Arms Deal: New documents strengthen case for re-opening investigation

Note to editors: The below mentioned documents were released during a press conference in parliament today.

1. Introduction

Mr Hakan Buskhe, the Chief Executive Officer of Saab, last week revealed that BAE Systems had transferred R24 million to a "South African consultant" through a company called Sanip (Pty) Ltd. The money was not recorded in the financial statements and was transferred without the knowledge of Saab.

The "South African consultant" was reportedly Fana Hlongwane, who was an adviser to former Minister of Defence, Mr Joe Modise.

The finding that BAE Systems effectively laundered R24 million in payments to a "South African consultant" through Sanip (Pty) Ltd is very serious and an important new development in the controversy surrounding the arms deal.

2. Documents

The Democratic Alliance (DA) has therefore decided to make available a number of documents which shed more light on the arms deal, particularly the relationship between Sanip (Pty) Ltd and Hlongwane Consulting (Pty) Ltd, which is the focus of the new revelations in Sweden.

The documents include copies of:

• a consultancy agreement between the South African National Industrial Participation(Pty) Ltd [also referred to as Sanip (Pty) Ltd] and Hlongwane Consulting (Pty) Ltd signed on 10 September 2003; 
• a schedule of payments between Sanip (Pty) Ltd and, variously, Hlongwane Consulting (Pty) Ltd, Fana Hlongwane and Ngwane Aerospace (Pty) Ltd;
• an amendment to a 09 September 2003 agreement between BAE Systems (Operations) Limited and Hlongwane Consulting (Pty) Ltd signed on 01 March 2005; and 
• an amendment to a 09 September 2003 agreement between BAE Systems (Operations) Limited and Hlongwane Consulting (Pty) Ltd signed on 23 August 2005. 

The documents relate to the acquisition and offset arrangements in respect of the 26 Gripen fighter jets acquired as a result of the Strategic Defence Package signed on 03 December 1999.

I deal with each of the documents in turn below:

2.1 Document 1: Consultancy agreement between the South African National Industrial Participation (Pty) Ltd and Hlongwane Consulting (Pty) Ltd signed on 10 September 2003

The document is an agreement between South African National Industrial Participation (Pty) Ltd and Hlongwane Consulting (Pty) Ltd, which was signed on 10 September 2003.

In terms of the agreement, Hlongwane Consulting (Pty) Ltd was contracted to provide "consultancy services" which include inter alia:

• "to take all reasonable and necessary steps to ensure that the Company is granted or is able to claim NIP credits from the South African Government as a result of its involvement in any NIP Project; and
• to carry out any other associated tasks relating to the marketing and implementation of NIP projects as may be reasonably required by the Company."

The total value of the contract, over the five-year period commencing on 01 August 2003, would have been R98 million. The fees and bonus payments in the agreement were structured as follows:

• a payment of R8 175 000 on or about 01 August 2003;
• a fee of R1 875 000 every quarter commencing on or about 02 September 2003;
• a bonus of R22 500 000 upon the successful completion of "Milestone 1" ("discharge of at least investments of USD 300 000 000 and exports of USD 2 000 000 000 of NIP by April 2004"); and
• a bonus of R30 000 000 upon the successful completion of "Milestone 3" ("discharge of at least investments of USD 2 000 000 000 and exports of USD 5 200 000 000 of NIP by April 2011").

The agreement between Sanip (Pty) and Hlongwane Consulting (Pty) Ltd however appears to have ended sometime in 2004 and was reportedly transferred to another company called Ngwane Aerospace (Pty) Ltd, of which Fana Hlongwane was the sole director.

2.2 Document 2: Schedule of payments between Sanip (Pty) Ltd and variously Hlongwane Consulting (Pty) Ltd, Fana Hlongwane and Ngwane Aerospace (Pty) Ltd

The document lists payments from Sanip (Pty) Ltd to, variously, Hlongwane Consulting (Pty) Ltd, Fana Hlongwane and Ngwane Aerospace (Pty) Ltd totalling R51,3 million between 30 April 2003 and 05 September 2005.

