Arms deal investigators probe BAE payments to South African
Official was linked to minister who helped firm win £1.5bn jet order
Chris McGreal in Johannesburg
Saturday January 6, 2007
The Guardian
Hawk jets like this one were sold even though they were nearly twice as expensive as their Italian rivals. Photograph: PA
The Serious Fraud Office is investigating "substantial payments" made by BAE Systems to a senior South African defence ministry official who had influence over a £1.5bn contract won by the arms company to supply planes at nearly twice the price of a rival bidder.
Last night it emerged that South Africa's organised crime unit, the Scorpions, was handling a "mutual legal assistance" request from the SFO to investigate the financial accounts of Fana Hlongwane, a politically well-connected businessman, in relation to the 1999 deal. Mr Hlongwane is a former special adviser to the then South African defence minister, Joe Modise, who died in 2001.
Mr Modise has been named in allegations of corruption, including claims that he took a £500,000 bribe from BAE and $10m from a German consortium that signed a contract to sell submarines. The SFO is also investigating John Bredenkamp, a tycoon who is BAE's agent in southern Africa and whose UK home and offices were raided in October.
South African sources said yesterday that SFO detectives were expected to travel to Pretoria within weeks.
Details of the investigation emerged soon after the UK government abruptly halted an SFO inquiry into alleged bribes paid by BAE to Saudi royals. Tony Blair claimed Britain's security would be endangered if the investigation continued, prompting criticism that the Saudi regime had blackmailed the British government and that BAE was above the law.
Later this month, Whitehall officials will have to justify the Saudi decision at a hearing of the Organisation for Economic Cooperation and Development, the world's leading anti-bribery watchdog.
Norman Lamb, a Liberal Democrat frontbencher, said the investigation in South Africa "showed that the SFO still poses a danger to BAE. If BAE think they are in the clear, they could be very wrong. If they were cock-a-hoop over the Saudi decision, they may have partied too soon".
The SFO is also pursuing its investigations into allegations that BAE made corrupt payments to politicians and officials in Tanzania, Chile, the Czech Republic and Romania. Mr Lamb said it was crucial that these other allegations were seen to be investigated properly.
The latest developments centre on claims of substantial payments to Mr Hlongwane. According to South African sources, the SFO is investigating whether payments were made while he was an adviser on the arms deal to Mr Modise. At the time, Mr Hlongwane was also a director of South African arms company Denel.
Suspicion was cast on the aircraft deal after Mr Modise changed the formula by which the contract would be decided to discount price as a factor.
South Africa's airforce chiefs had selected Italian aircraft as cheaper and more modern, but the amended specifications shifted the balance in favour of the ageing British Hawks - at nearly double the price.
The Hawks are part of a £1.5bn package BAE and Saab put together to supply 24 Hawk fighter trainers and 28 Gripen light fighter aircraft to South Africa. Sources in the country say the request to the police indicates that the SFO investigation extends beyond the sale of the Hawk aircraft to the payment of bribes in South Africa and other developing countries.
The sources say that the SFO believes that information on South African bank accounts may also lead to offshore accounts in Mauritius and the Seychelles.
In the race to win contracts, BAE built a tangled web of relationships with South African officials, particularly Mr Modise.
BAE acknowledges that it paid tens of millions of pounds in secret commissions to win the £1.5bn contract. The arms company originally intended to pay 12% of the contract price in commissions but agreed to cut that back to 7% - more than £100m - following questions from the British authorities underwriting the deal.
An internal Foreign Office memo three years ago says BAE named the agent handling the commissions in South Africa as the company Osprey. BAE claimed Osprey had no links with anyone involved in awarding contracts but in truth, it had close ties with Mr Modise. Among Osprey's shareholders was Tsebe Properties, of which Mr Hlongwane was a director.
BAE also made a donation to the ruling African National Congress just after the contract was signed.
BAE declined to comment on the specifics of the SFO request, or its relationship with Mr Hlongwane. A spokesman said the company was "fully cooperating" with the investigation. "As the SFO inquiry is a continuing criminal investigation, it would be inappropriate for us to comment," he said. Mr Hlongwane was unavailable for comment.
