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Evening Standard, London, Chris Blackhurst column

Chris Blackhurst
Apr 14, 2008 (Evening Standard - McClatchy-Tribune Information Services via COMTEX) --

So much nonsense is being written about the halting of the Serious Fraud Office investigation into the BAE Systems deal with Saudi Arabia, that I want to scream. Whenever I see references to Prince Bandar bin Sultan and how he allegedly received a kickback -- and what a terrible thing that is -- I feel an urge to shout: I don't care!

It does not bother me in the slightest whether an already fabulously wealthy Arab had his fortune added to. That's how business is done in some quarters in the Middle East and if anyone believes otherwise, they are naive. If they imagine the French, for instance, don't get up to the same tricks or that the Americans, who love to profess their piety, don't find a less overt way of greasing the palms of purchasers on defence and industrial orders they need their heads examined.

The whole point of getting to the bottom of who got what on the GBP43 billion al-Yamamah contract is not to see who was bunged in Saudi but who had their pockets lined in the UK. Even allowing for its size, al-Yamamah was no ordinary armaments contract. Agreed in stages, the first in 1985, it represented an extraordinary coup for BAE and the UK government. It looked as though the French, a much closer trading partner of the Saudis, would land the deal. But BAE, assisted by the full might of Downing Street, won through.

What was extraordinary, as I remember well, was the degree to which the Thatcher and then the Major administrations bent over backwards to accommodate BAE and the Saudis. An inordinate amount of Whitehall time, effort and taxpayers' money, was devoted to securing the project. The government pulled out all the stops. It was also intimately involved in the structuring of the project, for the order wasn't one of straight cash payment but of oil for arms.

In exchange for the Tornado aircraft and other pieces of military hardware, the Saudis supplied oil to Shell and BP. The oil companies paid for the oil via an account at the Bank of England which was then used to pay BAE. There was nothing wrong with that but allegations surfaced that BAE and the Saudis had used middlemen who rewarded some of those in Whitehall and close to the Thatcher government for their efforts.

That was why pressure was put upon the National Audit Office to investigate. And it did, resulting in a memorandum to the then chairman of the Commons public accounts committee, Robert Sheldon MP, that was never published.

I remember going to see Sheldon in his room in Parliament and begging to see the NAO note. He wouldn't release it, he said, because he was fearful that BAE jobs, some of which were close to his constituency in the North-West of England, would be jeopardised. There was no mention of Prince Bandar, or any members of the Saudi ruling family, come to that. Sheldon knew what I was after.

When claims were subsequently made that BAE had a GBP60 million slush fund, used to furnish Saudi royals with prostitutes, demands were raised again for an inquiry. This time, the Serious Fraud Office moved in but they were then ordered to down tools.

The reason given by Tony Blair was that national security was at stake. Both countries had become bound together in the struggle against Al Qaeda and there was a danger the Saudis would cease to co-operate. There was another, unspoken, justification; the Saudis were about to place another massive contract, for Typhoon aircraft, and Britain didn't want to lose out.

That may be so but it's impossible to see how naming those in this country who benefited should provoke the Saudis to cease co-operating in the war on terror or should upset a new defence deal.

The real issue is being clouded, possibly deliberately. It's the people here who are of interest, not the ones over there.

HAS TESCO LOST THE MEDIA PLOT? Something isn't quite right at Tesco. That may seem odd, considering it's our most successful retailer by far.

Just at the point when the supermarket giant needs all the help it can get in the media after what appears to have been a hesitant start at best in the US and while it faces continued calls for its growth to be curbed in the UK and elsewhere, it decides to crack heads. Tesco is suing critics in Thailand who had the temerity to question its aggressive expansion and is pursuing The Guardian over a story about its tax affairs.

For a company that likes to keep its head firmly below the parapet, this is strange. Has Tesco not heard of discovery for instance? My sources tell me that far from contemplating settling, The Guardian cannot wait to get its hands on all manner of internal company documents.

