SHELL CONNECTION WITH THE SAUDI ARABIA / AL YAMAMAH BAE ARMS SCANDAL
PRESS REPORTS OF $400 MILLION FINE ON BAE SYSTEMS
The Seattle Times: Military contractor BAE fined $400M for fraud: 1 March 2010
BAE Systems, Europe's biggest military contractor, was ordered to pay a $400 million fine after admitting it conspired to defraud the U.S. government, the Justice Department said in a statement.
The company also provided "substantial benefits" to a Saudi Arabian official "who was in a position of influence regarding sales of fighter jets, other defense materials and related support services," the U.S. said.
BBC News: BAE Systems handed £286m criminal fines in UK and US: 5 Feb 2010
EXTRACTS:
BAE Systems will admit two criminal charges and pay fines of £286m to settle US and UK probes into the firm. It will hand over more than £250m to the US, which accused BAE of "wilfully misleading" it over payments made as the firm tried to win contracts. The defence group will pay about £30m in the UK - a record criminal corporate fine - for separate wrongdoings.
The DoJ also details services such as holidays provided to an unnamed Saudi public official and cash transfers to a Swiss bank account that it says were linked to the £40bn Al-Yamamah contract to supply military equipment to Saudi Arabia.
Daily Telegraph: Bribery, corruption and BAE Systems: 5 February 2010
With today’s settlement with the Serious Fraud Office in Britain and the Department of Justice in the US, BAE Systems, the defence giant, finally wipes the slate clean of bribery and corruption allegations which have dogged the company for nearly two decades.
The SFO essentially dropped its bribery and corruption case against BAE after the Government intervened through the attorney general. It will be recalled that so horrified was the Saudi royal family with the idea that the SFO should go probing around in their personal Swiss bank accounts, that they threatened to cut off all intelligence to Britain in connection with the terror threat. The then prime minister, Tony Blair, ordered that it was in the public interest that the investigation should cease.
FT: BAE to pay $450m to end bribery case: 5 Feb 2010
EXTRACT: While the UK settlement involves admissions of wrong-doing only in relation to the company’s sale of a radar system to Tanzania, the broader US deal covers central Europe as well as the company’s huge Saudi Arabian arms sales.
Gerald James book: IN THE PUBLIC INTEREST
Comment in House of Commons by Vince Cable MP, former Chief Economist of Shell (Debate on the Al-Yamamah BAE Fraud/Corruption controversy and associated money laundering)
7 Feb 2007: Dr. Vincent Cable (Twickenham) (LD):
"Let me turn to the history of this issue. The al-Yamamah contract originated in the mid-1980s, and the context is often forgotten. It was not achieved primarily as a result of competition and British technological excellence; the context at that time was the very close relationship between Saudi Arabia and the United States, which both sides wished to perpetuate. However, the problem was that, as President Reagan provided Saudi Arabia with more and more sophisticated equipment, there were objections from Israel. Perfectly understandably, the Israelis were concerned about one of their potential adversaries acquiring sophisticated technology. The situation was not helped, of course, by the tirade of anti-Semitic abuse that often comes from the Saudi authorities. Israel protested, and friends of Israel in the United States Congress blocked the F-15 deal, which was in turn passed on to Britain and Mrs. Thatcher. The Reagan Administration were very anxious to bless this arrangement. They owed the Saudis various favours. They were supporting the Nicaraguan Contras and helping gallant freedom fighters in Afghanistan—such as Osama bin Laden. Reagan was perfectly happy to support this British arrangement, which proved to be one of the largest arms deals in history. It has been worth about £40 billion to date, and could be worth something of the same magnitude again in the future. It is not merely an arms deal, but one of extraordinary complexity that involves two major subsidiary features. One is an offset agreement, which, essentially, is a joint venture set of arrangements under which British companies put in capital and expertise, and their Saudi partners take their cut. There is also an oil element. There was an oil barter arrangement whereby oil was marketed, initially by Shell and BP, and the proceeds were routed through the MOD to BAE Systems."
