The Saudi bribes scandal may yet prove a more devastating epilogue to the Blair era than cash for honours. The original deal, reached in 1985 by Margaret Thatcher, doubled the price of a Tornado jet to cover huge commissions to members of the Saudi royal family and their retainers.

It has led the British government to defy international anticorruption treaties and impede the conduct of justice by the Serious Fraud Office (SFO). Last week it emerged that it had also impeded corruption investigators from the Organisation for Economic Cooperation and Development (OECD).

All this was to appease an outlandishly corrupt, authoritarian and brutal dictatorship, embodying everything that Tony Blair claims to detest in his “war of values” and against which his soldiers are dying in Iraq. By his lights Riyadh should be bombed, not sold bombers.

The £43 billion contract for 120 planes and assorted extras was the biggest arms deal in history. Its purpose was obscure, other than to shift vast sums of oil wealth from relieving the condition of the Saudi poor into the pockets of its very rich. The array of costly aerial and naval weaponry mostly depends on foreigners to operate. Unsupported by a plausible land army, it would be of little use against any likely aggressor. It is a massive display of conspicuous consumption.

The contract was reached with the help of Prince Bandar, son of the Saudi defence minister, and the assistance of Wafic Said, a Syrian wheeler-dealer, and went ahead only after Bandar, Saudi ambassador to Washington, realised that the Israeli lobby would not entertain America supplying so big an Arab defence contract. Less crucial, according to a 2005 book by Mark Hollingsworth and Paul Halloran, was an estimated £12m paid to Mark Thatcher on the side.

After years of denial, all sides now acknowledge that commissions were (and still are) being paid and only their status is disputed. A special Bank of England account is used by BAE, the aerospace company, on a double-key basis with the defence ministry, usually through an offshore firm called Red Diamond.

In other words, the government is “complicit”. While SFO documents are said to reveal a morass of payments to Swiss accounts for private jets, villas, gaming clubs and prostitutes, the lion’s share goes to Bandar, roughly £100m a year. This became illegal after Britain’s 2001 counter-terrorism act.

Small “facilities payments” to strictly local agents are allowed under trade department rules, up to 1% of a contract; 5% is regarded as the corruption threshold. Al-Yamamah hovers around 30%. In 1992 the weak-kneed National Audit Office was told by the government to stop asking questions about al-Yamamah bribes and did so. When in 2004 the more independent SFO returned to the stinking trough it was pressured by Blair and BAE three times to desist. It appealed to Lord Goldsmith, the attorney-general, and from January to December last year he supported it in what became its biggest inquiry, costing £2m. In December, when the SFO was closing in on the secret accounts of Bandar and others in Switzerland, the Saudis and BAE went ballistic, despite professing their total innocence.

MI5 and MI6 were asked by Blair to declare the investigation damaging to British security. This they declined to do, leaking only that it might be if the Saudis refused security cooperation. There has been no evidence of such Saudi blackmail, which would be much against Riyadh’s interest. Yet such clear conditionality was omitted from Goldsmith’s statement on security to the House of Lords on December 14, as it has been from all subsequent statements by Blair. The blackmail is stated as a fact.

By December 14 the pressure on Robert Wardle, head of the SFO, was so intense that, although quoted as “wanting to continue”, he called a halt, forced implausibly to say it was his own decision.

Goldsmith’s stated reason was that the evidence of bribery was now so weak that the case would soon collapse. The truth was that the evidence was so strong. Had it been weak, any shrewd politician would have let it collapse rather than incur the odium of interfering with the judicial process. As Blair and his home secretaries always say when introducing more draconian antiterrorism laws, “The innocent have nothing to fear.” Why did he not apply that principle to Bandar and BAE? The answer is obvious.

The decision to halt the SFO inquiry in December devastated Britain’s reputation as a champion of global anticorruption. Article 5 of the OECD convention, ratified by Britain in 1998, states categorically that prosecuting corruption “shall not be influenced by considerations of national economic interest, the potential effect upon relations with another state or the identity of [those] involved”. Whitehall rules also require firms using intermediaries to name them and the commissions paid.

While a provision of the al-Yamamah contract was that its terms be kept secret, there is nothing in the OECD convention excusing past contracts, let alone the £20 billion extension for 72 more planes now pending.

Blair not only signed the OECD convention but also trumpeted Britain’s desire to fight corruption wherever it occurred. Yet he personally intervened in 2001 to save the notorious £28m Tanzanian military radar contract after being told in cabinet by his aid minister and the chancellor that it was a racket, wildly beyond that country’s needs. It turned out that £6m of the contract was a British bribe paid direct into the Swiss bank account of a certain Sailesh Vithlani, who has confirmed it. Despite their opposition, Clare Short and Hilary Benn, the aid ministers, did not resign and Benn was rewarded by Blair with the post of “cabinet anticorruption co-ordinator”. An SFO inquiry into the deal is said to be merely ongoing. In view of all this, Britain’s presence in Jordan last year at a United Nations convention against corruption was like Robert Mugabe turning up at a good governance seminar.

The macho line taken by defence secretaries and others sworn to the al-Yamamah oath of secrecy has been to plead national security and then soup it up with claims that thousands of jobs depend on it and that if Britain did not bribe, others would. That Britain’s security should depend on bribing the Bandars of this world, rather than calling their bluff, is humiliating. As for intelligence, Britain’s needs are concentrated notably in Iran and Pakistan, while Riyadh’s needs are internal. Britain, with a large expatriate Saudi population, has as much intelligence to offer as to lose.

The idea that the Saudis would conceal information on a London bomb because London had stopped bribing Bandar is either ludicrous or confirmation that Saudi Arabia should be no friend of Britain.

As for job losses, they have never been a legitimate reason either for breaching the OECD convention or for condoning crime. Britain’s cocaine business is worth thousands of jobs, but is not permitted on that basis. A 2001 York University study of our subsidised defence industries pointed out that in total they comprise just 2.6% of British exports and 0.4% of employment, while consuming large numbers of skilled workers desperately needed elsewhere. Even so, it is doubtful if the Saudis would switch the new £20 billion contract to France. They value their favoured-state relation with Britain, especially with America cooling towards Riyadh.

The best bet for both sides now would be to come clean, stop the corruption and slash the price of the planes. BAE, with large commercial interests in America, must be at risk from the ferocious Justice Department, or from rivals dragging it before Congress or private litigation. Under its 1977 anticorruption law, the federal government has embarked on 50 such prosecutions. Under the OECD convention, France has managed eight. Britain has prosecuted nobody. The reason is that the attorney-general and the SFO are agents of a political executive, not the judiciary.

If the legal position of the British government as complicit in the bribery is untenable, its moral position is laughable. It has inflated the price of an export to win a contract by corruption. It has been forced to use the dictator’s defence, that resulting embarrassment should be shrouded by “national security”. And it must tell African and Asian regimes that its much-trumpeted stance against corruption is meant to apply only to the poor and the weak. Such hypocrisy in Britain’s name is outrageous.

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