Sleaze Scandal Allegation Hits Defense Industry

Britain's future arms sales to the Gulf states and other countries may be jeopardized by claims of dubious payments and deal-brokers

BRITISH Prime Minister John Major's Conservative government is going into damage-control mode, trying to weather an embarassing weapons kickback scandal, which could cost British armsmakers future foreign sales.

At the heart of the so-called ``sleaze'' scandal are allegations that Mark Thatcher, son of the former Conservative prime minister, earned 12 million ($18.9 million) in commission fees by helping to facilitate a 20 billion deal with Saudi Arabia when his mother, Margaret Thatcher, held office.

The controversy is likely to have an adverse effect on the government, which is trailing badly in opinion polls and is under political attack from the Labour Party opposition. But Labour is only part of the government's concern.

Future arms sales to the Gulf states and such countries as India, Malaysia, and Indonesia could be jeopardized by claims that negotiations often turn on dubious payments to deal-brokers and local officials, a London defense industry source says.

Mark Thatcher is a millionare businessman now living in Texas. He was named in the London Sunday Times on Oct. 9 as one of several middlemen who together earned a 240 million commission for their part in the sales of British-built Tornado fighter-bombers and Hawk trainers to Saudi Arabia in the mid-1980s.

The newspaper said the main source of the allegation, which Lady Thatcher and her son both deny, was Mohammed Khilewi, a former Saudi diplomat who defected last May and was granted asylum in the United States.

British officials and defense contractors are alarmed because the 20 billion Al Yamamah (the Arabic term for dove) contract with Saudi Arabia still has about three years years to run. So far, Britain has received about 13 billion.

British Aerospace, one of the main contractors, is reportedly worried that the Saudis could cancel the deal if bad publicity surrounding it continues to mushroom.

Other arms sales in the Gulf and in South and Southeast Asia could also be affected, a British Aerospace source said, ``if the idea became firmly entrenched that sleaze is commonly part of arms-sales transactions.''

The government has reason to worry that the publicity could sour the Saudi contract and cost British jobs. Earlier this year, Malaysia ordered a ban on all trade with Britain after the Sunday Times alleged that high government officials in Kuala Lumpur had demanded bribes in return for their support for a deal in which aid funds for a large dam at Pergau and British-built aircraft for the Malaysian air force were intertwined.

Four other countries - Oman, Jordan, Indonesia, and Thailand - have all purchased arms from Britain, in similar economic aid agreements that encourage them to purchase British-made weapons.

Paul Rogers, professor of peace studies at Bradford University, in the north of England, says the size of commissions reportedly paid to middlemen in Middle East arms deals does not surprise him. ``Commissions of around 10 percent were not uncommon in the 1980s,'' he says. ``Figures like that mean that the people who facilitate arms sales are looking for major rewards.''

Mr. Rogers notes also that the international arms trade is highly competitive. Britain won the Saudi deal in the face of stiff competition from France.

Government supporters are closing ranks, claiming that the Al Yamamah deal was free of kickbacks. Sir Geoffrey Howe, foreign secretary and chancellor of the exchequer in the Thatcher years, said Oct. 11 he had never been aware of any impropriety on the part of Thatcher's son.

The kickback allegations take place against the backdrop of a two-year-old, ongoing special commission investigation into claims that Thatcher's Conservative government broke its own guidelines on arms trading with Iraq in the run-up to the Gulf war. Items exported included parts for an Iraqi supergun.

Given the existing claims that British arms dealers and officials have cut ethical corners in their quest for lucrative deals, the charge against Mark Thatcher is a source of embarrassment to Mr. Major.

Nobody has alleged that the former prime minister's son has broken the law, but there are Cabinet ethical guidelines forbidding government ministers to pass privileged information to relatives and friends.

The Labour opposition has charged that, before his alleged part in the Saudi deal, Mark Thatcher acted on behalf of a construction company in Oman when his mother visited the country as prime minister. The company got the contract soon after.

Labour has also pressed for the publication of a national audit office report on the Al Yamamah deal written two years ago. The report was suppressed by the House of Commons, citing reasons of national security.

London newspapers have speculated that the report contains details of commissions paid by British companies to middlemen in the Gulf. The Independent concluded that the report had been suppressed because Saudi Arabia might cancel the rest of the Al Yamamah contract.

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