Publication: Cape Times Issued: Date: 2008-12-10 Reporter: Angela Quintal

Motlanthe Decides on Arms Deal Inquiry



Cape Times



Reporter Angela Quintal
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A renewed campaign for an arms deal inquiry which has the support of several leading South Africans has received short shrift from President Kgalema Motlanthe.

The presidency said on Wednesday morning a letter would be dispatched to Archbishop Emeritus Desmond Tutu and former president FW de Klerk rejecting their call.

The petitioners, which include clergymen, academics, authors, activists and politicians, asked for the inquiry to be established by Wednesday - the 60th anniversary of the Universal Declaration of Human Rights.

Presidential spokesperson Thabo Masebe repeated the official government line that any with evidence of corruption should submit this to law enforcement authorities *1.

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With acknowledgements to Angela Quintal and Cape Times.

*1       So let it be.



first sent 2008-03-26

P.O. Box 171, Rondebosch, 7701
South Africa

The National Director of Public Prosecutions
National Prosecuting Authority
Private Bag 9003
Cape Town
Western Cape Province

Telephone       : 021 487 7000
Facsimile       : 021 487 7237

Dear Sir

Bribery : Corvette Combat Suite

As you will be aware, my company CCII Systems (Pty) Ltd and I personally were involved in certain of the processes for the acquisition of the four corvettes for the SA Navy and in particular the corvette combat suite. As part of the Strategic Defence Packages or Arms Deal I therefore have personal knowledge of much of the circumstances and some of the facts relevant to and related to these matters. Because of the extended interest in the Arms Deal from all perspectives, I have also familiarised myself to a greater degree than most with the entire Arms Deal matter, but in particular with the corvette combat suite.

As matters finally transpired with the acquisition, the corvette acquisition was divided into two essentially separate contracts, the platform supplied by the German Frigate Consortium (GFC) (Part A) and the combat suite supplied by Thomson-CSF Naval Combat Systems of France (NCS) and African Defence Systems (Pty) Ltd (ADS) (Parts B and C).

While certain charges of bribery and corruption regarding directors of ADS and Thomson-CSF South Africa have been proven in court, new allegations have now been formally made by German prosecutors in respect of bribery by the GFC of very high level functionaries in the South African Government, including the chairman of the Ministerial Committee (MINCOM), then deputy president Thabo Mbeki and the Department of Defence's Chief of Acquisitions, Shamim (Chippy) Shaik. In this regard the German prosecuting authorities formally requested assistance from the South African Government in the form of a letter requesting Mutual Legal Assistance (MLA).

The Germans allude to bribery of some US$22 million paid to a range of high level functionaries as well as a further US$3 million paid to a British juristic entity Meriam Ltd, a company controlled by one Ian Elvis Pierce on behalf of Chippy Shaik.

These are serious allegation indeed and the Germans allude to having substantial documentary evidence in support of such allegations, specifically regarding the payment to Chippy Shaik.

In my view there are cogent circumstantial grounds for believing these allegations to be true. These stem from the background of the corvette acquisition. It is common knowledge (and I was also personally involved at that time as well) that between 1993 and 1995 the SA Navy, together with the DoD and Armscor, essentially and to all intents and purposes completed an acquisition process under Project Sitron for the acquisition of four corvettes. After receiving initial proposals from a range of countries, including Germany, four short-listed companies were requested to provide formal offers. These countries included Denmark, France, Spain and the United Kingdom and did not include Germany. I think that Germany was excluded because the price and sophistication of the corvettes that it offered was far too high for the needs of the SA Navy. Two companies survived to the final round of bidding, these being Yarrows of the United Kingdom and Bazan of Spain with Bazan being finally selected by the SA Navy, DoD and Armscor. However, when final cabinet approval was sought circa May 1995, Deputy President Mbeki refused to give such final approval to the contract, despite all requirements  having been fulfilled for doing so.

Very soon, indeed within weeks, Mbeki was visiting Germany and advising both German politicians and executives of the German Frigate Consortium (GFC) that the corvette acquisition was to be reopened and Germany was welcome to bid. After Project Sitron was reconstituted in 1997 with an essentially similar technical baseline, a  similar acquisition process commenced and a short-list of four countries was selected, thus time including Germany and excluding Denmark. Normally military equipment is selected according to the combined criteria of military performance and price. On this basis Bazan again won the bid with its 590B light frigate with the GFC in a fairly distant second place with its MEKO 200AS light frigate.

According to adherence of the tendering rules the GFC should in any case have been excluded from the bidding process due to its non-conformances of certain stipulated requirements at certain stages of the bidding process and this was confirmed by Armscor, the statutory acquisition authority in a legal opinion. However, this disqualification was over-ridden by Chippy Shaik in his role as co-chairman of the Strategic Offers Committee (SOFCOM), even though Shaik neither had the authorisation of the committee to do so and in any case that SOFCOM did not have any decision-making authority.

