Publication: Sunday Independent Issued: Date: 2007-01-14 Reporter: Michael Schmidt Reporter: Eleanor Momberg

Arms-Deal Allegations May Be Hard To Prove



Sunday Independent




Michael Schmidt, Eleanor Momberg

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Allegations being probed by Britain's Serious Fraud Office (SFO) that prominent South Africans were paid bribes to the tune of millions of pounds to secure part of the controversial arms deal might be hard to prove, if an SFO document, itself leaked, this week is anything to go by.

According to extracts of the document - a request by the SFO for assistance by the South African authorities - published in the Mail & Guardian on Friday, arms giant BAE Systems first tried to sell its Hawk fighter-trainer jet to apartheid South Africa in 1992.

FTNSA Consulting, a company founded in that year at St Kitts & Nevis in the Caribbean, and apparently presided over by Anglovaal Limited chairman Basil Hersov, started consulting for BAE Systems regarding the potential sale of the Hawk to South Africa in June 1992.

There is nothing particularly unusual about this: Denel currently has paid agents in Turkey who are trying to convince the Turkish government to buy its Rooivalk attack helicopter.

The question for the SFO is whether, in BAE System's trading on Hersov's presumed influence with the ruling circles of the Nationalist regime and its post-1994 successor, any undue influence was brought to bear on the government in selecting the Hawk.

In any event, the Hawk deal was signed in 1999 and the SFO claimed that FTNSA was paid only consultancy fees of £5,5 million *4 (about R77 million) between 2002 and 2005 - well after the ink had dried on the contract *2.

Hersov told the M&G that the sum paid to himself was substantially less.

The very fact, as claimed by the SFO, that most commissions paid by BAE Systems to its agents were made from an account held by a company, Red Diamond Trading, registered in the British Virgin Islands, is no proof of skulduggery: the islands are a tax haven and it makes sense for BAE Systems to have accounts there *3.

Hersov told the M&G that his role as consultant was usurped by Richard Charter's Osprey Aerospace, which became BAE Systems' agent in South Africa, allegedly receiving just under £2 million *4 for its work - also in the period between 2002 and 2005 *2.

Paying one's agents is normal business practice, but the biggest question faced by the SFO appears to be why another entity, Huderfield Enterprises, of the British Virgin Islands, which it claims was run by Charter, was allegedly paid almost £25 million *4 between 1999 and 2005 as BAE Systems' "covert agent".

Charter, who served as the chairperson of BAE Systems South Africa, accidentally drowned in the Orange River in 2004, so he won't be answering any questions, though his estate might be forced to disclose documentation.

The SFO document also claimed that Hlongwane Consulting, founded in 1999 by Fana "Styles" Hlongwane, briefly an adviser to Joe Modise, the defence minister, while the Hawk deal was being mulled over, was paid a retainer of £1 million a year  *4  from 2002 by BAE Systems, then a final settlement of $8 million in 2005 *2*4 "in relation to work done on the Gripen project", referring to SAAB/BAE System's successful pitch to South Africa.

The problem for the SFO in proving that Hlongwane exerted any undue influence on the selection of the Hawk or the Gripen is that at the time they say his retainer contract was signed with BAE Systems - 2002 - the deal was water under the bridge, Modise had passed away in 2001, and Hlongwane had long since left his board position at Denel (assumed in 1998) to start a private arms group - so he had no official position to abuse.

A hint that a 1998 pledge by BAE Systems of R4,5 million to the MK Military Veterans Association (MKVA), of which Hlongwane was once the chairperson, may have been shady also bears little fruit as not much money materialised.

Helmoed-Römer Heitman of the defence journal Jane's, said that although Hlongwane's positions were such that he had "minimal" chance of influencing arms-purchase decisions, "that doesn't mean BAE didn't think he might have an impact".

