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Saudi sandstorm

• Robert Peston
• 7 Jun 07, 10:48 AM

It is challenging to write with certainty about almost anything to do with the vast Al Yamamah defence contract between Britain and Saudi Arabia

The reason is that the original Al Yamamah deal - signed by Margaret Thatcher as British Prime Minister in 1985 - was covered by a stringent confidentiality agreement.

Which means that when allegations of impropriety or funny business surface, as they do regularly, neither the MOD or BAE systems can confirm or deny them - without breaching the terms of the original agreement.

However, this is what I can say with some confidence.

I've been told over many years by those connected to the deal that all payments made under the contract were both written into the contact and known to both governments.

Or to put it another way, any payments made by BAE – to Prince Bandar or anyone else – were officially sanctioned in the contract and by the British Government.

So if, as Panorama and the Guardian allege, hundreds of millions of pounds were paid by BAE to Prince Bandar of Saudi Arabia in connection with these military sales, then both the British and Saudi government approved the payments.

Now it would be pretty embarrassing for the British Government to admit that. But to reiterate, even if it wanted to make a clean breast, it could not. It would be driving a coach and horses through the confidentiality clause of the Al Yamamah contract and the Saudis, with good reason, would probably feel they could never deal in confidence with the UK again.

Now this is where it all gets very murky.

To state the obvious, Panorama would not have alleged that substantial payments went to Prince Bandar if it didn’t have powerful evidence.

However a source close to Prince Bandar is denying that these payments were made in the manner specified by Panorama, that is to a branch of Riggs Bank in Washington.

That’s one denial. A second denial is that Prince Bandar was the beneficiary of any payments made.

So far, so confusing – which, of course, rather suits the British and Saudi Governments.

However, there is no on-the-record denial, as yet, and no denial that commission payments were made to senior Saudis by BAE.

In fact, BAE has consistently said to me that commission payments were made to Saudis in connection with this deal. All that BAE has ever rejected is any suggestion that the commission payments were illegal.

It is also important to be rigorous in recognising what it meant to pay commissions on the Al Yamamah deal: the Saudis paid billions of pounds to BAE for airplanes and military equipment and BAE then recycled hundreds of millions back to… the Saudis.

Friends of Saudi cannot see what could be wrong with that. Others believe that if such payments were made in such a secretive way, there must be something very fishy.

Finally let us not kid ourselves that there would be nothing at risk if the British Government were suddenly to disclose all the gripping detail of the Al Yamamah contract.

This deal has been worth more than £40bn to BAE and other defence companies - it's been a massive source of valuable British exports.

What's more, BAE was hoping to sign a new phase of this deal next week. That would be worth an estimated £20bn and would be for the sale of Typhoon jets.

The Saudis hate the idea that their washing - dirty or otherwise - is being hung out in public. So BAE is nervous that following the allegations made overnight about the original Al Yamamah deal, the Saudis may have second thoughts about the new deal.

So £20bn of new exports to Saudi could be jeopardised. If you are against the arms trade, you are not going to worry about that. But £20bn is proper money.

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