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Tuesday, October 26, 2010

Sunday, October 24, 2010

Al Yamamah Deal ( between BEA and Saud Arabia)

ABSTRACT:The article discusses the definition of state corporate crime particularly bribery, its origin, and the devastating effect on the global economy. Al Yamama was an arms deal done by BAE and Saud Arabia that lasted 22-years.The article analyzes this type of white-collar crime using the Rational Choice Theory and Bounded Rationality to explain the causes and effects of the bribery, and uses Saud Arabia and its Al Yamama deal as a case study. International ant-bribery regulations are key to preventing these crimes, and is further imperative to be able identify and prosecute organizations involve in this crime and to put them to justice

State Corporate crime is defined by Kramer, Michalowski and Fridriches (1990) as any act of crime or harm caused by the state or big corporations to the public, or particular group of individuals with their products and benefiting from the act (product) that is causing the harm. Bribery is one type of state corporate crimes that has served as a tool for doing business for many centuries. Bribery is the offer or acceptance of anything of value in exchange for influence on a government/public official or employee. Often big corporations in cooperation with state official’s makes decisions for producing, selling or creating materials or ideologies that are highly destructive for the general public. Corporations spend more than a trillion dollars each year paying officials around the world (Friedrichs,2009). Bribery is done between the government officials in one side and the corporations on the other. Bribes can take the form of gifts or payments of money in exchange for favorable treatment, such as awards of government contracts. In most situations, both the person offering the bribe and the person accepting can be charged with bribery (Friedriches, 2009)
In England, bribery has been against the law since the declaration of Magna Carta in 1215(Joshi, 2009). The UK has tried to reduce bribery and corruption practices with their laws since the early 13th century. A few of the most important laws were the Public Body Corrupt Practice Act in 1889 and the Prevention of Corrupt Acts of 1906 and 1916. However, none of these statutes specifically refers to the bribery of foreign officials. In 2001, the UK enacted its Anti Terrorism Act, which amended the previous acts of 1889 and 1906 and was an initiative for preventing bribery for the purpose of terrorism acts (Hawlay, 2003).
In the United States, The Foreign Corrupt Act was passed by congress in 1977. This act made it illegal for an American corporation to bribe a foreign government official with any material goods or gifts for maintaining business contacts. The act requires companies to keep record of all businesses transactions even if the company does not trade internationally, to make sure that the Act is not being violated. However, the act has its loopholes, which many companies take advantage. One of these loopholes is that, the act permits “grease payments”, which are small payments given to a particular individual, without being charged with bribery. The act applied only in the U.S., and was a disfavor for U.S. companies in the global market. Bribing a foreign official was legal for many countries and now the U.S. companies could not compete in the global market because companies from other countries would bribe officials and set a monopoly for the particular product in the given country. In 1998, the U.S. revealed the International Anti-bribery Act, which was signed by the U.S. and 32 other countries including the U.K.
Until 1998, bribery was legal outside of the U.S..It was a legal way of doing business with other countries, by including it in taxes. Therefore, bribery was legal and taxable. The corporations were allowed to bribe officials oversees as long as they paid taxes in the total amount of the bribery. The Act of 1998 was applauded globally and seemed to be a great opportunity to stop the old practice of doing business by big corporations.
A sensational story launched in 2007 by the British Broadcasting Corporation revealed that British armed manufacturing (a.k.a. BAE System), had paid over $ 2 billion in bribes to Saudi Arabia’s ambassador Prince Bandar bin-Sultan in Washington over a period of 22 years. The deal, which started in 1985 between BAE and Saud Arabia, included over $80 billion in fighter jets and support services for the Saudi Kingdom. The notorious BAE-Saudi deal involved such elite politicians as Margaret Thatcher, John Major, and Tony Blair who all have been implicated in the BAE-Saudi Scandal.
In 1985, the kingdom of Saud Arabia felt frightened by the ongoing war between its neighbors Iran and Iraq. By that time it had reached a highly destructive phase known as “war of the cities”. To protect themselves, they sought to purchase a large number of advanced jet fighters to build up a strong Royal Air Force. The Saudi Royal family approached the Regan’s Administration to make a deal to purchase F-15 fighters. This deal required congress’ approval and the American Israeli Public Affairs Committee (AIPAC) put a massive effort to stop the sale and finally succeeded. While the US required congress’ approval for the purchase of F-15, British arms sale did not required parliamentary approval. Therefore, this was a great opportunity for the Saudis to purchase arms from the U.K.
