MoD implicated in Saudi payment scandal

The Ministry of Defence (MoD), the Saudi government and BAE Systems - the UK's largest arms dealer – risk embarrassment today as an unofficial investigation revealed BAE channelled over a billion pounds to Prince Bandar bin Sultan, the former Saudi ambassador to the US.

The money was given in return for the prince's role in negotiating a £40 billion deal in 1985 between Britain and Saudi Arabia.

According to the BBC's Panorama programme, the payments were written into the arms deal's contract as 'support services'. They were authorised every three months by the MoD.

Both BAE and the Defence Export Services Organisation (Deso), the government's arm's sales department, had drawing rights on certain funds, run by the paymaster general, which originated as Saudi public money.

Panorama claim BAE then regularly made substantial withdrawals from the fund and channelled the money to the prince's Riggs bank account in Washington DC.

The legality of the payments is unclear under British law, because corruption only became an offence in the UK in 2001. The chances of a prosecution following from the discovery therefore hinge on whether the payments continued after that date.

But BAE could face investigation in the US, where corrupt payments to foreign officials have been outlawed since 1977.

David Caruso, an investigator for the American bank, told the BBC: "There wasn't a distinction between the accounts of the embassy, or official government accounts as we would call them, and the accounts of the royal family."

Prince Bandar, son of the Saudi defence minister and now head of the country's national security service, refused to comment on the revelations.

BAE has refused to respond to questioning on the matter.

When the Guardian tried to speak to the company, they responded: "Your approach is in common with that of the least responsible elements of the media - that is to assume BAE Systems' guilt in complete ignorance of the facts.

"We have little doubt that among the reasons the attorney general considered the case was doomed was the fact that we acted in accordance with ... the relevant contracts, with the approval of the government of Saudi Arabia, together with, where relevant, that of the UK MoD."
The MoD refused to comment, saying information about the deal was confidential.

But Labour MP Roger Berry, head of the Commons committee on strategic export control, has called for an investigation and Vince Cable, Lib Dem treasury spokesman, has called for a full parliamentary inquiry.

"It is one thing for a company to have engaged in alleged corruption overseas. It is another thing if British government ministers have approved it," he told the BBC's The World Tonight programme.

The funds were originally part of a Serious Fraud Office (SFO) investigation which failed to establish the legality of the payments because Tony Blair and Lord Goldsmith halted the proceedings in December of last year.

Speaking beside Mr Bush at the G8 summit, Mr Blair said allowing the investigation to continue would have led to "the complete wreckage of a vital strategic relationship and the loss of thousands of British jobs".

But the Guardian claims Lord Goldsmith told colleagues at the time that "government complicity" would be revealed if the SFO investigation was allowed to continue.