Al Yamamah: documents published for the first time

"One of the biggest contracts ever placed" (Mrs Thatcher)

Summary

The Al Yamamah deal between the UK and Saudi Arabia was sealed in the mid-1980s. It is the UK’s biggest ever arms deal, and has been surrounded by corruption allegations since its inception. In 2003 a Serious Fraud Office inquiry into Al Yamamah began following allegations that a £60m slush fund had been used to bribe Saudi generals in recent years. The investigation was curtailed in December 2006 as a result of government intervention.

The UK Government has been obsessive about maintaining the secrecy surrounding Al Yamamah since the mid-1980s. CAAT is therefore delighted to publish new documents which shed light on the negotiation and financing of the Al Yamamah deal with Saudi Arabia in the 1980s. The Al Yamamah deal is the subject of the only National Audit Office (NAO) report ever kept from Parliament.

These documents were mistakenly sent by the Department of Trade and Industry (DTI) to the UK's National Archives in May 2006. The files deal with the negotiations around Al Yamamah 1. The two Al Yamamah deals have been worth around £43 billion over the last 20 years.

When the mistake was discovered in October, the Ministry of Defence (MoD) immediately sent a van to The National Archives in Kew to recover the files and return them to Whitehall. We obtained copies of the files before they were recovered. They reveal how, when the arms deal was at risk of defaulting, Margaret Thatcher's government secretly propped up the failing arms-for-oil deal with nearly £1.5bn of public money (equivalent to £2.8 billion in 2005/6 prices) in loan guarantees, despite fierce criticism from Ministers at the Treasury and Department of Energy, and Bank of England officials. The files reveal the government's reckless use of public money.

As Group Marketing Director at British Aerospace (now BAE Systems), Colin Chandler (now Chairman of Easyjet plc) was likely to have been involved in brokering the deal for the company. In May 1985 he was seconded into government as head of the MoD's arms sales unit, DESO (the Defence Export Services Organisation). The files show how Sir Colin was involved in sealing the deal - and the government's massive financial support for it - from within the MoD.

In September 1985 the Ministry of Defence agreed with the Saudis to start production of Tornado aircraft and the training of Saudi aircrews, without agreeing how the project would be paid for. The upshot of this was that when the Saudis told the MoD they could not afford the planes at the end of 1985, the Export Credits Guarantee Department (ECGD) was forced by the MoD and Mrs Thatcher into making a series of increasingly risky loan guarantees to ensure the deal survived.

These papers show how one of Britain's now leading businessmen was involved in a deal where Margaret Thatcher's government secretly risked over one billion pounds of public money on behalf of British Aerospace. The files also show that Sir Jeremy Greenstock, then Counsellor (Economic) at the Embassy in Riyadh, lobbied against the downgrading of Saudi Arabia's Government credit rating to ensure the deal was sealed. His telegrams acknowledged that the Saudi Ministry of Defence and Aviation was a bad payer and that Saudi Arabia's financial position was dramatically weakening.

This extraordinary risk taken with public money to save the arms deal was never disclosed to Parliament, because, along with the secrets about the accounting arrangements for the deal, it was suppressed in the still secret 1992 NAO report.

These documents are only a fraction of those the Government holds on this topic and the wider issue of the Al Yamamah deals. As such the following is an initial attempt to set out the history of this part of the deal, rather than a definitive account.

The documents are available here, set out in five sections:

Background - Saudi Arabia’s deteriorating financial health
The Memorandum of Understanding is signed (26 September 1985)
The overdraft request (early 1986)
The Saudis refuse to borrow (spring 1986)
The financing of Al Yamamah is finally agreed (late 1986)

[March 2007]