Hasan Suroor

The scandal centres on allegations that Britain's largest arms supplier, BAE Systems, created a slush fund to win a £43 billion contract with Saudi Arabia in 1985. Mr. Blair is under fire for blocking a probe into the matter.

BRITAIN'S BIGGEST and longest-running arms scandal, involving alleged kickbacks of more than £1 billion, has come back to haunt Tony Blair in the dying days of his prime ministership just when he might have been hoping to avoid any more damaging headlines. Barely two weeks before he leaves office, Mr. Blair finds himself at the centre of a political storm following new revelations in the multi-billion-pound U.K.-Saudi defence deal that has been a subject of controversy ever since it was signed 22 years ago.

The al-Yamamah deal, named after the place where it was agreed, has often been dubbed "Britain's Bofors" by Indian observers but in sheer scale and its political and diplomatic implications this scandal is much bigger. What is more shameful is that it is being defended by a government that is supposed to be spearheading a campaign against corruption in developing countries and never tires of lecturing African and Asian leaders.

The scandal centres on allegations that Britain's largest arms supplier, BAE Systems, created a slush fund to grease palms in the Saudi establishment to win the £43 billion contract in 1985. Until now, the amount of money and to whom it was paid was not known. But last week, The Guardian and the BBC, after separate independent investigations, disclosed both the scale of the bribery and the name of the alleged beneficiary.

They claimed that over a period of ten years more than £1 billion was paid to a prominent Saudi prince for negotiating the deal, regarded as the biggest contract in military history at the time. Payments which, according to the BBC, were "written into the arms deal contract in secret annexes" were made through two American bank accounts; and it was done with the "full knowledge of the ministry of defence."

The beneficiary was identified as Prince Bandar bin Sultan. Prince Bandar, a global high-flyer with close ties to the Bush family, was the Saudi Ambassador in Washington for 20 years. His father was the Saudi Defence Minister when the deal was signed.

The BBC said: "Up to £120m a year was sent by BAE from the UK into two Saudi embassy accounts in Washington. The BBC's Panorama programme has established that these accounts were actually a conduit to Prince Bandar for his role in the 1985 deal to sell more than 100 warplanes to Saudi Arabia."

According to The Guardian, BAE "drew the money from a confidential account held at the Bank of England that had been set up to facilitate the Al-Yamamah deal." The payments, it is alleged, continued to be made even after 2001 when secret commissions in arms deals were banned in Britain.

Prince Bandar has "categorically" denied receiving any improper payments. In a statement, issued through his lawyers, he refuted allegations that payments made through an American bank account represented "improper secret commissions or `backhanders'."

Prince Bandar acknowledged that payments were made "pursuant to the al-Yamamah contracts," but said the money was made into the accounts of the Saudi Ministry of Defence and Aviation (MoDA). He was not the beneficiary of the funds.

"At no stage have MoDA or the Saudi Arabian ministry of finance identified any irregularities in the conduct of the accounts," he said.

BAE insists that it "acted lawfully at all times," and the MoD has stonewalled queries saying that all information relating to the al-Yamamah deal is "confidential."

The Government is under growing pressure to order an independent inquiry but Mr. Blair has flatly rejected the idea on the ground that it would damage British-Saudi relations. Mr. Blair's role in suppressing the truth has been extremely dubious. In a move that shocked and embarrassed even his staunch supporters, he personally intervened last December to scupper a criminal investigation into the affair by the Serious Fraud Office (SFO) claiming that it was not in national interest.

Remember, this is a man who came to power on the back of an anti-sleaze campaign promising to clean up the system. There was lofty talk of an "ethical" foreign policy, whose key component was to be transparency in arms trade. All that has been turned on its head by the way Mr. Blair has handled the BAE scandal.

Thatcher era deal

It is true that the roots of the affair go back to the Tory era when Margaret Thatcher was Prime Minister presiding over a government tainted by sleaze. Which makes it even more intriguing why the Blair Government should be so keen to hold the can for a policy it had nothing to do with. By halting the SFO probe and then so vociferously defending the deal, Mr. Blair has made his government a partner in crime. He has claimed that if he had allowed the investigation to go on, it would have "wrecked" Britain's relations with Saudi Arabia. As he put it, it would have "led to nowhere except to the complete wreckage of a vital interest to our country."

Mr. Blair has not explained why, but the buzz is that the Saudis threatened to stop cooperating in the so-called "war on terror" if the inquiry was allowed to go on. They also reportedly threatened to drop a £20 billion deal to buy 72 Eurofighter Typhoon jets they were negotiating with BAE.

"The deal had been in jeopardy because of Saudi anger at the probe but was said to be back on track after the SFO inquiry was halted by the Government last December," The Daily Telegraph said.

The link between the government's anxiety over the Typhoon deal and its decision to drop the SFO investigation was also highlighted by The Times. It said: "The deal's fluctuating fortunes make a compelling timeline: on December 1 last year Dassault, the French firm, announced it was competing for the Typhoon contract. Two weeks later, Lord Goldsmith, the Attorney-General, declared the SFO investigation over. Three weeks after that, the Saudi Defence Ministry decided in favour of the Typhoon."

Mr. Blair is said to be keen to sign the contract before he leaves Downing Street but there is much speculation that it is likely to be delayed after the latest wave of revelations.

It is obvious that what Mr. Blair sough to portray as "national interest" to justify his decision to call off the probe was simply commercial considerations. The sole purpose was to make sure that the BAE bagged the deal at any cost. Plus, there was the prospect of hundreds of new jobs being created as a result of the contract. No doubt a tempting prospect at a time when British industry is struggling to maintain even the present level of workforce, let alone create new opportunities.

But can any of this justify condoning corruption? As The Guardian argued, what is at stake is nothing short of Britain's international reputation and moral authority. "If the costs of losing the Saudi defence contract are weighed in the balance then the cost of continuing the contract to Britain's international reputation as a law-abiding country should also be considered. Are we really saying that Britain's foremost company can only prosper if it is allowed to get its hands dirty," it asked.

As the controversy continues to rage, critics such as the rights campaigner George Monbiot say that Britain, especially the Blair Government, has lost the authority to "complain about corruption abroad." Mr. Monbiot believes that after what has happened it seems "there is nothing that foreign despots can teach us about corruption." One commentator said that next time Britain "lectures" other countries on corruption all they need to do to "shame" it into silence is to mention three words: "BAE."

Mr. Blair's claim that it is in Britain's "national interest" not to pursue the probe has puzzled observers who argue that, if anything, a serious effort to get at the truth would have enhanced Britain's image in the international community and lent credibility to its global anti-corruption "crusade." Instead, as a former British diplomat, Carne Ross, argued, the episode has "undermined and will continue to undermine British credibility in supporting the rule of law across the board, not just on corruption."

Already, British conduct is being investigated by the Organisation for Economic Cooperation and Development (OECD) whose anti-corruption convention carries Britain's signature. And it would be hugely humiliating for London if it is found to be in breach of its obligations under that convention. Anyway, Mr. Blair will be gone soon leaving Gordon Brown to pick up the pieces. How he handles the BAE affair will be a crucial test of his promise to clean up the system.