After the GFC cleared the hurdle of its non-conformance it still needed to clear the final hurdle of not being the best bidder and in this regard some creative manoeuvring was done by the GFC, its ally the German Submarine Consortium (GSC) and the South African Cabinet. Firstly, the GSC offered nearly 10 times the minimum of 120% of contract price as National Industrial Participation (NIP) in respect of its submarine offer. This was without providing a contractual guarantee for this extended amount. The Cabinet then upgraded its deemed value the GFC's NIP offer partly on the basis of the other German offer, i.e. the GSC's NIP offer and at the same time downgraded Bazan's NIP offer. It is clear that such manipulation of the scoring was on a subjective rather than objective basis. The result of this was to score the GFC's MEKO 200AS offer higher than Bazan's 590B offer and consequently the supply contract for the corvette platform was awarded to GFC.

However, a detailed forensic audit of the scoring actually shows that there were certain errors in the points allocations, this either being genuine mistakes or done deliberately and actually Bazan's offer should have won the bid on any basis.

Under the circumstances it is very clear that the entire award to the corvette contract was very carefully stage-managed by the South African Government in general and Thabo Mbeki and Chippy Shaik in particular. There are also clearly two stages in such manipulation, i.e. firstly getting the GFC from No. 5 on the short-list to No. 2 and then from No. 2  to No. 1. That this took the German Frigate Consortium two bribes of US$22 million and US$3 million should come as no surprise.

However, this is just in respect of the corvette platform and it is unthinkable that the Germans would have paid US$25 million to secure its part of the deal as supplier of the corvette platform with its forced bid partner for the combat suite getting away with paying nothing. In this regard it should be noted that the GFC's formal offer for the corvettes including both platform and combat suite was made on 11 May 1998 in response to Armscor's Request for Offer (RFO) issued circa 13 February 1998. This offer includes ADS as GFC's partner to supply the combat suites. However, such inclusion was not of GFC's own volition, but simply in response to the SA Navy's formal bid requirements documented in particular in the SA Navy Patrol Corvette Combat Suite Element Costing and Description dated circa September 1997 as well as Armscor's RFO.

Now the factual situation at that time was that a group of South African companies had, along with the SA Navy and Armscor, developed more-or-less an entire corvette combat suite under Project Sitron and temporarily under Project SUVECS while Sitron endured a hiatus while the DoD completed its Defence Review between 1995 and 1997. The heart of this combat system was ADS's Combat Management System (CMS) originally developed for the SA Navy's strike craft under Project Diamant and refined later under Project Sitron. ADS were, as the country's main naval systems company, also responsible for combat suite integration. As such, ADS and the South African sub-system suppliers were formally nominated in the offer baseline as well as identified in the SA Navy technical specifications to supply the combat suite, specifically the SA Navy's SA Navy Patrol Corvette Combat Suite Requirements Specification dated circa December 1998.

The GFC's May 1998 offer hence included ADS as its combat system supplier in line with the stipulations of Armscor's February 1998 RFO.

At this stage Thomson-CSF were nowhere in the official or open scheme of things, although they were working all of the unofficial avenues and at the highest levels to get the lion's share of the combat suite business by purchasing ADS which was then owned by Altech.

I believe that this is where Thomson-CSF comes into the bribery picture and I intend to explain below why there is ample circumstantial evidence to show that Thomson-CSF bribed functionaries in the South African Government to a very similar degree as did the GFC.

Firstly, in terms of a simple plausibility test, it is now court established fact that Thomson-CSF bribed the deputy president of the country, Jacob Zuma, to protect Thomson-CSF from the massive joint investigation that Parliament initiated into the Arms Deal in October 2000.

What has never been ventilated properly anywhere is why Thomson-CSF needed such protection. There is however, some verbal evidence accepted in court that "if a certain person in the ANC opened their mouth" then Thomson-CSF "would be in big trouble". While it is unfortunate that the identity of this person is unknown, the only inference that can reasonably be made is that Thomson-CSF had paid bribes to the ANC and other functionaries in order to secure the lion's share of the corvette combat suite and that a proper investigation would ascertain this.

Having during my extensive investigations obtained various documents directly relevant to the corvette acquisition process, there are fairly clear indications of both a very high amount of money being made available within Thomson-CSF's project budget to pay bribes to secure the corvette combat suite business by NCS and ADS, but also an extraordinary level of interference in the acquisition process by mainly Thabo Mbeki, but also by Chippy Shaik.