But even Richard Young of the Cape-Town based arms firm C²I², an arms deal critic, who said Hlongwane's name had cropped up in the earliest allegations of impropriety and who said he suspected him of being the "bag man" and "point man" for whoever benefited from the deal in South Africa - admitted that the MKVA pledge was "not unlawful".

David Jones, a spokesperson for the SFO, would neither confirm nor deny that Hersov and Hlongwane were among the South Africans being investigated for allegedly receiving payoffs in exchange for their influence in securing the BAE deal.

"It is not our policy to discuss investigations against individuals until they have been charged or not," said Jones.

"There was an initial examination by us and we decided to take it forward in mid-2004."

Jones said the SFO was investigating "any illegality in payments in relation to the contracts" for the provision of aircraft and other equipment by BAE Systems.

He said the probe into any wrongdoing by BAE Systems in securing its contract to supply South Africa with Hawks was being run alongside various investigations in relation to BAE Systems in different countries.

The SFO has liaised with the South African authorities about the investigation because of jurisdictional issues.

Lucinda Moonieya, a Scorpions spokesperson, confirmed that the SFO had contacted the National Directorate of Public Prosecutions, requesting mutual legal assistance in the investigation.

"Whatever assistance they request, we will give them," she said, pointing out that no specific requests had been laid out in the SFO document.

Hersov and Hlongwane could not be contacted for comment. Lisa Hillary-Tee, a spokesperson for BAE Systems, said the company was unable to comment - because the investigation was still under way - other than to say they were co-operating with the SFO.

"I can only echo [chief executive] Mike Turner who said, and rightly so, that it has been taking a long time *5 and that [our critics] should put up - or shut up".

With acknowledgements to Michael Schmidt, Eleanor Momberg  and Sunday Independent.

*1       This is simply not correct. I personally meet Richard Charter in his Osprey offices in early 1999 and he told me directly that his company was the official British Aerospace agent and that he had "kept BAe's interests in the Republic alive from the time that the UN arms embargo had been set".

*2      I would be very surprised if these dates were true, or that if the payments were made during this period, the commitment had been made much earlier.

Why do I say this.

Well, in late 2000, maybe early 2001, substantially before the indicated period, allegations had been made to the investigation team such that (and recorded as) :
"Joe Modise Former Minister of Defence :

The following are also mentioned as part of the group :

I Hlongwane"

"British Aerospace :

Allan McDonald (Head of Bae) and Richard Charter indicated who were to be paid bribes.

A director of Denel is suspected to be working for British Aero Space (sic). His first name is Fana. Seems that the said person also involved with a South African company, Vuwani."

*3      This is nonsense. It might make sense for agents to have their bank accounts in tax havens, but supplier companies want to be able to claim agents' fees as tax deductable expenses. Therefore a legitimate business, especially a publicly-owned company, retains all of its operations and administration in certain known places and transparently operates and administers itself and its legitimate subsideriaries.

There is no known defence business in the British Virgin Islands or Cayman Islands and it makes no sense for British Areospace to have subsidiaries there, especially with nondescript names such as Red Diamond Trading, unless these are used for laundering illegal payments to bribees and corruptees.

Thomson-CSF do exactly the same thing with pseudo-operations in Mauritius, Lebanon, Lichtenstein for the making of  undue payments in respect of :

- Les cas specifiques
cas sensibles - paiements off-shore, etc...

However, the real aspect that both the SFO and DSO need to get behind is whether, as the allegation goes, BAe paid 7% of the contract price, i.e. some £105 million or R1,575 billion, in agency or other payments.

If so, such an amount invalidates all the references to amounts such as £5,5 million, £2 million, $14 million, even £25m.

If £105 million was paid, this is serious money whose end recipients need to be identified and its purpose explained.

*5      It has taken a long time because the South African investigation authorities never investigated this allegations properly - or more likely (indeed almost surely), they did so but closed the file when Modise died.

*6      This smacks not of "we are not guilty of any unlawfulness in the country concerned" (BAe's standard response), but of "catch us if you can" or "the evidence no longer exists".