Scandal sours Saudi arms deal
By David Isenberg

The media recently reported that Britain had been in secret discussions with Saudi Arabia over a major arms deal, but talks have been stalling since Riyadh asked for three tricky favors. This is the latest twist in a long-running scandal that has no end in sight.

Sources say the favors are: Britain expel two anti-Saudi dissidents, Saad al-Faqih and Mohammed al-Masari; British Airways resume flights to Riyadh, currently cancelled through terrorism fears; a corruption investigation implicating the Saudi ruling family and advanced defense and aerospace manufacturer BAE Systems be dropped. Crown prince Sultan's son-in-law,



Prince Turki bin Nasr, is at the center of a "slush fund" investigation by the United Kingdom's Serious Fraud Office.

This is not the first time the Saudis have attempted to use their considerable leverage to protect members of the royal family. In November it issued a blunt warning to the British government that it will never deal with the British arms industry again if any of its members are dragged into official inquiries into alleged improper accounting in connection with a multi-billion pound defense contract.

The idea that a weapons supplier might be willing to bend, fold and mutilate the rules in pursuit of a major sale, and they don't get much more lucrative than selling to Saudi Arabia, is less than novel. In fact it brings to mind the line uttered by Claude Rains' character Captain Renault in Casablanca; "I'm shocked, shocked to find that gambling is going on in here!"

According to political economist Joe Roeber the arms industry is the most corrupt legal sector of the economy. In the late 1990s the CIA is reported to have estimated that the arms trade accounted for 40-45% of the total corruption in world trade despite only amounting to less than half a percent of the total.

And this is hardly the first time the British military industrial sector has been in trouble over arms sales. A report published in June by the Campaign Against Arms Trade revealed that as long ago as the mid-1960s the United Kingdom government knew that the arms industry was riddled with corruption. However it concealed and continues to conceal this from parliament and the public. Instead, the government has gone out of its way to turn a blind eye while continuing to provide political and financial support on arms sales.

And small wonder that they do. British military exports hit a five-year high in 2004, according to figures released by the country's Defence Exports Sales Organization (DESO) earlier this year. Exports totaled US$8.2 billion last year, up $400 million from 2003. British export figures accounted for 20% of the world market in 2004, putting it second behind the United States last year, according to DESO.

And Saudi Arabia has long been a crucially important client for the British. The Guardian newspaper previously reported that almost a third of the government's arms sales machine is dedicated to selling to Saudi Arabia. No fewer than 161 of the Ministry of Defence's 600 officials work for the "Saudi Armed Forces Project".

A report released August 29 by the US Congressional Research Service found that the UK ranked third among all suppliers to developing nations in the value of arms transfer agreements from 2001 to 2004 ($4.1 billion) and fourth from 1997 to 2004 ($7.2 billion).

Still, the recent developments are noteworthy if only because they allow a rare look into the way business gets done in the fiercely competitive and complex world of international weapons sales.

On September 14 the Guardian reported that the Serious Fraud Office had made two more arrests, based on new allegations of money-laundering, in the long-running case regarding allegations that the company BAE Systems runs a 60 million pound ($105 million) Saudi "slush fund". The company denies any wrongdoing.

Some past allegations connected with that investigation are that the wife of Prince Turki bin Nasser, a leading member of Saudi Arabia's ruling royal family and the man who oversaw the 1985 Saudi-BAE Al Yamamah arms contract, is alleged to have received a 170,000 pound Rolls-Royce as a birthday present, flown out to her in a cargo plane chartered by BAE. A 2 million pound, three-month holiday for the prince and his family was also said to have been arranged. Another is that Prince Turki bin Nasser's daughter was given a wedding video whose production cost BAE almost 200,000 pounds.

The arrests are expected to bring closer a decision by Lord Goldsmith, the attorney general, on whether to prosecute Britain's biggest arms company, which gets more than 1 billion pounds a year from Riyadh for running much of the Saudi regime's air force. BAE Systems is the product of the 1999 merger of British Aerospace (BAe) and GEC Marconi.

The significance of the arrests is that they represent a completely new turn in the corruption investigation, originally initiated due to disclosures in the Guardian of a lavish lifestyle enjoyed at BAE's expense by the Saudi prince in charge of the long-running arms contract. Payments were signed off by top BAE executives.

This too is par for the course. It has long been understood that the Saud Family princes have used alternative means to supplement their family allowances. This includes commissions on commercial and defense contracts. Large contracts such as the al-Yamamah, under which Riyadh bought more than $40 billion in weapons from Britain, has generated annual commissions in excess of $2 billion paid to only five people.

The newest allegations reported by the Guardian on September 27 are that Prime Minister Tony Blair and John Reid, the defense secretary, have been holding secret talks with Saudi Arabia in pursuit of a huge arms deal worth up to 40 billion pounds. Blair went to Riyadh on July 2. Three weeks later, Reid made a two-day visit, when he sought to persuade Prince Sultan, the crown prince, to reequip his air force with the Typhoon, the European fighter plane of which BAE has the lion's share of manufacturing. Reid also held private talks with Prince Naif, the interior minister responsible for the secret police.

The Typhoon, currently entering service with the RAF, has a price of more than 45 million pounds a plane. It is made in Germany, Italy, Spain and Britain, with the UK responsible for a third of its manufacturing. It was due to fly in 1998 at a cost of 17 billion pounds, but it is now estimated to have cost almost 20 billion pounds. Austria has agreed to buy 18 planes, but few other states have made a purchase.

Saudi Arabia previously bought a fleet of its predecessor Tornados from Britain in the Al Yamamah arms deal. Mike Turner, the chief executive of BAE, Britain's biggest arms company, was quoted in Flight International magazine on June 21, just before Blair's Riyadh trip, saying: "The objective is to get the Typhoon into Saudi Arabia. We've had 43 billion pounds from Al Yamamah over the last 20 years and there could be another 40 billion pounds."

The Saudi demand, that the BAE corruption investigation be dropped, seems the most difficult to comply with. The Serious Fraud Office has devoted a sizeable budget to its joint investigation with the Ministry of Defence police fraud squad. Last month it made a fresh round of arrests for questioning after discovering a fleet of luxury cars supplied to Prince Turki bin Nasr had been shipped out of London this year.

Turner told the Sunday Telegraph in June that the Saudis had already made representations to the UK government over the corruption allegations. "They don't, rightly, like the fact that members of their royal family are being named in our press." Pressure on BAE to find an export customer for the Typhoon has increased since a Paris newspaper report revealed in April that Saudi Crown Prince Abdullah apparently had agreed, in principle, to buy as many as 90 Rafale fighters from Dassault Aviation during a meeting with French President Jacques Chirac.

For the British, failure to follow up the Tornado deal with a Typhoon order from the country's biggest defense export partner would be a blow for the British aerospace industry in general, and BAE in particular.

David Isenberg, a senior analyst with the Washington-based British American Security Information Council (BASIC), has a wide background in arms control and national security issues. The views expressed are his own.

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