Al Yamamah 2 Offset Agreement THE AL YAMAMAH ECONOMIC OFFSET PROGRAMME
This Saudi British Bank document contains a reference to the original "Al Yamamah" agreement involving Saudi Arabia, BAE Systems, the UK Ministry of Defence (the MOD), with Shell and BP fulfilling what has been described as a money laundering role in the "oil-for-arms" deal:
"The Al Yamamah Project was initiated in September 1985. It involves the supply and support of Tornado, Hawk and PC-9 aircraft and specialised naval vessels to Saudi Arabia. The UK Government's prime contractor for the project is BAE Systems pIc. The related Al Yamamah Economic Offset Programme was launched in 1989."
The main parties are once again Saudi Arabia, BAE Systems and the MoD. The main "Key" address for "The British Offset Office" stated in the document is the Ministry of Defence in London. Shell is also involved, this time via a subsidiary:
"The foreign partner is Basell, who is the world's largest PP manufacturer and is itself a 50/50 joint venture between Royal Dutch/Shell Group and BASF. Basell will hold 25% of the equity in the Saudi Arabian venture."
House of Commons Select Committee on International Development: September 2000
21. The allegations continued. In December 1996, Sunday Business suggested that one of the reasons behind the Saudi company Aramco's replacement of BP and Shell as oil exporters in Al Yamamah was an attempt by the Saudi government to save money on commission payments to the companies, which were estimated at $30 million/£18 million a year. (Sunday Business, 1.12.96)
Declassified UK Government documents relating to Shell role in Al-Yamamah "oil-for-arms" project (all confidential/secret/restricted documents)26 September 1985 The UK Ministry of Defence (MoD) document "SALE OF AIRCRAFT TO SAUDI ARABIA includes written confirmation from Minister of Defence Michael Heseltine to "His Royal Highness Prince Sultan Bin Abdul Aziz" of terms for the BAe military planes-for-oil deal: EXTRACT "Following acceptance by the British Government of payment by means of an oil trading scheme, preliminary discussions have been held with the British Oil Companies, BP and Shell. These two companies are prepared in principle to handle the oil trading scheme subject to the agreement of satisfactory terms and conditions. They will form a Consortium, to be led by BP. " http://www.shellnews.net/rayfoxwebsite/MOD%20docs26sept1985.pdf 2 October 1985 UK Department of Trade & Industry Minute headed BRITISH AEROSPACE: SAUDI ARABIAN DEAL EXTRACT "All that had so far been agreed was that the aircraft ordered by Saudi Arabia might be paid for entirely in oil, up to an amount of $4 billion. The details now had to be worked out. Mr Knapp's simplistic view was that if the oil price went down, the Saudi Arabians would have to pump up more to pay for the aircraft. British Aerospace would have to play a role with BP as an agent having an interest in the deal. BAe had already been involved by the Ministry of Defence in the discussions on the oil deal." http://www.shellnews.net/rayfoxwebsite/al-yamamahDTIminute2Oct1985.pdf MoD Letter 21 October 1985 Letter to UK HM Treasury headed "SALE OF TORNADO, HAWK AND PC-9 TO SAUDI ARABIA". EXTRACT "Nor have the Saudis told us yet exactly how the deal is to be financed; the only word on that so far is that the Saudi authorities have told us that it will be paid for entirely in oil. We hope in concert with BP, Shell, BAe and the Department of Energy to thrash this out with the Saudi Petroleum Ministry, Petromin, very shortly. We await a summons to Riyadh." http://www.shellnews.net/rayfoxwebsite/al-yamamah-modletteroct1985.pdf 22 November 1985 From 10 Downing Street (From Charles Powell on behalf of Prime Minister Margaret Thatcher) to MoD plus MoD Response. EXTRACT FROM MoD RESPONSE 4 DECEMBER 1985 "Our oil negotiators (from Shell and BP) are ready to resume discussions with the Saudi Ministry of Petroleum as soon as the Saudi Government (which effectively means the King and Prince Sultan) have decided on the way ahead. Prince Sultan told Mr Chandler that he hoped to be able to make an initial cash payment in addition to arrangements