UK: BAE Accused of Hiding Cash Paid to Win Deals

Publisher Name: 
Guardian (London)

Britain's biggest arms company stands accused of running an international
system of secret commission payments, using Swiss banks and a tiny island
in the Caribbean.

The allegations, by sources involved in the transactions, are based on
Swiss bank records. These normally closely-guarded documents have emerged
following long-running controversies over BAE Systems' arms sales and the
frequent allegations of corruption which surround them.

BAE denies any illegality or wrongdoing.

The banking files, along with BAE internal records, reveal, it is claimed,
the system by which a public company has removed its fingerprints from
covert payments round the world. BAE funnels cash to agents to persuade
foreign officials to buy its planes. Key documents are alleged to be
hidden beyond British jurisdiction in a Swiss lawyers' vault. The cash's
origin is said to be rendered invisible once it has passed through
offshore companies.

BAE is accused of using British Virgin Island entities with such exotic
names as Red Diamond Trading to distance itself from the transactions. One
commission agent told the Guardian: "I've worked for a lot of aircraft
companies, but BAE is the only one with such an institutionalised system."

Another said as long ago as the 1980s, he had to fly to Geneva to sign
secret deals on arms sales to India. A third source, an employee of a BAE
sub-contractor, described how in 1994 Saudi commissions were routed
through BVI front companies. But he did not have access to documents.

One of the peculiarities of the files we have seen is that they appear to
show the same agent getting two parallel contracts. One is an "open"
contract, signed in London for straightforward payments at a modest
commission rate.

But the second is a "covert" agreement, signed and hidden in Switzerland,
for much larger sums, alleged to be paid through BAE's secret offshore
channel.

When the Guardian put these allegations to BAE, they said: "In pursuit of
its legitimate business goals, BAE Systems pays people for lawful
activities to accomplish what they have been hired to do." The firm did
not answer the allega tion that it was using secret offshore companies to
achieve its ends. We also asked:

Why does BAE's relationship with entities such as Red Diamond Trading
not appear in the company published accounts?

How is this consistent with UK company law?

How is concealed transfer of such funds consistent with UK financial
regulations?

Why are BAE's agreements lodged outside UK jurisdiction?

The company replied: "BAE Systems rigorously complies with the laws of the
UK and the laws of the countries in which it operates. BAE Systems denies
any allegations of wrongdoing."

The heart of BAE's worldwide cash machine is a suite of high-security
offices at Warwick House in Farnborough, where the company's airfield
dominates the Hampshire town.

The head of the "HQ marketing services" department there is Andrew
Fletcher. His predecessor was a long-serving BAE executive, Hugh
Dickinson. Mr Fletcher refused to speak to the Guardian. But when the
allegations were put to Mr Dickinson, he agreed: "Yes, my name's on all
the documents."

BAE did not comment on the claim that the system was fully authorised by
their board, chaired by Sir Dick Evans.

According to our sources, when secret payments were organised, a
confidential agency agreement would be drawn up with a single copy. The
head of marketing services, or sometimes his assistant, would fly to
Geneva with the document.

It is claimed some signings took place in the 1990s at the offices of a
Swiss private bank, Lombard Odier, which kept the single copy of each
agreement. The parties were never allowed access to it without the other
being present.

Lombard Odier, like other secretive Swiss banks, has run into past
controversy. Funds from the late president Marcos of the Philippines were
among those which turned up there. Around 1997, documents suggest that BAE
changed its system.

Files from Farnborough say that the new "custodian" was to be a firm of
Geneva lawyers, Rene Merkt and Associates. Three officials were given
access: Rene Merkt himself, Jacques Merkt and Cyril Abecassis.

A former BAE executive described to us how a special vault was
constructed, and swept by security men for bugs before the secret files
were driven there in a BAE van.

Contacted in Geneva, Mr Abecassis refused to comment on behalf of the law
firm.

In one set of transactions, the documents show $50,000 (29,000) being
transferred by BAE's marketing services organisation in London to accounts
belonging to Red Diamond Trading Limited and then on to the agents.

The payments continued into this year.

Red Diamond was set up in 1998 in the BVI by a Liechtenstein-based
financial firm, ATU. Red Diamond takes advantage of the tiny Caribbean
islands' tax-haven laws, under which such companies are allowed to conceal
their accounts and the identities of both their directors and owners.

In the past, piles of questionable cash have frequently been discovered in
the name of BVI entities.

When asked to confirm whether BAE controlled Red Diamond, and if not, who
did, the BVI company managers refused to tell us.

Despite its shadowy status, Red Diamond was allowed to operate accounts at
Lloyds Bank in the UK; at the Chase Manhattan Bank in the US; and at the
Swiss bank UBS.

From the Red Diamond accounts, money we have traced appears to have been
shifted to a second Swiss bank, BSI, in Lugano.

It was then credited to a Panama company, Copelina.

Panama is another tax haven of dubious repute, where owners of companies
are allowed to conceal their identity.

We have established that the owner of Copelina was based in South America,
where he acted as an agent for BAE, who have succeeded in selling or
leasing a range of passenger aircraft to Latin American regimes and
airlines.

It has been frequently alleged against BAE, in common with other arms
companies, that it uses intermediaries to pay bribes to make arms and
aircraft sales. BAE was exposed as having secretly paid the foreign
minister of Qatar at least 6m into an offshore account to win 1996 arms
deals.

In September the Guardian disclosed the existence of allegations that BAE
has been using a separate front company, RLI, to operate a 20m slush fund
designed to bribe Saudi officials.

Recently Britain has passed a raft of anti-corruption laws. The 2001
Anti-Terrorism Act makes it a crime to bribe foreigners to get contracts.

Legislation last year widens the definition of money laundering, and
requires suspicious transactions to be reported.

BAE insist all their operations continue to stay on the right side of the
law.

AMP Section Name:War & Disaster Profiteering