The South African Arms Deal
After 15 years since the 1996-1998 parliamentary Defence Review, I have finally on 17 November 2011 succeeded in South Africa’s Constitutional Court (counterpart of the US Supreme Court) in forcing President Jacob Zuma to appoint a judicial commission of inquiry into the “arms deal.”
The history goes back to South Africa’s transition to democracy in 1994 when European politicians flocked here to pay tribute to Nelson Mandela and our new democracy with one hand, and to peddle weapons with the other. I was representing the Anglican Church at the Defence Review, where we argued that poverty eradication through massive public investment in education, health, housing and job creation was post-apartheid South Africa’s priority, not more weapons for a country that had no conceivable foreign military threat and which was already grossly over-armed relative to neighbouring countries.
In collusion with state-owned Armscor and the Department of Trade and Industry, European arms companies created the absurd rationale that R30 billion (US$5 billion) spent on warships and warplanes would generate R110 billion (US$18 billion) in offsets that would create over 65 000 jobs and thus stimulate post-apartheid South Africa’s economic development. In short, the more money South Africa spent on armaments, the more we would get back in offsets!
Coming to this from an international banking background, I could “smell the corruption.” The evidence of corruption soon followed. The British government seconded officials ostensibly to ensure the success of the offset programs but, in reality, to block investigations by the Auditor General, members of Parliament, the media and the public on the spurious insistence that the offset contracts were “commercially confidential.”
Through Campaign Against Arms Trade (CAAT) in London, I asked the British government in 1998 to investigate whether BAE was bribing South African politicians to support the arms deal. Scotland Yard was appointed but, in due course, I was informed to my astonishment that it was then not illegal in English law to bribe foreigners and therefore there was no crime to investigate. The same was then also true in Germany where bribes were described as “useful expenditures” and were tax deductible.
In June 1999 I was approached by intelligence operatives from the African National Congress (ANC) who advised me that the “arms deal” was just the tip of the proverbial iceberg. Interlinked were tollroads, oil deals, drivers’ licences, cellphone technology, a new harbour, diamonds-for-weapons smuggling, drug trafficking and money laundering, the common denominator being 10% kickbacks to the ANC party funds in return for political protection. Given world class banking technology combined with dysfunctional policing, it was evident to me that South Africa would rapidly degenerate into a gangster society and a centre for organised crime.
Through Anglican Archbishop Njongonkulu Ndungane (who had succeeded Desmond Tutu as archbishop), we called for a judicial commission of inquiry in August 1999, but were brushed off. The government has for twelve years used every dirty trick in the book to sweep the scandal under the carpet. The arms deal is described as the “Watergate scandal of post-apartheid South Africa” and as the “litmus test of South Africa’s commitment to democracy and good governance.”
The arms deal itself is the purchase of:
- 24 BAE Hawk fighter trainer aircraft made in England
- 26 BAE/Saab Gripen fighter aircraft made in Sweden (originally 28 aircraft)
- 4 frigates made in Germany with the French Thomson CSF (Thales) as a sub-contractor
- 3 submarines made in Germany
- 30 helicopters made in Italy.
All but a few of the Gripens have now been delivered. We don’t have the pilots to fly the BAE or BAE/Saab fighter aircraft, the mechanics to maintain them or even the money to fuel them. The German frigates and submarine lie at anchor in Simons Town harbour, with no crews or money to go to sea. And one (perhaps all three) of the submarines has been irreparably damaged. ThyssenKrupp paid a Euros 46 million fine in Germany for the bribes it paid to secure the frigate contracts. MAN Ferrostaal, which was responsible for the submarine contracts, is now the subject of a massive corruption scandal in Germany that may eclipse even the Siemens scandal.
In November 2001 the Joint Investigation Team report purportedly exonerated government from any wrongdoing, but virtually every paragraph except the executive summary in the 380 page report found that every contract was very seriously flawed by tendering irregularities. It transpired that President Thabo Mbeki edited the report and inserted that executive summary in the belief that few people would bother to read the full report. One week later and in the public interest, I took the Minister of Finance to court in an endeavour to set aside the 20 year foreign bank loans that give effect to the arms deal. My reasoning was that if we could collapse the loan agreements, we would thereby collapse the supply contracts and the arms deal.
