December 20, 2010 11:10 pm

Murky history of Tanzania deal laid bare

It was a deal that “stank”, according to Clare Short, former international development secretary: the sale by Britain’s BAE Systems of a high-tech $40m military radar system to Tanzania, a country whose air force barely functions.

More than a decade on, some of the murky history of the 1999 sale has been laid bare, in a British court case that features a mysterious middleman, more than $10m of secret payments through tax havens – and a judge who smells bribery.

The case is also a rare insight into the business practices of BAE, which is due to be sentenced today after doing a deal with the Serious Fraud Office to admit a minor accounting offence in exchange for the prosecutor dropping its epic corruption investigation of the company.

The prosecution is the climax to an investigation of BAE that at one stage spanned arms deals involving Saudi Arabian princes, General Pinochet of Chile and South Africa’s post-apartheid government.

The SFO’s case, whittled down by time, evidential difficulties and political pressure, has now become an agreed plea by BAE that it breached the 1985 Companies Act.

BAE admits failing to account accurately between 1999 and 2005 for $12.4m of payments it made to Shailesh Vithlani, a businessman based in Dar-es-Salaam who acted as the company’s agent on the Tanzania deal.

Only about 3 per cent of the money was routed directly to Mr Vithlani in Tanzania, with the remainder being sent via Red Diamond Trading, a secretive British Virgin Islands company set up by BAE. It was passed from there to Envers, a business controlled by the agent in the tax haven of Panama.

BAE’s contract with Mr Vithlani was signed off by both Sir Richard Evans, then the company’s chairman, and Mike Turner, who later became chief executive, according to a statement agreed by the SFO and BAE. Neither man has been charged with any crime.

According to the SFO and BAE, the company’s only offence was to misrepresent the payments to Mr Vithlani as being for “technical services”, when in fact he was acting as a lobbyist on the deal. The prosecutor said it was not possible to establish what the agent did with the money, adding that it was not alleging he used it improperly.

“To lobby is one thing, to corrupt another,” said Victor Temple QC, for the SFO.

But that version of events fell short of satisfying the trial judge, Mr Justice Bean. In a series of barbed interventions, he homed in on the question of whether the payments to Mr Vithlani were used for bribery.

After the SFO said the $12.4m – almost a third of the radar contract price – was simply for lobbying and other promotional activities, the judge asked: “What is Mr Vithlani’s daily rate?”

When the prosecutor said confidentiality was a common protection for agents in the arms industry, Mr Justice Bean retorted: “To protect advisers from what – prosecution?”

The judge said that he interpreted the SFO-BAE account of the deal as meaning part of the $12.4m given to Mr Vithlani “would be used to make corrupt payments to decision-makers in Tanzania”.

He added that it seemed the agent “was to have free rein to make such payments to such people as he saw fit in order to secure the radar contract – but that British Aerospace didn’t want to know the details”.

BAE insisted it did not have any evidence of such corruption. It added that it had tightened up on its use of advisers and its ethical conduct, on the recommendation of a 2008 review of its business practices.

Mr Justice Bean will reveal today whether he is impressed by those arguments.

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