BAE in spotlight as 'sweeteners' turn sour

Arms industry backhanders could be revealed in a Jersey court this week,
write Conal Walsh and Antony Barnett

Antony Barnett and Conal Walsh

Chief executives, diplomats, even United States military planners - all will be keeping half an eye on events in Jersey this week. They are bracing themselves for explosive revelations about unexplained payments of more than £100 million made by major arms companies, allegedly including British Aerospace, to a senior member of Qatar's royal family. Long-awaited details about the payments, suspected of being sweeteners to secure big defence contracts from the oil-rich Gulf state, are set to emerge in court proceedings in St Helier, Jersey's capital.

The hearings threaten to disrupt Britain's diplomatic relations with Qatar, a key ally in any Middle East conflict. They come after police on the Channel island froze offshore bank accounts belonging to Qatar's Foreign Minister as part of a money-laundering investigation.

At least £100m paid by arms companies was found to have passed through three Jersey trusts. The Observer revealed in June that this included an alleged £7m from British Aerospace, now known as BAE Systems. It was part of a consortium of British firms that won a record £500m deal to sell military hardware to Qatar in 1996.

Further payments from other leading European and US defence firms could be disclosed this week, depending on the outcome of court wrangling in Jersey. The local newspaper has applied to see transcripts of earlier hearings about the payments, which were held last year with the public and press barred.

But any further revelations about secret payments will provoke fury in Qatar, which is hosting the build-up of US and British troops in the region and was used as a base from which attacks were launched on Afghanistan. Qatar's ruling Emir has protested to the Foreign Office and suspended trade talks.

The affair could be embarrassing for Michael Portillo, the former Tory Minister, who joined BAE's board of directors last month. He was Defence Secretary when Britain won the Qatar defence contract in 1996, and flew to Doha, its capital, to take part in the signing ceremony. He did not respond to The Observer's questions last week.

It is not known whether BAE's alleged payments into the Jersey trusts is linked to the 1996 deal. The company has not been the focus of Jersey's criminal investigation and there is no suggestion it broke the law. At the time BAE is said to have handed over the money, there was no law prohibiting British firms from paying foreign politicians and dignitaries.

Yesterday a BAE spokesman said: 'We have co-operated fully with the appropriate authorities. We have never been the subject of any investigation into these matters.' He refused to comment on the alleged £7m payment.

The affair began to emerge two years ago, when an official at the ANZ Grindlay Trust bank in Jersey stumbled across enormous payments by BAE into trusts with exotic names such as Yaheeb and Havana. Suspecting money-laundering, he reported the transactions to the island's authorities. Detectives from Jersey's financial crime unit quickly discovered that the trusts' ultimate beneficiary was the Foreign Minister of Qatar, Sheikh Hamad bin Jassin bin Jaber al-Thani. The Sheikh, who denies any wrongdoing, is the Emir's uncle and a man of huge wealth and influence in the Gulf.

Investigators found more than £100m in the trusts and began to suspect they had uncovered a slush fund into which some of Europe's largest defence firms were paying sweeteners to secure lucrative contracts. They discovered the funds from these accounts were being used to purchase hotels and real estate around the world.

On 16 July, 2000, the Jersey authorities froze the 10-year-old trusts while they investigated.

The probe brought Qatar's relations with the UK to breaking point. The Emir refused to meet Geoff Hoon, the Defence Secretary, and shelved talks on hundreds of millions of pounds of export orders.

Pressure to heal the diplomatic rift became most acute after last year's 11 September attacks. Qatar is seen as a moderating influence in the Middle East and is a vital strategic ally for Britain and the US. Washington plans to base its Gulf military HQ there.

Three months ago, in a startling turn of events revealed by The Observer, Jersey announced that it was dropping the investigation. The island's Attorney-General, William Bailhache, indicated that one reason for this was that Sheikh Hamad had diplomatic immunity and would be difficult to prosecute. He also said continuing action against the Sheikh was not 'in the public interest', without expanding further.

In an added twist, the Sheikh, while continuing to protest innocence, agreed to pay £6m to the Jersey government to repair any 'damage perceived to have been sustained in the events that have happened'. Last month he told the BBC's HardTalk programme that he did this 'for the relations of the two countries'. He added: 'Either I resign from my job and chase the lawyers and chase the court, or I do my job properly.'

But news that the investigation had been abandoned prompted a flurry of parliamentary questions, amid suspicions that Jersey had been unduly pressured by the British Government. Both Jersey and the Foreign Office deny this, stressing that the UK cannot intervene in the island's judicial affairs.

Attention is now shifting to the forthcoming proceedings in Jersey's Royal Court. The Jersey Evening Post will argue that its readers have a right to know what happened in earlier civil hearings relating to the affair, from which the press was barred.

Lawyers for Qatar are contesting the action. Even if the court finds in the paper's favour, Qatar may appeal, which would further delay the release of the transcripts. If and when they are released, however, they are widely expected to reveal a string of payments from major companies - and shine a powerful spotlight on the secretive dealings of the international arms industry.

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