The Barclays Bank loan agreements for the BAE contracts signed by the Minister of Finance were verified in court as authentic. Even the Minister’s legal counsel conceded that the representation, covenant and default clauses were potentially catastrophic for South Africa. In my opinion, as a former international banker, they are a textbook example of third world debt entrapment by European banks and governments.
Economists Allied for Arms Reduction (ECAAR) held a two day seminar in Cape Town in September 2002 to consider offsets and economic development. The government refused to attend. The seminar was, I believe, the first of its kind anywhere in the world.
I won discovery of further documents in 2003, but the Minister refused to comply with the judgement, arguing it was not in the national interest to disclose how the government conducts its international financial arrangements. I did obtain the arms deal affordability study which had informed the Cabinet in 1999 that the arms deal was a reckless proposition that would lead the government into mounting fiscal, economic and financial difficulties. In addition, instead of creating 65 000 jobs the negative economic consequences were likely to lead to a loss of about 150 000 jobs. More recent estimates suggest South Africa probably lost over 500 000 jobs. The rate of unemployment has rocketed from about 20% to 40%, and South Africa’s GINI coefficient is the worst in the world.
Five books have been published (including my own Eye On The Money), and the evidence is now conclusive that offsets were simply vehicles to pay bribes, and that virtually no jobs ever materialised. Penguin Books will be publishing a sequel early next year entitled Eye On The Diamonds, and I am now working on a third to be entitled Eye On The Gold.
When the case came to court in 2004, the judgement against me was that the Minister of Finance was merely implementing a prior cabinet decision, and that I had sued the wrong party. By then I had run out of money, and the Minister unsuccessfully tried twice to sequestrate me for legal costs claiming that I was hiding my money in my wife’s name. He did obtain a gagging order against me in 2008 but, instead of the two year suspended jail sentence he sought, the Judge refused to pass sentence for three years. That period has now expired.
In September 2008 President Thabo Mbeki was dismissed from office by the ANC for reasons related to the arms deal scandal. President Kgalema Motlanthe took office. In November 2008 the Scorpions (the SA counterpart of the FBI) raided BAE’s premises in Pretoria and Cape Town, and seized 460 boxes and 4.7 million computer pages of evidence. A week later, I prevailed upon former President FW de Klerk and Archbishop Desmond Tutu to appeal jointly to President Motlanthe to appoint a judicial commission of inquiry. Again we were brushed off, and yet again after President Jacob Zuma came to office in June 2009. The Scorpions were abolished in 2009 for political reasons related to the arms deal, and were replaced by the politically-malleable Hawks. The Scorpions raid on BAE was their last action.
A new public interest group, the Institute for Accountability in Southern Africa (IFAISA) asked me to be the public face for a new legal challenge on the agreement that they would work on a contingency basis. In September 2010 we finally prevailed to have the Hawks brought to Parliament where they admitted that they had inherited the massive documentation of corruption from the Scorpions against BAE plus the German warship consortia. They pleaded it would take ten years to analyse all the documents, but two weeks later announced that they had abandoned their investigations.
Amongst the documents I had obtained were 160 pages of affidavits from the British Serious Fraud Office and the Scorpions that detail why and how BAE established front companies in the British Virgin Islands to pay bribes of 115 million pounds, to whom the bribes were paid and into which bank accounts. In fact the British government had admitted as long ago as 2003 that BAE had paid bribes to secure its warplane contracts with South Africa but, it was pleaded, they were “within reasonable limits.”
You will recall that Prime Minister Tony Blair in 2006 squelched British Serious Fraud Office investigations into bribes paid by BAE to Saudi Arabian princes, claiming the investigations threatened British national security. CAAT and the Corner House took the British government to court and won but, on appeal to the House of Lords, the law lords decided that it is the prerogative of the British government to determine what does and what does not constitute “national security.” A few months later, it was revealed that with complicity of the British government BAE had paid bribes of over one BILLION pounds to Saudi Prince Bandar who was the Saudi Ambassador in Washington for 22 years, and that these bribes had been laundered through Riggs Bank in Washington DC. So now the FBI and other American institutions wanted to know why the British were laundering bribes through the American banking system.
Against plea bargains in the United States, BAE was fined US$400 million in 2010 and an additional US$79 million in February 2011. It is alleged that provisions of the notoriously corrupt Al Yamamah deal negotiated in 1985 by Prime Minister Margaret Thatcher and Prince Bandar include a “slush fund” now worth US$150 billion, which is administered by the Bank of England. It is protected by the British Official Secrets Act against investigation in Britain. The purpose of the Al Yamamah slush fund allegedly is:
- To guarantee US and British support for the Saudi royal family against domestic insurrection, and
- To fund covert destabilisation of resource-rich countries in Asia and Africa.
