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'National interest' halts arms corruption inquiry

David Leigh and Rob Evans
December 15, 2006

A major criminal investigation into alleged corruption by the arms company BAE Systems and its executives was stopped in its tracks yesterday when the prime minister claimed it would endanger Britain's security if the inquiry was allowed to continue.

The remarkable intervention was announced by the attorney general, Lord Goldsmith, who took the decision to end the Serious Fraud Office inquiry into alleged bribes paid by the company to Saudi officials, after consulting cabinet colleagues.

In recent weeks, BAE and the Saudi embassy had frantically lobbied the government for the long-running investigation to be discontinued, with the company insisting it was poised to lose another lucrative Saudi contract if it was allowed to go on. This came at a time when the SFO appeared to have made a significant breakthrough, with investigators on the brink of accessing key Swiss bank accounts.

However, Lord Goldsmith consulted the prime minister, the defence secretary, foreign secretary, and the intelligence services, and they decided that "the wider public interest" "outweighed the need to maintain the rule of law". Mr Blair said it would be bad for Britain's security if the SFO was allowed to go ahead, according to the statement made in the Lords by Lord Goldsmith. The statement did not elaborate on the nature of the threat.
BAE claimed that it was about to lose out on a third phase of the Al-Yamamah deal, in which the Saudis would buy 72 Typhoon aircraft in a deal worth £6bn. The Saudis had also hinted that they would do a deal with the French instead if the inquiry pushed ahead. A 10-day ultimatum was reportedly issued by the Saudis earlier this month

A PR campaign headed by Lord Bell saw MPs from all parties urging the dropping of the investigation, citing fears that jobs would be lost in their constituencies. But in its statements last night the government said commercial considerations had played no part in the decision.

The decision was condemned last night as naked political interference in a criminal case. Norman Lamb, the Liberal Democrat chief of staff, said the government had succumbed to Saudi pressure. "I think it's because the inquiry has been making substantial progress that it's been brought to an end," he said.
The SFO's director, Robert Wardle, issued a terse statement saying he had dropped the Saudi end of the investigation "following representations that have been made both to the attorney general and the director of the SFO concerning the need to safeguard national and international security".

Shares had begun to rise in BAE and major suppliers such as Rolls-Royce in the last two days, as rumours reached the City that a deal had been done to appease the Saudis. Lord Goldsmith's statement was unusual in that it did not refer to the claimed threats to British jobs, but instead concentrated on "national security".

The destruction of its inquiry will be a severe blow to the SFO which has spent more than £2m on what was its most extensive current investigation, and taken hundreds of pages of statements from witnesses. One witness who gave evidence to the SFO, Peter Gardiner, a director of a travel agent used to make alleged slush fund payments, said last night: "It's an interesting signal that this gives to industry and the world I am thinking of the hundreds of hours I have wasted and all the personal problems this has caused me."

BAE, in a statement, said it welcomed the dropping of the inquiry. But the company and its executives may not yet be out of the woods. The attorney general has allowed investigations to continue into BAE activities in Romania, Chile, the Czech Republic, South Africa and Tanzania, which legal sources say are making strong progress.

The UK made overseas bribery illegal in 2002, under US pressure. Labour ministers subsequently claimed they were determined to stamp out corruption, but in practice no prosecutions have taken place under the new law.
Clare Short, Mr Blair's former cabinet colleague, said: "This government is even more soiled than we thought it was. It means that BAE is above the law."

She added: "The message it sends to corrupt businessmen is carry on - the government will support you."

Liberal Democrat Lord Goodhart said: "If, as appears to be the case, this further investigation is being stopped because of potential damage to security, intelligence and diplomatic relations with Saudi Arabia, doesn't that amount to blackmail by Saudi Arabia, to prevent this matter going forward?"

Attorney general's statement
"It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests or to the national economic interest.

The prime minister and the foreign and defence secretaries have expressed the clear view that continuation of the investigation would cause serious damage to UK/Saudi security, intelligence and diplomatic cooperation, which is likely to have seriously negative consequences for the UK public interest in terms of both national security and our highest priority foreign policy objectives in the Middle East."

The Guardian