2.3 Document 3: Amendment to 09 September 2003 agreement between BAE Systems (Operations) Limited and Hlongwane Consulting (Pty) Ltd signed on 01 March 2005

We do not have a copy of the original agreement between BAE Systems (Operations) Limited and Hlongwane Consulting (Pty) Ltd dated 09 September 2009.

However, the amendment to the agreement reveals that a retainer of GBP 250 000 is payable each quarter commencing on 01 April 2005 to a maximum of GBP 1 000 000 for the provision of services which included, inter alia:

• "to assist the Company and facilitate its contact with the Customer and upon request to assist the Company in face-to-face communication with the Customer; and
• to assist the Company in producing a contact map by identifying key Customer personnel and in particular the specific decision-makers with respect to the selection of products and services of the Company referred to in this Agreement, and updating such information".

The Company in this case is BAE Systems (Operations) Limited and the Customer is presumably the South African Government.

2.4 Document 4: Amendment to a 09 September 2003 agreement between BAE Systems (Operations) Limited and Hlongwane Consulting (Pty) Ltd signed on 23 August 2005

We do not have a copy of the original agreement between BAE Systems (Operations) Limited and Hlongwane Consulting (Pty) Ltd dated 09 September 2009.

However, the amendment to the agreement reveals that, in addition to the quarterly fee, a sum of US$ 8 million would be transferred to Hlongwane Consulting (Pty) Ltd for "additional work done" on "Tranche 3" of the Gripen contract.

3. Hard Questions

The documents amount to prima facie evidence of bribery and/or corruption and raise some serious questions, given the fact that:

• we now know, as a result of the finding by Mr Hakan Buskhe, Chief Executive Officer of Saab, that BAE Systems effectively laundered up to R24 million through Sanip (Pty) Ltd to a "South African consultant" who was reportedly Fana Hlongwane;
• the agreements between Sanip (Pty) Ltd and BAE Systems (Operations) Limited and Hlongwane Consulting (Pty) Ltd are, variously, related to claiming NIP credits, facilitating contacts, identifying decision-makers and work related to "Tranche 3" of the Gripen deal; and
• that at the time BAE Systems did make payments of commissions and fees related to defence transactions as evidenced by the 16 May 2011 US$ 79 000 000 settlement between the US Department of State and BAE Systems plc for an alleged 2 591 violations of laws and regulations in the United States, which included payments made in respect of securing the sale of the Gripen aircraft to South Africa. 

These questions include:

Did Hlongwane Consulting (Pty) Ltd actually have the skill, knowledge and expertise in project identification, development, marketing and implementation in respect of the National Industrial Participation Programme?

Is there evidence that services were actually provided by Hlongwane Consulting (Pty) Ltd in return for the enormous fees and bonuses that were payable in terms of the various agreements?

Is there evidence of any "forward payments" by Hlongwane Consulting (Pty) Ltd to individuals or institutions involved in the process of decision-making?

Is there evidence that Hlongwane Consulting (Pty) Ltd complied with all the relevant tax laws and regulations?

We need answers to these questions.

4. Conclusion

The Hawks are in possession of 460 boxes of documents and 4.7 million pages of documents relating to the investigation into BAE Systems.

Surely, there is a high probability that there will be evidence of a possible failure to provide services, of possible forward payments to decision-makers, and a possible failure to comply with tax laws and regulations contained in the large volumes of documents in the possession of the Hawks.

That is why we believe that the investigation into the arms deal should be re-opened by the Hawks.

I will be handing over copies of the documents to the Standing Committee on Public Accounts (Scopa) and the Directorate for Priority Crime Investigation (Hawks).

Statement issued by David Maynier MP, DA Shadow Minister of Defence and Military Veterans, June 23 2011

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