This year’s events in Libya would form part of such an agenda. Given South Africa’s enormous mineral wealth other than oil, this country is another target.
According to SIPRI, BAE is now the world’s largest armaments company and bigger than Lockheed Martin. Saudi Arabia was its biggest export contract: South Africa was number two. There are others, with Chile, Czech Republic, Rumania, Tanzania, Qatar etc.
So IFAISA and I filed in the public interest in the Constitutional Court in October 2010. I argued that given the massive volume of evidence of corruption against BAE and the German warship consortia companies, it was irrational and thereby unconstitutional for the President to refuse to appoint a judicial commission of inquiry and asked the Constitutional Court to overrule him. At issue was the assertion of the Constitution as the supreme law of the land, and of the authority of the Constitutional Court over the President and the executive. That is what we achieved on 17 November.
The President’s legal counsel had refused to deal with the substance of the case even, to the exasperation of the Chief Justice, when we went to the Constitutional Court on 5 May 2011. The President was given a postponement until 1 August to deal with the substance of the case, but on 28 July pleaded for another six weeks’ postponement. That took the matter to 15 September, by which time the President’s legal advisers still could not refute the mountain of evidence. Faced with that deadline, the President announced he would appoint a commission (not yet a judicial commission as announced later) of inquiry. In October he announced the terms of reference, but we still refused to withdraw the case until the Constitutional Court issued its consent order last Thursday.
Even judicial commissions of inquiry are internationally notorious as a place to park political hot potatoes. And we already smell many rats. Three senior judges were appointed, but one has already withdrawn for “personal reasons” and has not yet been replaced. The Commission has two years to complete its work. There are six provisions in the terms of reference, three of which deal with offsets.
1. The rationale for the Strategic Defence Procurement Packages
2. Whether the arms and equipment acquired in terms of the Strategic Defence Procurement Packages are underutilised or not utilised at all.
3. Whether job opportunities anticipated to flow from the Strategic Defence Procurement Packages have materialised at all and:
- if they have, the extent to which they have materialised, and
- if they have not, the steps that ought to be taken to realise them.
4. Whether offsets anticipated to flow from the SDPP have materialised at all and
- if they have, the extent to which they have materialised, and
- if they have not, the steps that ought to be taken to realise them
5. Whether any person/s, within and/or outside the Government of South Africa, improperly influenced the award or conclusion of any of the contracts awarded and concluded in the SDPP procurement process and if so
- whether legal proceeds should be instituted against such persons, and the nature of such legal proceedings
- whether in particular there is any basis to pursue such persons for the recovery of any losses that the State might have suffered as a result of their conduct
6. Whether any contract concluded pursuant to the SDPP procurement process is tainted by any fraud or corruption capable of proof, such as to justify its cancellation, and the ramifications of such cancellation.
As you see, provisions 1, 3 and 4 deal with offsets. I am now in the process of seeking legal opinions from constitutional lawyers regarding the constitutional provisions for government procurements in terms of section 217 (1) requiring government procurements to be conducted “in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.”
My submission to the commission will be that offsets are internationally notorious for corruption, that they fail South Africa’s constitutional requirements and that the arms deal was therefore both unconstitutional and illegal right from inception. If that is accepted, then provisions 3 and 4 fall away. In short, the arms deal is unfixable, and what we need is remedial action including cancellation of the contracts and to hold accountable those European and South African politicians and their bribery bagmen who sucked South Africa into the mess.
The financial consequences of cancellation would then fall to the British and German taxpayers who have underwritten the contracts in terms of ECGD and Hermes. And hopefully the Americans will then for their own nefarious reasons blacklist BAE from all United States contracts. The US is now responsible for 56% of BAE’s sales, so such a blacklisting could put BAE into bankruptcy.
After a profile piece published in Cape Town on 17 September, President Zuma buckled and announced he would appoint a commission of inquiry. He had apparently told the ANC counsel that he was going to lose the case, and his motivation now was to avoid having the Constitutional Court assert its supremacy over the Presidency. That’s why I did not withdraw my case until 17 November against a Constitutional Court consent order.