall, these promised payments made up 5.75 per cent of the contract price.

Sanson proposed that BAC should not make these under-the-table payments directly. A 'Gross Commission' should be given to Edwards who would 'meet all disbursements'. Any money left over would be his reward. Sanson suggested paying the commissions once a Letter of Intent to buy Thunderbird missiles (with accompanying down payment) had been received from the Saudi bureaucracy. Almost half of the money due under the Letter of Intent (£2 million) would then be paid out by Edwards in kick-backs (£992,000).

Two months later, in February 1964, Caldecote told Foreign Office Minister, Lord Carrington, that Edwards was 'a "buccaneer" rather than a gentleman'. Another BAC salesman, Gordon Duguid, confided to British Ambassador Sir Colin Crowe that 'he did not find Mr. Edwards' methods of business very agreeable'. But, said Caldecote, 'he was the type of man needed if B.A.C. were to do business effectively in Saudi Arabia'. Crowe 'confirmed [Duguid's] own impressions that the country was completely corrupt, particularly due to the fact that the system lent itself completely to corruption'. Eleven days later, BAC formally appointed Edwards as their agent.

BAC promised Edwards that if he sold the Saudis any Thunderbird missiles, Lightning fighter jets, Jet Provost training aircraft, Canberra bombers, or Vigilant anti-tank weapons, his personal cut (above and beyond the pay-offs he might have to make) would be 1.5 per cent of the contract price. The agreement would be reviewed annually. BAC wanted to know about pay-offs, and so Edwards was not to 'incur any obligation or liability on behalf of the Corporation without our prior approval in writing'.

The Saudis postponed a final decision on Thunderbird missiles, because BAC could not deliver any missiles until 1966. They now had a more ambitious plan – to buy an air defence system.

Edwards and the Saudi Arabian Air Defence Scheme

From 1963 to 1965, Edwards devoted himself to selling the British offer. This was made by a consortium of three British companies – BAC, AEI and Airwork. Forty modern Lightning fighter jets, made by BAC, would defend Saudi skies. Saudi pilots would train on 25 Jet Provost aircraft, also sold by BAC. Nine radar stations, supplied by AEI, would enable the Saudis to guide the Lightning aircraft towards their targets. Airwork would provide training, logistics and other support. The price of what became the Saudi Arabian Air Defence scheme was £118 million (worth about £1.6 billion today). In the late 1960s, the British Ambassador in Jedda called it the 'greatest of all British overseas defence contracts'.

By the summer of 1964 Edwards was the agent for the three companies. Their rivals were the American companies Lockheed Aircraft Corporation (now called Lockheed Martin) and Northrop Corporation (now called Northrop Grumman), and the French company Dassault.

AEI hired Edwards three days after he was appointed as the BAC agent, promising him 7.5 per cent of AEI's final contract price. In April 1963 Edwards agreed with Abdul Rahman that, in return for 'giving or continuing to give his assistance' to AEI's attempts to sell radars to Saudi Arabia, Abdul Rahman would receive 3 per cent of the installed cost of the equipment. In November 1963 AEI wrote to the Prince acknowledging his 'joint interest with [Edwards] in this matter. We would confirm that the earned commission will be paid immediately when due'. Airwork agreed to pay Edwards 5 per cent of their contract price.

Edwards knew that if he made it worthwhile for the senior Princes to back the British consortium, he could win a deal. After all, as Sultan himself said to BAC, 'one aeroplane was like any other aeroplane to them'. Duguid informed Ambassador Crowe of 'Mr. Edwards' contacts and the necessity for sweetening members of the Defence Committee'. Crowe told London 'I had the impression that B.A.C. wish to use Mr. Edwards as the channel through which they would funnel whatever douceurs might be found necessary'. Edwards boasted to BAC: 'my partnership with Prince Abdul Rahman Bin Abdul Azziz is invaluable and you know to some extent how well this works with his brother the Minister of Defence'.

