Arms deal: seven facts that aren’t going away

Source: Anine Kriegler, Right2Know

A recurring line from those trying to dismiss allegations of corruption in the arms deal is: “Show us the evidence.”

During his testimony at the Seriti Commission two weeks ago, former president Mbeki took an opportunity to lash out at critics, saying: “For all of these years we have been saying, let this evidence be produced so that action can be taken.” This response seems especially cynical considering that efforts to investigate these allegations have routinely been derailed. Interested parties have not been granted access to the documents in which such evidence would be found, and an entire corruption-busting unit, the Scorpions, was disbanded over the issue. These difficulties are why a commission of inquiry was called for in the first place.

But the public outcry about the arms deal is not just rumour and allegation. Here are seven inconvenient facts for the people who say, “Where is the evidence?”

1. Schabir Shaik went to jail for soliciting bribes from a winning contractor

In 2005, a court found businessman Schabir Shaik guilty of fraud and corruption, including for his role in brokering an agreement with French defence company Thomson-CSF – whereby the company would give R500 000 a year to then deputy president Jacob Zuma in exchange for protection from investigation into the arms deal bidding process, plus support in future bids. The judgment by Judge Squires was upheld on appeal, and Shaik was sentenced to an effective 15 years in prison. You can read the charges here, the Squires judgement here, and the Supreme Court of Appeal judgement here.

2. Arms deal corruption led to Zuma being fired

Although he wasn’t an accused in the case, the Squires judgement also clearly implicated Zuma. Here’s a key statement from the appeal court judgement: “there is abundant surrounding evidence to find that there was proof beyond reasonable doubt that what Mr Shaik requested of Thomson was a bribe to Mr Zuma.” The case against Zuma has not been tested in a court, as the numerous charges of corruption, fraud, money laundering and racketeering were withdrawn by the National Prosecuting Authority in 2009 under enduringly controversial circumstances. Read the text of the 2007 indictment here, and President Thabo Mbeki’s speech releasing Zuma of his responsibilities as deputy president here.

3. Tony Yengeni went to jail because of an arms deal “gift”

While chairman of Parliament’s defence committee in 1998, Tony Yengeni received a nearly 50% discount on a Mercedes Benz 4×4 from a major shareholder in an arms deal bidder. Daimler-Chrysler Aerospace owned 33% of Reutech Radar Systems, which in 1999 won a R220-million contract to provide radar tracking for the corvettes. Yengeni was prosecuted and sentenced to four years in prison for failing to disclose to Parliament that this huge discount had been arranged for him by Daimler-Benz Aerospace South Africa, a company with an interest in the arms deal. See the High Court judgement here.

4. An arms company’s internal investigation found that it paid for decisive political access

MAN Ferrostaal was part of the German consortium that won the submarine contract. It later hired Debevoise and Plimpton (a well-known US law firm) to figure out its legal risks worldwide. Among many other things, the 2011 report found that the company had paid $40-million (roughly a quarter of its ultimate revenue from the project) to gain “political access” to support its South African bid. These political contacts were afterwards considered to have had a “decisive influence” on their success. Though Ferrostaal has refused to release the report, it has been leaked. Read it here.

5. British Aerospace paid fines for breaking rules on the use of middlemen

British Aerospace (BAE) won the contract for the Hawk and Gripen fighter aircraft (the latter in consortium with SAAB). The US State Department charged it with violating its arms export regulations through its unregulated and covert use of an offshore company (which operated with specific “intent to circumvent the normal payments reviews”) and middlemen all over the world, including in South Africa. Rather than face these charges, BAE settled – agreeing to pay $79-million as a penalty. Read the charge sheet here and the plea agreement here.

Bonus context: A year earlier, BAE pled guilty to knowingly and wilfully failing to prevent and detect corruption and bribery in its operations, as well as conspiring to impede the related US investigations. It was found to have been aware of the “high probability” that its payments would be used to influence foreign government procurement decisions. The sentence was a criminal fine of $400-million. See the US DoJ press release here.

6. British investigations show that BAE paid almost R2-billion to agents in SA

The UK Serious Fraud Office (SFO) also investigated BAE’s use of agents and secret commissions worldwide, again including South Africa. It asked for the Scorpions’ help, and provided them with a number of documents to help motivate for a search warrant for BAE-linked premises in SA. The SFO ended up only charging BAE with an offense related to its work in Tanzania, but the leaked docs included details on £103-million (that’s R1.79 billion using this week’s currency conversion) in covert payments to BAE agents in South Africa – including R280-million paid to BAE’s undisclosed agent Fana Hlongwane. The SFO could find no substantial work done by Hlongwane that could justify such payments. Hlongwane, in case you’ve forgotten, was defence minister Joe Modise’s special adviser. For more on this, see here.

Bonus document: Have a look at this doc, in which BAE discusses how to set up a secret system of payments to advisers.

7. Chippy Shaik, top arms deal decision-maker, went into business with one of the winning companies

Shamin “Chippy” Shaik played a crucial role in the arms deal as head of acquisitions for the SANDF. Five years later, Ferrostaal (part of the German Submarine Consortium) invested nearly $1.5-million in a joint mining venture with him. Debevoise and Plimpton found no evidence that Chippy’s party had contributed financially to the venture. It concluded that although these dealings were not necessarily improper, they were problematic in that Ferrostaal failed to conduct any due diligence in this regard, and their commercial rationale was markedly unconvincing.

Of course, there’s a lot more to it all than this. There is a clear need to strip away rumour and inaccuracies around the many other concerns of irregularity in the arms deal, to get to the truth. The “critics” that will be testifying at the Seriti Commission over the next few weeks can help with this, but it is ultimately neither their job nor within their powers. It is the Commission itself that has been given the mandate, the resources, the access to the documents, and the ultimate responsibility to “inquire into, make findings, report on and make recommendations” about any fraud, corruption, impropriety or irregularity in the arms deal.

And it’s the responsibility of the rest of us to hold them to it.

Useful links:

• Corruption Watch’s updates and analysis of the Seriti Commission
• Corruption Watch’s What You Need to Know About the Arms Deal

Kriegler is a volunteer with Right2Know.