How this Thatcher deal shows the flaws in UK arms regulation

This is more than a moral issue or another bash at hapless politicians failing miserably to pull the wool over our eyes. The point is that the arms industry causes war rather than prevents it. QED.

Take the infamous case of the Al-Yamamah arms deal between Britain and Saudi Arabia. This was – and still is – the biggest arms export deal in British history.

Brokered by Margaret Thatcher (above) in 1985, with BAE Systems as the main contractor, Al-Yamamah provided the Saudis with interceptor fighters, bombers, ground attack aircraft, trainers, airfields, bombs, missiles, naval vessels, and military instruction. Yes, a complete state-of-the-art military system.

The value of these contracts remains speculative but Mike Turner, then the company chief executive, said back in 2005 that BAE and its shareholders had pocketed around £43 billion from the deal – with another £40bn on the way.

You might think this was just another arms deal, even if was a gigantic one. But there’s much more. With so much loot sloshing around, lots of individuals wanted a share of the pie.

READ MORE: Everything you need to know about how UK arms sales work

The result was corruption on a grand scale, brokered by BAE. And before The National’s lawyers have a heart attack, we know this for sure because in 2010 the US Justice Department took BAE to court for using an American bank to channel some of these bribes. BAE accepted a plea bargain and was fined $400 million.

US District Judge John Bates said the company had been involved in “deception, duplicity and knowing violations of law, I think it’s fair to say, on an enormous scale”. And that was just the tip of the financial iceberg.

The starting point for this tale of grand larceny lies not in Saudi but in London – an important point to remember. The Brits saw the Saudis as easy meat for a financial shakedown. The Americans were chary about selling more weapons to Riyadh in case they were used against Israel, so the Saudis had to come to Britain.

Result: BAE upped the price of the planes it was flogging to the Saudis. Not that the Saudi middlemen cared, because they got a cut.

The original Al-Yamanah contract listed the cost of each Tornado jet sold to the Saudi Air Force at £16.3m. But the price quickly went up to £21.5m per aircraft, adding £600m to the bill. You can decide for yourself if this was BAE gold-plating the tech specs or a way of funding the kickbacks. Or both.

Even the Saudis lacked the US dollars to fund this largesse so the Brits hit on a cunning plan. The Saudis would pump more oil and give it directly to the Brits – specifically to BP and Shell, which would ship and sell the stuff for a commission. The oil companies would then deposit the proceeds into a special British Ministry of Defence bank account at Lloyds (which took a fee).

FROM this account, BAE was paid for the weapons. The UK Treasury also took a 2% cut. Of course, with such a complicated arrangement, things could easily go wrong. For instance, an unexpected shift in global oil prices might leave BAE out of pocket.

No worries! The British government agreed that any shortfall would be subsidised by the UK export guarantee scheme. In other words, you, the British taxpayer, were the fall guy.

We should note in passing that these arrangements meant there was a stash of Saudi money in a confidential British account – money quite separate from the normal budget of the Saudi government. Bizarrely, the British government under Thatcher and then Tony Blair allowed the Saudis to access these Al-Yamamah funds for their own purposes, which included buying French arms.

I mention this because it gets to the heart of the claim by successive British governments that the arms export business is well-regulated. Unless, of course, you let the Saudis use a British Ministry of Defence bank account to buy arms covertly anywhere they like.

Not surprisingly, lots of people at BAE were disgusted by what was going on. Whistle-blowers started appearing out of the woodwork.

Not only did this result in investigations by The Guardian newspaper and the BBC Panorama programme, but the Serious Fraud Office (SFO) was also alerted.

READ MORE: How much does Britain make from arms sales?

The Guardian soon uncovered that BAE was paying kickbacks through a global system of offshore companies.

Again, these investigations were confirmed by the US Justice Department, which said: “BAE took steps to conceal its relationships with … advisers and its undisclosed payments to them. For example, BAE contracted with and paid certain of its advisers through various offshore shell entities beneficially owned by BAE.

“BAE also encouraged certain of its advisers to establish their own offshore shell entities to receive payments while disguising the origins and recipients of such payments.”

The Saudi prince at the heart of these bribery accusations was Bandar bin Sultan Al Saud, Riyadh’s ambassador in Washington from 1983 to 2005 and a key figure in the intelligence world. Bandar was central to the negotiations with Thatcher that led to the Al-Yamamah deal.

IN 2007, The Guardian claimed that BAE had paid Bandar more than £1bn via a US bank. This resulted in the US Justice Department prosecution of BAE.

Not surprisingly, the Serious Fraud Office had to investigate all these claims. The Saudis were not amused. They threatened to stop supplying Britain with intelligence about al-Qaeda terrorists operating in the UK.

According to one Guardian report, SFO investigators were told that the loss of “British lives on British streets” would be on their heads if it carried on with its inquiries.

On December 13, 2006, the director of the SFO wrote to the attorney general Lord Goldsmith to inform him that the agency was dropping the investigation, citing “real and imminent damage to the UK’s national and international security”. There you have it, blackmail works.

The Saudis went on to use all that expensive military hardware by bombing Yemen back into the Stone Age. What’s the point of having bombers if you don’t bomb – and British bombers and bombs are among the best.

The UN humanitarian co-ordinator for Yemen, Johannes Van Der Klaauw said these bombings constituted a war crime. “The indiscriminate bombing of populated areas, with or without prior warning, is a contravention of international humanitarian law,” he said. Where have we heard that before?

There’s a hard lesson here for Scots and Scotland. BAE Systems has shipyards at Govan and Scotstoun building advanced Type 26 frigates, providing around 1700 local jobs. Another 300 apprentices are being hired.

READ MORE: Politicians are shying away from the hard choices that need made

BAE hopes to export the Type 26.

Versions are being built in Canada and Australia – but there are suggestions that the United Arab Emirates, a Saudi ally, might be in the market.

I’m not a pacifist and I know a weapons industry is unavoidable. I just don’t like the hypocrisy surrounding it, particularly from Westminster politicians.