BAE is the world’s third largest arms producer, whose biggest costumer is the U.S. Pentagon. Created in 1981 when Prime Minister Thatcher privatized the British arms manufacturing industry, BAE now dominates the British defense sector (Simson, 2006). After the British government found out that the Saudis were trying to make a deal with French companies to buy Mirage fighters, the British minister of defense of that time Mr. Heseltine urgently visited Saud Arabia to meet with King Fahd. After intensive meetings that were held in Riyadh with Prince Bandar the son of Prince Sultan, the Saudi royalty agreed to buy 48 Tornado IDS and 30 Hawk jets. Prince Bandar bin Sultan at age 16 was sent a Royal Air Force Collage in England to be prepared to serve later as a RAF pilot. There were many speculations that he was recruited as a secret agent from the MI6, the British intelligence service. In any event, Prince Bandar bin Sultan had extraordinary access and relationships from Thatcher to Jon Mayer to Tony Blair (Simpson, 2006).
The British BAE-Saudi deal was known as an Al Yamama deal which means the dove in arabic. Its negotiations started long before the deal was signed. Right after the deal was signed, the British started delivering the Tornado Jets. After the first delivery, the deal expanded from 45 Tornado jets to 72 and 30 Hawks together with training and other equipment services. The deal of the century made the British Prime Minister Thatcher feel very confident in the great aftermath of the British and Saudis business. The deal was supposed to provide thousands of jobs for British citizens, create long term stability in the UK’s economy and a better future for everyone in the UK. Furthermore, there have since been three additional deals, Al Yamama II, III and IV worth a total of $40 billion (Stainberg, 2007).
The first Al Yamama deal was very simple and specific. The fundamental contract implied Saudis paying the U.K. in oil in return for fighter jets. In fact there was another hidden contract where U.K would provide Saudis with up to $60 billion in weaponry while billing the Saudis for $80 billion. The other $20 billion would be paid in cash from BAE to certain officials of the Saudi Royalty as a secret contract deal done by BAE and Bandar bin Sultan. For the favor, that BAE was giving him (Bandar), he promised BAE to keep the deal alive as long as he was in the Royal Family. BAE was being used as part of the larger corruption inside Saudi Royal family. An amount of over $2 billion went straight to the Bandar bin Sultan account in Riggs bank. This is where the story gets interesting.
Saud Arabia in the Al Yamama deal agreed to provide Great Britain with one tank of oil per day for the rest of the life of the deal. One tank holds 600,000 barrels of oil. In Addition, BAE has over 5,000 employees in Saud Arabia maintaining the jets and serving the contract. The oil that was provided by the Al Yamama deal to the Great Britain was sold in international market through British petroleum and Royal Dutch Shell. Over the course of the 22-year deal (since 1985) Great Britain deal accumulated over $120 billion (the today’s currency over $160 billion) from the same deal (Crawford, Browne, 2004).
The Al Yamama scandal exploded in November 2006 after an official document leaked showing the real price of fighter jets. This was nothing less than a confirmation of what had been going on for quite a while. The price of jets had increased for 40% over 22-year period, telling that billions of dollars had been for slush funds. Slush funds are sums of money used to illicit or corrupt political purposes. After the scandal rose, the question was where did all that money go? Few articles talk about the impact that Saudis had in the Cold War, which made Saudis able to purchase weapons from all over the world to fight communism. Enormous amounts of money was spend by Saudis to buy arms from Egypt and other counties to send to Mujahedeen’s in Afghanistan to fight the Soviets(Crawford, Michaels,2008). On the other hand, one of the British agents who was in charge of the deal explains that BAE was paying for all the expenses of Prince Bandar bin Sultan who was also an Saudi ambassador in Washington (Stainberg, 2007).
After the secret came up the Great Britain’ attorney general Lord Goldsmith ordered to investigate Swiss bank accounts of BAE and Saud Arabia (where a big amount of slush funds, around 100 Billions was believed to be kept). Bandar bin Sultan immediately contacted the GB officials threatening them than that if the investigations were not dropped they would not participate in the war on terror and there will be big consequences. Right after this message arrived to the UK royalty, Tony Blair urgently met the attorney general saying that, if you people do not drop the case there would be blood spilled in the streets of UK and the global war on terror will have a big negative impact. Right after this, the attorney general dropped the case (Steinberg, 2009).
For more than a year, the US has been involved in the BAE investigation and in the allegation that Bandar had received billions of dollars in bribes through US –Saudi embassy accounts (Riggs National Bank). According to the terms of the Foreign Corrupt Practice Act (FCPA), the US has jurisdiction to investigate and prosecute any act of bribery that takes place in the US soil (FCPA, 1998). Because of the very close ties of Prince Bandar with President Bush’s family (often called Bandar Bush), officials from the DOJ traveled to London to reach a compromise with the BAE to close the case before Bush left office. The DOJ has stated that there have been a lot of facts provided to the SFO(Serious Fraud Office) in the BAE-Saudi Al Yamama case, from Peter Garner, one of the travel agents of BAE who was authorized to payoff top Saudi Officials. Furthermore, Mr Garner climes that BAE used to buy luxury cars, and private jets, and paid for hotels expenses, and honeymoons all over the world for children of the Royal Family and girlfriends of Bandar bin Sultan totaling more than $2 Billion dollars in bribery(Steinberg,2007).
