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British serious fraud squad probe BAE bribery accusations

The UK's Serious Fraud Office (SFO) is investigating "substantial payments" made by BAE Systems to a senior South African defense ministry official who had influence over a ?1.5 billion contract won by the arms company to supply planes at nearly twice the price of a rival bidder.

On Friday night it emerged that South Africa's organized crime unit, the Scorpions, was handling a "mutual legal assistance" request from the SFO to investigate the financial accounts of Fana Hlongwane, a politically well-connected businessman, in relation to the 1999 deal. Hlongwane is a former special adviser to the then South African defense minister, Joe Modise, who died in 2001.

Modise has been named in allegations of corruption, including claims that he took a ?500,000 bribe from BAE and US$10 million from a German consortium that signed a contract to sell submarines. The SFO is also investigating John Bredenkamp, a tycoon who is BAE's agent in southern Africa and whose UK home and offices were raided in October.

South African sources said yesterday that SFO detectives were expected to travel to Pretoria within weeks.

Details of the investigation emerged soon after the UK government abruptly halted an SFO inquiry into alleged bribes paid by BAE to Saudi royals. British Prime Minister Tony Blair claimed Britain's security would be endangered if the investigation continued, prompting criticism that the Saudi regime had blackmailed the British government and that BAE was above the law.

Later this month, British government officials will have to justify the Saudi decision at a hearing of the Organization for Economic Cooperation and Development, the world's leading anti- bribery watchdog.

Norman Lamb, a British opposition Liberal Democrat frontbencher, said the investigation in South Africa "showed that the SFO still poses a danger to BAE. If BAE think they are in the clear, they could be very wrong. If they were cock-a-hoop over the Saudi decision, they may have partied too soon."

The SFO is also pursuing its investigations into allegations that BAE made corrupt payments to politicians and officials in Tanzania, Chile, the Czech Republic and Romania. Lamb said it was crucial that these other allegations were seen to be investigated properly.

The latest developments center on claims of substantial payments to Hlongwane. According to South African sources, the SFO is investigating whether payments were made while he was an adviser on the arms deal to Modise.

Suspicion was cast on the aircraft deal after Modise changed the formula by which the contract would be decided to discount price as a factor.
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