for a long-term oil lifting arrangement in our favour."27 January 1986 http://www.shellnews.net/rayfoxwebsite/downingstreetletter22nov1985.pdf MoD letter to Export Credits Guarantee Department (ECGD) headed "SAUDI ARABIA - MILITARY AIRCRAFT FOR OIL" CONTENT OF LETTER FROM C H HENN, UK MoD Assistant Under Secretary of State Defence Export Services Administration. "On returning from Saudi Arabia this morning I have seen a copy of your letter of 24 January to Adams. I ought to put it on record that an agreement was signed yesterday in Riyadh by Yamani and by Shell and BP representatives providing for the lifting of 300,000 barrels//day for an initial period of 3 years. It will then continue year by year unless either party terminates. The 300,000 includes lifting East of Suez. The funds generated will be dedicated to the military aircraft project and Shell/BP stated their intention to carry on lifting so long as the aircraft project requires. There are of necessity review and escape clauses but all concerned are well aware of the need for stable funding and Shell/BP would in practice only terminate in extremis. I should stress that the existence as well as the terms of this agreement is a matter of some political as well as commercial sensitivity. I should be glad to expand on the above." http://www.shellnews.net/rayfoxwebsite/al-yamamahMOD-27jan86.pdf 11 February 1986 Department of Trade & Industry Minute EXTRACTS "The essence of the agreement is that Shell/BP will lift 300,000 bpd (+ or -10%) over three years, recoverable if payment for Tornado not by then completed (calculations were made on a price of $20pb which seems optimistic)." "The Saudis have emphasised that they wish these arrangement to remain confidential; in particular there should be no mention of barter. Neither HMG nor BAe would take title to the oil." http://www.shellnews.net/rayfoxwebsite/al-yamamah-dti-minute-11feb1986.pdf ECGD 10 March 1986 Export Credits Guarantee Department letter from P Henley to R E Adams at HM Treasury EXTRACTS "Subsequently Shell and BP entered into 3 year contracts to lift 300,000 barrels per day on a net-back pricing basis and there are provisions for extending the period as necessary." "However, towards the end, the Saudis made it clear that they expected all payments to be made from oil lift arrangements and for this purpose Shell and BP entered into contracts with the Saudis to lift 300,000 barrels per day on a net-back pricing basis." http://www.shellnews.net/rayfoxwebsite/Al-Yamamah-ECGDMarch1986.pdf 18 March 1986 Export Credits Guarantee Department Minute by P Henley headed "£5BN DEFENCE DEAL WITH SAUDI ARABIA" EXTRACT "Subsequently Shell and BP entered into 3 year contracts to lift 300,000 barrels per day on a net-back pricing basis and there are provisions for extending the period as necessary." http://www.shellnews.net/rayfoxwebsite/Al-Yamamah-ECGD18March1986.pdf 25 March 1986 Department of Trade and Industry letter from Minister Paul Channon to Rt Hon Nigel Lawson MP, Chancellor of the Exchequer (copied to the Prime Minister) EXTRACT "However, towards the end, the Saudis made it clear that they expected all payments to be made from oil lift arrangements and for this purpose Shell and BP entered into contracts with the Saudis to lift 300,000 barrels per day on a net-back pricing basis." http://www.shellnews.net/rayfoxwebsite/al-yamamah-dti-lawson-25march1986.pdf 2 May 1986 Letter from Peter Walker MP, Secretary of State for Energy, to Rt Hon George Younger MP, Secretary of State, Ministry of Defence EXTRACT You will remember that, at the time the MOU was signed last September, I expressed great concern about the impact of the deal on the oil market. I am still concerned to avoid adding to disruption and instability in the oil market. Given the importance that Saudi production levels have assumed, I have doubts about the wisdom of agreeing to any increase in liftings under the oil side of the aircraft deal. Nor would I want pressure to be put on Shell and BP to accept such an increase against their better judgement. http://www.shellnews.net/rayfoxwebsite/DoE-letter-to-Mod2May1986pdf.pdf 30 July 1986 Letter