Another complication of this case is that between April 1998 and May 2002 over $73,000 were paid by the Saudi ambassador in the US to two families in Southern of California. Furthermore, Omar al Bayoumi who was working for the Ministry of defense helped two Saudi men enroll in a flight school in Florida. The two men were later involved in the 9/11 hijackers. They were hijackers of flight 77 who crashed in to the Pentagon. Two months before 9/11 happen, al Bayoum moved to England and few days before 9/11 happened, he disappeared and since then he was never found. When the FBI and agents of New Scotland Yard searched his apartment, they found phone numbers connecting him to the Saudi Embassy in U.S. Prince Bandar and Princess Haifa said that they did not provide any finances to the 9/11 hijackers’, they merely provided charitable assistance to Saudis families in the US. There are few other facts that were reported about the Al Yamama funds passing through accounts of Riggs Bank and helping migration of Muslim Brotherhood to pass into the to United States during the ’80’s and ’90’s. Khalid Sheik Mohamed, the mastermind of 9/11 has admitted that he was part of Muslim Brotherhood since he was 16 year old. The picture gets even more blurred after we take into consideration that the former director of FBI, Louise Freeh is the attorney of Prince Bandar bin Sultan who is trying to clear the name of Al Yamam and Prince Bandar as being involved in 9/11 attack. With the new attorney general, Eric Holder who has started to get rid of the corrupt officials within the Department of Justice, the involvement of Al Yamama in 9/11 is far from being uncovered.
Bribery outside of the criminology is framed as devastating for the countries budget. In the discipline of Economy, bribery is explained as an act that has a bigger impact on third world countries and on countries where the economy is already unregulated. In these particular countries where the legislators are incapable of fighting corruption, officials have lower chances of being caught for accepting bribery and this becomes the governments’ operating tradition (Svensson, 2003). The population who is mostly effected from this kind of crime (bribery) is the public. Individuals who are in the lower class are the ones who feel the high “price” of corruption. Often the consequences of bribery and corruption are: higher taxes, shifting priorities like the case in South Africa where the government instated of purchasing medication to help population infected with HIV, signed an arms deal with BAE, spending billions of dollars in a problem that did not oppose danger because there was no conflict going on. Therefore, millions of lives were lost (Crawford, 2004). On the other hand, government officials like Saudi in our case and corporations like BAE, are the ones who benefit from these types of crime. Additionally by the Al Yamama deal, the global market was affected also as the UK and Saudis were controlling the oil-gas prizes by raising it.
Most of the empirical explanation for bribery and corruption is based on rational choice theory. According to this theory, humans are capable of making rational choices whether or not to be involved in such a crime or deviance. In the Al Yamama deal between BAE and Saudis both victims and offenders( although it is very hard to say who was the victim and who was the offender in this case) made the decision to be involved in this game based on seemingly rational thought processes (Friedrich, 2009). BAE bribed Saudi officials in order to gain higher profits for the company by raising the oil price in the global market, on the other hand Saudis accepted the briberies so they could cover the inside corruption that they were doing within the Royalty family. However, another theorical explanation within rational choice theories is bounded rationality. According to this theory, the rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions (Friedrichs, 2009).
One of the solutions to this problem given by the field of Law is enforcing stronger laws and making sure to operationalise these laws. In addition to this, creating an international tack force that will be tracking briberies around the world would be a type of preventive. On the other hand as suggested from the Economic perspective, banks should be responsible to inform the authorities’ when large amounts of money are floating into accounts and keeping a close eye in the international treading market by knowing how the money is coming to the account and how is being distributed. Also preventing companies to create monopolies in the particular market and requiring more transparency in the global business market and particular in the one done between big corporations and governments.

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Steinberg, J. (2009). Scandal of the century rocks British crown and the city. Executive intellegence Review, 33.
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Browne, T.C. (2004). The Arms deal scandal. Review of African Political Economy,
Kramer, R.C., Michalowski, R.J, & Kauzlarich, D. (2002). The Origins and development
of concept and theory of state corporate crime. CRIME & DELINQUENCY, 48(263).
Frierdichs, D.O. (2009). Trusted criminals. Belmont : Wadsworth Publishing.
Crawford, D., & Michaels, D. (2008). Police look for bribery evidence in case against bae. Wall Street Journal , Oct.
Simpson, W. (2006). The Prince: the secret story of the world's most intriguing royal, prince Bandar bin Sultan. New York.