New evidence of arms deal corruption – report

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BAE Systems has been implicated in further bribery allegations relating to the multi-billion rand arms deal, according to documents obtained by the Sunday Times.

The newspaper reports that BAE Systems bribed former public enterprises minister Stella Sigcau by offering to give her daughter Portia a marketing job in London, establishing a support budget for Portia for three years and giving her accommodation and hospitality during her studies in London.

The Sunday Times report said it received this information through encrypted faxes and sworn statements from a former BAE Systems staffer. These were submitted to arms deal investigators. The anonymous staffer apparently told the paper that BAE Systems also paid for trips made by Portia, Fana Hlongwana and other politicians to a golf tournament in Scotland.

In a September 1998 fax, Allan MacDonald, BAE’s former managing director for Africa and Asia stated that, “the fact we have got Hawk on to the final list is very much due to our friends in the country rather than the quality of our ITP [Invitation To Prequalify] response…One friend who has, and remains, absolutely critical to our ultimate success for both Hawk and Gripen is Minister Stella Sigcau,” the document reads. Sigcau was a member of the arms deal cabinet subcommittee chaired by Deputy President Thabo Mbeki.

MacDonald told the Sunday Times that he had offered to help Portia find a job after being asked by Sigcau.

In November 1998 a cabinet meeting approved BAE as the preferred bidder for the Hawk and Gripen under the arms deal. BAE and Saab were jointly marketing the Swedish-made Gripen under Gripen International.

Another fax, from Stuart McIntyre, BAE South Africa’s executive director, asked BAE to “deny all knowledge or involvement whatsoever” of Portia’s “recent job application in the UK,” following a request from Hlongwana.

MacDonald previously admitted to receiving five million pounds from Arstow, a company implicated in BAE’s commission network.

The Mail & Guardian earlier reported that Arstow was one of the channels BAE used to send more than R1 billion to “marketing advisers” on the South African arms deal. This emerged from documents obtained from the British Serious Fraud Office’s investigation into BAE.

BAE in 2011 admitted to irregularly using a South African joint venture with Saab, which manufactures the Gripen, to channel R24 million to a “South African consultant” – Hlongwane. As a result, BAE agreed to pay a record US$79 million (R550 million) fine.

BAE and Hlongwane have not denied the fact of the payments, but have denied that they were bribes.

Internal BAE memorandums obtained by the Mail & Guardian apparently show that from the mid-1990s the company was paying “marketing advisers” to help secure arms sales across the globe. In 1995, 225 “brass-plate advisers” got a total of £25 million (R275 million) and 74 “confidential advisers” another £21 million (R230 million).

According to a US State Department investigation into BAE, “In February 1998, respondent [BAE] engaged Uniglobe Aktiengesellschaft, a trust company in Vaduz, Liechtenstein, to create Red Diamond Trading Ltd, an offshore company, located in the British Virgin Islands … Although not a subsidiary of respondent, Uniglobe structured Red Diamond in a manner in which Red Diamond could not act without respondent’s written agreement…
“The purpose of Red Diamond was to facilitate payments to third-party brokers hired by the respondent … There were approximately 350 covert agreements with 299 brokers. Red Diamond operated with intent to circumvent the normal payments reviews.”

All in all, according to the charges, Red Diamond made more than 1000 covert payments to brokers — another word for BAE’s “marketing advisers” — over the nine years of its existence. This period, 1998 to 2007, corresponds with a massive flow of funds to Hlongwane and a handful of others who helped BAE clinch its South African sales.

Soon after Red Diamond was formed in 1998, it appears to have become the vehicle of choice to pay BAE’s “advisers” on the South African deal, which was then being finalised, the M&G said. Among the documents obtained by the M&G Centre is an October 1998 contract between BAE and Arstow Commercial Corporation.

The contract promised a commission of 1.5% on the sale of Hawks and Gripens to South Africa. In April 1999, the contract was substituted by another that promised the same 1.5% fee, but with Red Diamond replacing BAE as the principal. In September that year — with the arms deal negotiations in their final stage — Arstow signed a contract with another entity, Westunity Limited. The latter promised to “provide the services of Fana Hlongwane, who will use his best efforts to promote the reputation and sale of the product in the territory”.

At the time, Hlongwane had only recently resigned as then-defence minister Joe Modise’s adviser.

A British Serious Fraud Office list of transfers from Arstow’s accounts to Hlongwane through Westunity and another company in Hong Kong showed that the money started flowing almost immediately. An amount of £100 000 (R1.1 million) was paid in October 1999, shortly before the arms contracts were signed, whereas £550 000 (R6 million) was paid in May 2000, after the contracts were signed. By July 2001, Arstow had remitted £4.9 million to Hlongwane’s entities.
“The same convoluted pattern — from Red Diamond to Hlongwane and others, often through several offshore stages — led to the payment of a staggering total of £103 million (R1.13 billion) in respect of the BAE and Saab sales in South Africa, according to an affidavit by fraud office investigator Gary Murphy that was previously reported on by the M&G,” the paper said.

The fraud office’s BAE investigation was terminated in 2010 after a settlement in which BAE admitted guilt on accounting-related charges in only one of the matters investigated, the sale of radar equipment to Tanzania.

Other documents show more suspicious behaviour, notably a contract signed between the South African National Industrial Participation company (SANIP) and Hlongwane. The document forced Saab to confirm in 2011 that at least R24 million was paid through SANIP to Hlongwane by Saab’s partner, BAE Systems, allegedly without Saab’s knowledge. BAE ran the South African company on Saab’s behalf.

The Seriti commission is currently investigating arms deal corruption allegations. The Sigcau allegation is one of the things that will be investigated by the Arms Procurement Commission, the Sunday Times reports.

The Commission, under the chairmanship of Judge Willie Seriti, was established by President Zuma to investigate allegations of fraud, corruption, impropriety or irregularity into what is officially the Strategic Defence Procurement Package, better known as the Arms Deal.

It started work late in 2011 and has been given two years to complete its investigations and present a report to the President.

In February the Commission announced a five month delay in its first round of public hearings, due to have started in Pretoria on March 4.



The Arms Deal saw the SA Air Force and SA Navy obtain new front-line equipment comprising 26 Gripen fighters, 24 Hawk Mk 120 lead-in fighter trainers, 30 A109 Light Utility Helicopters and four Westland Super Lynx maritime helicopters. The Navy regained its blue water capability with four Valour class frigates and three Type 209 diesel-electric submarines.