Monday, 4 August 2008

The arms deal that haunts British and South African politics

The tale of secret payments of $50 million payments by Britain’s BAE Systems to a company in the British Virgin Islands which featured on 1 August on the front pages of Africa Confidential and the Financial Times is more than just another ripping corruption yarn.

It’s also an attempt to cast light on one of the most scandalous acts of public policy in Britain and South Africa in the past decade: the determined marketing of £1.6 billion of grossly overpriced and technically inappropriate fighter aircraft to an economically weakened post-apartheid South Africa.

It was all the more scandalous because that marketing comprised relentless political pressure from Prime Minister John Major and then Tony Blair on South Africa to accept the deal together with BAE’s payment of astronomical commissions, a charitable description for such payments, to a network of secret agents who helped to close the deal with the South African government.

Anti-corruption campaigners fulminated against BAE Systems’ payments of multi-billion dollar commissions on its $40 bn. Al Yamamah arms deal with Saudi Arabia. Likewise the campaigners were horrified by the Blair government’s orders to the theoretically independent Serious Fraud Office to shut down its investigation into the affair for ‘national security’ reasons.

In ethical terms, BAE’s South African deal is worse than the Al Yamamah deal: at least oil-rich Saudi Arabia wasn’t scratching around for a few million dollars to put into rural health and education schemes after half a century of apartheid. And Riyadh’s veteran ruling elite could hardly accuse BAE Systems of undermining accountability in a struggling young democracy. But the effect of these commercial campaigns by BAE Systems – along with other Western suppliers such as France’s Thales and Germany’s Seimens – has been to subvert South Africa’s attempts to build effective institutions that are open to public scrutiny.

None of this reduces the core responsibility of the African National Congress government for South Africa’s $6 billion arms deal imbroglio. Not only were some of its most senior officials complicit in setting up the secret payments systems used by Western arms companies as ‘marketing tools’, but these same officials tried to block scrutiny of the arms deals by party members and supporters.

South African politicians and officials accepted these mechanisms – common in the international arms business – knowing that the diversion of some $200 mn. into private pockets would be financed ultimately by the South African taxpayer. Simply put, that’s $200 mn. less for the schools, clinics, clean water and electric power that South Africa desperately needs.

What happens next? In Europe, several investigations into the role of Western arms companies in South Africa’s arms deal are nearing a conclusion. It is remarkable that BAE Systems, which makes so much of its ethical reforms following the recommendations of the eminent Lord Woolf, remains so coy about what it was doing in South Africa. It has only just publicly admitted the existence of Red Diamond Trading, its secret British Virgin Islands-registered payments vehicle that it closed last year, after a decade of clandestine operations.

Perhaps the company is looking for a plea bargain deal that might entail the payment of large fines for breaching ethical rules but would shield its senior executives from prosecution. Likewise, the South Africa’s government has little interest in a public prosecution of BAE Systems, given the volumes of embarrassing information that would be heard in an open court.

Such a prosecution might force the hands of South Africa’s own anti-corruption investigators who are currently struggling with the prosecution of ANC President Jacob Zuma. As that attempted prosecution lurches from one calamity to another, there are growing calls from ANC members and trades unionists for a comprehensive investigation in South Africa’s $6 bn. arms deal and the role of BAE Systems, France’s Thales and Germany’s Seimens.

It may be ten years in the making but the tawdry history of South Africa’s arms deal isn’t going to go away quickly.