A committee of Saudi colonels evaluated the competing aircraft. Edwards informed BAC and the British Government that the committee had finally recommended 40 Lightning aircraft, AEI radar and Thunderbird missiles.

BAC now drew up a 'Letter of Intention to Purchase' for the Saudis to sign. BAC asked the Saudis to put down a 10 per cent deposit. If either side pulled out later, the deposit would be repaid by BAC.

However, Duguid told BAC's Legal Department, 'Edwards yesterday warned me that as soon as this 10% is paid over the various Saudi officials who have been promised backsheesh will expect to receive a pro rata payment'. Duguid asked his colleagues whether BAC would deduct the bribes paid from the Saudi Government's deposit if the deal did not go ahead (asking for bribes to be refunded is, one imagines, tricky).

BAC's lawyers were squeamish about what they called 'kickbacks'. They advised 'BAC should not be seen to be making such payments and certainly this would be the effect of claiming them as deductible if and when we are called upon to repay to the Saudi Government their preliminary downpayment ... such an action would be quite unacceptable'. So BAC's management decided 'no special commissions would be payable until the final Purchase Agreement is signed by both parties'.

The French and the Americans had not given up. Northrop tried to hire Edwards in March 1964, but were rebuffed. BAC forwarded British diplomats a report Edwards wrote that mentioned his arrangement with the French agent to knock Dassault out of contention.

Edwards's main problem was maintaining his credibility in Saudi eyes. He needed to ensure his role as 'fixer' was beyond challenge. In August 1964 he wrote to Duguid (in his capacity as a BAC representative), reminding him of their 'underlying gentlemens' [sic] agreement' because 'very little has been written between us'.

He complained the blundering intervention of Edgar Carr, another BAC agent in the Middle East, could scupper his plans if the Saudis did not see him as BAC's key man. Edwards said he

was asked in Riyadh last Tuesday to give my personal written guarantee that I will make all payment due when the final stages of our contract are reached and subsequently through the course of the contract period. I did not hesitate to do this, although I have nothing more than my written commission agreement with you.

(Continues…)

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Excerpted from "Deception in High Places"
by .
Copyright © 2014 Nicholas Gilby.
Excerpted by permission of Pluto Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Acknowledgements
Introduction
1: The chancer: Negotiating BAE's first Saudi deals (1963-66)
2: Hand in Glove: Whitehall’s involvement in bribery schemes (1968-73)
3: The 'deniable fiddle': Dealing with the Saudi Arabian National Guard (1968-72)
4: The 'Special Relationship': Britain and the Shāh of Iran (1970-78)
5: Parting ways: British and American corruption scandals (1975-76)
6: At arm’s length: How the British Government avoided taking action against corruption (1976-78)
7: Thwarted: How international action against corruption was stopped in its tracks (1975-80)
8: 'Business as Usual' (1980-2001)
9: An Investigation Interrupted: The SFO & BAE Systems (2004-10)
Conclusion
Notes
Index

Editorial Reviews

'A remarkable book that exposes the trickery, humbug, buck-passing, and cover-ups, by successive British governments as they turned a blind eye, and even encouraged, the payment of bribes to secure British arms contracts''A devastating portrait of the UK government's complicity in arms deal corruption over many decades. This superbly researched must-read account allows the facts to speak for themselves.''Drawing on a wealth of official documents, Gilby lays bare the subterranean realities of Britain's arms trade and its corrosive impact on the wider political culture. This is a hugely impressive piece of historical research and a fascinating story''Heroically dogged ... Gilby assiduously unveils past sins with contemporary consequences''A rich history of a rotten business. Gilby's meticulous research shows us just how corruption in the arms trade, sustaining some of the world's most oppressive regimes, festered and grew. And after half a century of complicity and cover-up by the British government, his findings pose the most urgent question of all: why is it still allowed to go on?''Gilby produces some well-reasoned answers to the most commonly offered justifications for bribery'

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