UK: BAE's secret $12m payout in African deal

BAE's secret $12m payout in African deal


Middleman reveals covert cash for 'unnecessary' Tanzanian radar sale

David Leigh in Dar es Salaam and Rob Evans
Monday January 15, 2007
The Guardian

BAE systems
BAE Systems HQ. Photograph: Guardian

The UK's biggest arms supplier secretly paid a $12m commission into a Swiss account in a deal which led to Tanzania, one of the world's poorest countries, buying a controversial military radar system.
A Tanzanian middleman, who has a long-standing relationship with military and government figures, has admitted that the sum was covertly moved to a Swiss account by BAE Systems, which is under investigation by the Serious Fraud Office.
The back-door payment represented 30% of the contract value. The east African state had to borrow to finance the deal, which critics said was unnecessary and overpriced.
Tony Blair supported the 2002 sale but former cabinet minister Clare Short says she and the chancellor, Gordon Brown, opposed it.
The SFO, which was recently forced to abandon its investigation into commissions paid on a massive arms contract with Saudi Arabia, is now focusing its attention on Tanzania.
Yesterday's admissions by the Tanzanian middleman, Sailesh Vithlani, led Ms Short to call for BAE's prosecution if the allegations were proved. She said the prime minister had been personally responsible for forcing the licence for the Tanzania deal through the cabinet.
"No 10 insisted on letting this go ahead, when it stank," she said. "It was always obvious that this useless project was corrupt."
In Dar es Salaam, Mr Vithlani's business partner, Tanil Somaiya, told the Guardian that British police had already flown out to trace and interview both men as potential witnesses.
He said BAE had made two parallel arrangements with the middlemen. In the first, a conventional agency agreement was signed. Under this, 1% commission was to be paid if the $40m radar deal went through, to a Tanzania-registered firm, Merlin International Ltd.
Mr Vithlani was the majority shareholder in Merlin, Mr Somaiya said, while he had a small token interest himself. BAE paid $400,000 down this route in stage payments, Mr Somaiya said, as the radar equipment was delivered.
But under a second, more unusual agreement, BAE's secretly owned offshore company Red Diamond deposited another $12m, representing 30% of the contract price, in Switzerland. That money was under the personal control of Mr Vithlani, Mr Somaiya said, and this had been admitted to UK police.
When asked about the BAE money, Mr Vithlani told the Guardian he had made no disbursements from the Swiss cash to public officials "in Tanzania". Asked if he had disbursed any of the $12m to third parties outside of Tanzania, he declined to comment. "When the UK police travelled to Tanzania, we met them at their request and answered all their questions," he said.
Mr Vithlani acted as agent not only on the radar deal but also in the 2002 purchase from the US of a top-of-the-range Gulfstream official jet for the then Tanzanian president, Benjamin Mkapa, at a cost of more than $40m.
When asked if he would allow British police to inspect all the transactions on his Swiss account, he declined to comment.
In the secretive world of international arms deals, a commission of 1% to local agents would generally be regarded as legitimate. The government's export credit agency, the Export Credits Guarantee Department, has guidelines under which a "commission" of more than 5-10% is automatically regarded as questionable.
BAE System's payment of as much as 30%, coupled with the use of a Swiss bank account and apparent double sets of agency agreements, would normally arouse suspicions of possible bribery, investigators say.
Police sources in Tanzania said the agreement to use Mr Vithlani as an agent had been signed off by the then chairman of BAE, Sir Dick Evans.
Sir Dick, who has been at the centre of many of the arms deals under investigation, has already been interviewed by the Serious Fraud Office during their two-year inquiry.
BAE Systems were yesterday asked why they had made a 30% payment to Mr Vithlani's Swiss account. The company refused to answer, saying: "We will not be commenting on any point of substance. This cannot of course be taken as any kind of admission."
The SFO also refused to discuss their investigation. The president of Tanzania, Jakaya Kikwete, is due in London today to speak at a meeting with Hilary Benn, the international development secretary, on efforts to overcome corruption in Tanzania.
Later this week, the UK is expected to have to defend its actions over BAE at a meeting of the anti-bribery group of the OECD in Paris.
Norman Lamb, a Liberal Democrat frontbencher and critic of the deal, said: "It was obvious at the time that this deal did not stack up, but Blair still forced it through, against the better judgment of his colleagues. It was not as if he was not warned at the time."