from MoD Head of Defence Export Services, Colin M Chandler, to HRH Prince Sultan bin Adul Aziz Al Saud, under the heading "PROJECT Al YAMAMAH" EXTRACTS "Currently we have approached the British oil companies who have indicated their agreement to increase liftings, subject to terms from 300,000 to approximately barrels a day until the end of March 1987, and as we have agreed today, it is our mutual aim to maintain this level throughout the life of the project. They have also indicated that they will endeavour, given market conditions prevailing, to take larger quantities." "(b) Implementation of Increased Oil Liftings As we agreed today it is necessary for Your Royal Highness to notify the Ministry of Petroleum so that the necessary negotiations can be commenced with the British oil companies Shell and BP as soon as possible." http://www.shellnews.net/rayfoxwebsite/MoDLetertoSaudi30July1986.pdf 29 August 1986 Letter from P Henley of ECGD to HM Treasury under the heading "SAUDI ARABIA: DEFENCE DEAL (Tornados) (now called the YAMAMAH PROJECT) EXTRACT "ECGD will also have no liability for any default by Shell/BP under the oil net-back arrangements or for the collapse of such arrangements." http://www.shellnews.net/rayfoxwebsite/ecgd-letter-29aug1986.pdf 11 September 1986 Department of Trade and Industry letter from Minister Paul Channon to Rt Hon Nigel Lawson MP, Chancellor of the Exchequer (copied to the Prime Minister) EXTRACT "In the event of a collapse of the oil arrangements between Shell/BP and Aramco ECGD would only assume liability if within a reasonable period thereafter (say 3 months) the Saudi have failed to institute another method of payment." http://www.shellnews.net/rayfoxwebsite/dti-11Sept1986.pdf 23 October 1986 Letter from P Henley of ECGD to HM Treasury under the heading "SAUDI ARABIA - YAMAMAH PROJECT") EXTRACT 4. We have already told BIS that we are not prepared to entertain cover against any autonomous default by Shell/BP (or by any subsequent oil-lifters) in honouring the oil-lift agreements or in remitting the proceeds as instructed by the Saudis. In so far as Shell/BP entered into the Oil Agreement at the request of MODUK and BAe, Shell/BP can be said to be acting for the benefit of the latter and, in our view, any cover requirement by BIS in this particular respect should be addressed to them. http://www.shellnews.net/rayfoxwebsite/ECGD%20letter%20to%20HM%20Treasury%2023%20Oct%201986.pdf 25 November 1986 Letter from Department of Energy Permanent Under-Secretary of State, Peter Gregson, to Sir Clive Whitmore, MoD. EXTRACT 3. It is of course not at all clear how the Saudi intend to achieve a price of $18 pb without cutting production. But if they are to make any progress towards a fixed price, they will have to dismantle all their current netback contracts, including those with Shell and BP. The current oil agreement gives Shell and BP some protection against this because it entitles them to a netback deal so long as any other company has one. http://www.shellnews.net/rayfoxwebsite/DoE%20Letter%20to%20MoD%2025%20Nov%201986.pdf 9 December 1986 Letter from G T W Jones of HM Treasury to Peter Henley of ECGD under the heading "SAUDI ARABIA: YAMAMAH PROJECT" EXTRACT "4. You attached to your letter a copy of a Department of Energy letter of 25 November, which we had not previously seen. The Department of Energy is concerned that the Saudis might seek to renegotiate the netback contracts with Shell and BP in the context of the Yamamah project. As you know, the Saudis are reported to be in support of reducing output in order to increase the price of oil. This issue is included on the agenda for this week's OPEC conference." http://www.shellnews.net/rayfoxwebsite/HM%20Treasury%20Lretter%20to%20ECGD%209%20Dec%201986.pdf 18 December 1986 Letter from Peter Henley ECGD to T J D Downing at Bank of England under the heading "SAUDI ARABIA; YAMAMAH PROJECT" EXTRACT "First concerning delivery of oil. The Oil Agreement provides for oil to be delivered to Shell/BP fob at an Arabian Gulf VLCC port or fob YANBU, making use of the oil pipe-line, or by means of a Saudi vessel to a Shell/BP facility outside