By this time Chippy Shaik had formally declared his conflict of interest and consequent recusal from the combat suite acquisition process. However, the joint investigation found that such recusal was a sham. Indeed, not only was this so-called recusal a sham, but a range of formal DoD documentary records show that Chippy Shaik was fully involved with the acquisition process while other records show that the local representatives of Thomson-CSF, i.e. Pierre Moynot and Alain Thetard were having a series of regular secret meetings with Chippy Shaik. Chippy Shaik was also directly engaging with the head of Thomson-CSF NCS, Alex Dorian, as well as ADS CEO Pierre Moynot regarding negotiating the scope and price of the combat suite. This was known at that time to both the corvette DoD project director, RAdm(JG) Jonny Kamerman and Armscor corvette programme manager, Frits Nortje. Although they recorded this in an internal programme memorandum, nothing was done by them or their superiors about this clear violation of project acquisition process.

By a perusal of a range of project records, such as minutes of the Naval Project Control Board (PCB) meeting minutes, there is clear evidence of pricing and, in particular, last minute unexplained and inexplicable pricing changes that indicate that an amount of some R300 million was probably paid in bribes and.or commissions by Thomson-CSF to secure the combat suite contract. This would have been well worth it for Thomson-CSF because they were no way in the running up until the final stages of the acquisition process and they ended up in securing about R1,6 billion worth of contracts. In doing so they not only managed the exclusion of ADS's indigenous CMS by replacing it with their own French Tavitac system, but also replaced two South African sub-systems with their own products and "won" all three of the items that were originally designated to be foreign procured items.

What is especially noteworthy is that although negotiations for the precise scope of supply and price of the corvette combat suite only commenced in early December 1998, culminating in the supply contract signed on 3 December 1999, Thomson-CSF were increasingly confident of securing this workshare right from around September 1997. There are court records now in the public domain that such growing confidence stemmed initially from indirect contact with Thabo Mbeki through interlocutor Yusuf Surtee and later through a series of meetings directly between the top echelons of Thomson-CSF and Mbeki himself in mid-1998, December 1998 and probably again once or twice in the first quarter or half of 1999. This is all many months before the contract was signed and right in the middle of very sensitive contract negotiations between the DoD and Armscor on the one side and Thomson-CSF and ADS on the other side. I contend that such intervention on the part of the chairman of MINCOM is highly irregular and probably criminal both in terms of the Constitution as regards government procurement and the Public Finance Management Act or it equivalents prevailing at the relevant time.

Supporting all this is an examination of the contract price for the corvettes and in particular for the combat suite.

In the 1997 baseline, the DoD had set a cost ceiling for the combat suite at R1,47 billion. This figure is on record as having been arrived at by the SA Navy and Armscor after a comprehensive audit during May 1998 of the prices being offered by the South African sub-system suppliers as well as potential foreign offerers for the foreign equipment and was in 1998 Rands. By the time that scope of supply and price negotiations commenced in January 1999, this R1,47 billion could be justifiably escalated to R1,9 billion due to prevailing exchange rates and other escalation factors.

However, Thomson-CSF, knowing its illicit support base in Thabo Mbeki and Chippy Shaik, had the DoD and Armscor figuratively over the negotiating barrel and made its first technically conformant offer of R3,9 billion. This was clearly unacceptable as there was a cabinet-approved budget of R6,001 billion for the corvette including the R1,47 billion for the combat suite. Over the next three months or so the SA Navy radically reduced its expectations for the combat suite and by April 1999 a total price of R2,3 billion, including a risk provision and all other amounts for, inter alia, statutory costs, project management, financing and ECA premium. At this stage the Project Control Board had an expectation of price of R2,1 billion and the project officer is on the formal record as saying that the then current price was R2,2 billion and that the R2,1 billion price was in sight. At the same time there are clear documentary indications that Thomson-CSF itself had an expectation of a R2,3 billion final price.

Yet inexplicably Chippy Shaik records at the PCB meeting of April 1999 that the SDP Affordability Study indicated a price for the combat suite at R2,6 billion. There are absolutely no clear grounds for this, especially when this would take the cabinet-approved ceiling price for the corvette from R6,001 billion to some R6,7 billion. The Affordability Study Report also makes no mention of any combat suite pricing.

Yet the corvette combat suite price at R2,599 billion was clearly approved during the April to May 1999 timeframe and it was at this level that the final selections were approved by the PCB on 8 June 1999 and contracted on 3 December 1999.

Along with other Thomson-CSF documentation which clearly provides for enormous "provisions" and "contingences" in the price of the combat suite, it is almost impossible not to believe that the unexplained price jump at the final hour from R2,3 billion to R2,6 billion did not provide the R300 million to fund the required bribes for Thomson-CSF to secure its substantial slice of the combat suite contract.

Taking into account Thabo Mbeki's and Chippy Shaik's illicit involvements with Thomson-CSF, as well as almost reciprocal conduct as alleged by the German prosecutors regarding the corvette platform, I believe there are cogent reasons for the South African prosecuting and investigating authorities to be investigating both the roles that these two persons played in the combat suite acquisition process, as well as the possibility of them or related parties, such as the ANC, receiving bribes.

Yours faithfully
R.M. Young


After nine months just an acknowledgement of receipt received.