Saudi Arabia." "If Shell/BP cannot send its ships into the Gulf because of war or a blockade and if oil cannot be delivered at any other port because of pipeline capacity constraints and if KSA were not able to ship the oil to a Shell/BP facility and then failed to pay by other means, ECGD would be liable. You also raised the question of the difference in meaning between "delivery" and "offer for delivery". Whilst it is our intention to cover failure by the Saudis to offer oil for delivery and not failure by Shell/BP to take delivery (other than by reason of the force majeure events described above), we have a practical and legal problem in defining "offer for delivery". We are overcoming this difficulty by talking only about "delivery" (as defined above) but specifically excluding events that we are not prepared to cover (eg default by Shell/BP)." http://www.shellnews.net/rayfoxwebsite/ECGD%20Letter%20to%20BoE%2018%20Dec%201986.pdf 6 January 1986 EXTRACT "E. SULTAN ACCEPTED THE NEED FOR A LETTER LINKING THE OIL DEAL TO THE AIRCRAFT PROJECT. WE WILL TABLE A DRAFT ON 6 JANUARY SUBSTANTIALLY IN THE FORM AGREED WITH SHELL AND BP AND WHICH HAS BEEN SEEN BY THE SAUDI MINISTRY OF PETROLEUM.' http://www.shellnews.net/rayfoxwebsite/al-yamamah-telegram6jan86.pdf |
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Articles covering Shell (and BP) involvement in Al-Yamamah corruption scandal Extract from MEED Middle East Economic Digest article published 17 May 2002 under the headline: Al-Yamamah weathers the changes. (BAE). (Al-Yamamah project remains at the heart of the UK trade drive in Saudi Arabia)
Extract from The Daily Telegraph published 19 August 2006 under the headline: “BAE lands arms deal for a new generation”
Extract from The Times article published on 21 February 2007 under the headline: “Al-Yamamah an echo of 1980s sleaze”
Extract from The Guardian article published on 7 June 2007 under the headline: The al-Yamamah deal “Al-Yamamah is Britain's biggest ever arms deal.
http://www.guardian.co.uk/world/2007/jun/07/bae15 Extract from Financial Times article published 8 June 2007 under the headline: “Barter fund used to pay commissions to middlemen”
Executive Intelligence Review: Scandal of the Century Rocks British Crown and the City: June 22, 2007 EXTRACTS Is it possible to place a cash value on the oil deliveries to BAE Systems? According to sources familiar with the inner workings of al-Yamamah, much of the Saudi oil was sold on the international spot market at market value, through British Petroleum and Royal Dutch Shell. EIR economist John Hoefle has done an in-depth charting of the financial features of the oil transactions, based on BP's own daily tracking of world oil prices on the open market. Using BP's average annual cost of a barrel of Saudi crude oil, Hoefle concluded that the total value of the oil sales, based on the value of the dollar at the time of delivery, was $125 billion. In current U.S. dollar terms, that total soars to $160 billion (see accompanying charts). BAE Systems, a crown jewel in the City of London financial/industrial structure, secured somewhere in the range of $80 billion in net profit from the arrangement—in league with BP and Royal Dutch Shell! Where did that money go, and what kinds of activities were financed with it? The answer to those questions, sources emphasize, holds the key to the power of Anglo-Dutch finance in the world today. The Saudis have forged a crucial partnership with the Anglo-Dutch financial oligarchy, headquartered in the City of London, and protected by the British Crown. They have, in league with BAE Systems, Royal Dutch Shell, British Petroleum, and other City giants, established a private, offshore, hidden financial concentration that would have made the British East India Company managers of an earlier heyday of the British Empire, drool with envy. Extract from Financial Times article published 2 July 2007 under the headline: Al-Yamamah deal: the Saudi foreign policy connection
Extracts from The Times article published 11 April 2008 headlined: Margaret Thatcher ‘ordered bugging of prince’
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