Secondly, the chain has had to bid farewell to Carolyn McCall, the Guardian Media Group chief executive who also sat on its board. The new hardline seems to be emanating from Lucy Neville-Rolfe, Tesco's PR supremo and a fellow director of McCall's.

Was the Tesco board aware that legal action was being instituted, a course that was bound to result in the resignation of a valued non-executive director? There are ways of dealing with these things, ways that don't provoke stories appearing everywhere about McCall's going and don't harden resolve at The Guardian. A right to reply, an interview in another title explaining the tax position, a widely distributed denial, firm and quiet words with newspapers and others to avoid repetition; all these were open to Tesco. Instead, it's gone for the jugular, ensured the story runs and runs and created a major distraction.

By doing so, it's played directly to The Guardian's readership who see it as the devil incarnate. Big companies rarely emerge from such fights triumphant; witness the McLibel case. All Tesco can hope for is a pyrrhic victory.

Tesco specialises in getting on with its business quietly and supremely efficiently. It normally keeps the press at arm's length, certainly where sensitive matters are concerned. Presumably, Tesco knows what it's doing but I suspect it will come to regret the decision, if it hasn't already.

WHY BROWN MUST TREAD LIGHTLY WITH THE BANKS: One of the reasons that the international financial community has got such a downer on the UK at the moment is, ironically, our reliance on that same international financial community.

It reckons that in the event of a financial services downturn, the whole economy would suffer and has marked down the pound accordingly. It's right. I've been looking at some numbers at Companies House for just two of the new leading City players, the sort that have driven us to become the world's leading financial centre.

In the past year, at Canary Wharf, Lehman Brothers Europe saw its staff climb from 676 to 871.The bank's wage bill went from GBP254 million to GBP308 million and it paid GBP200 million in corporation tax. Over in Fleet Street, at the bigger Goldman Sachs International, staff rose from 4879 to 5489, wages were GBP2.55 billion and the corporation tax take was almost GBP400 million.

These are two banks that employ most of their people here in London. Most of their pay, it can be assumed, is going into the local economy. Meanwhile, their employers are making huge direct contributions in tax.

Don't forget, these are only two. Similar figures to these are replicated across the Square Mile and Docklands. While they prove the market isn't stupid, that the UK is dependent on banking, far more so than other countries, they surely highlight something else: this Government messes with banks at its peril.

Upset them with too much red tape and punitive tax changes and we could suffer terribly. While it sticks in his craw, Gordon Brown really should start talking to the City -- and listening.

OUTFLANKED BY LLOYD'S BUT STILL IN BATTLE MODE: A while back, I wrote about the struggle between Rick Tropp, an American Name at Lloyd's, and those who run the insurance market.

Lloyd's sued him in 2002, claiming he owned them money. He counterclaimed, saying he was the victim of market insiders dealing for themselves.

The English court barred his action, saying the Lloyd's Act of 1982 gave Lloyd's immunity from suits filed by its members. Last year, he sued Lloyd's in New York, to try to block the enforcement of a UK judgment against him. He's now lost that case, on the grounds he signed up to Lloyd's by-laws (present and future) and Lloyd's maintained to the US judge that he had other remedies under UK law. (Bizarrely, the day before this assertion was made to the New York court, in a separate matter in the UK, Lloyd's was telling an English judge that all Names are precluded from bringing fraud claims.)

Tropp, 59, is a redoubtable character, who has spent his career working for the US government. He knows his way round legislation and how it gets formulated. He's gone to the six people who brought the Lloyd's Act to the statute book to see what they think. Four of them are dead or couldn't be found. But MP Michael Meacher said they didn't intend the organisation should have such blanket protection and Lord Mackay of Clashfern said he and his colleagues always imagined a Name could seek judicial review.

So on Tropp goes. He intends to appeal. He quotes the commander of the 101st Airborne at the Battle of the Bulge when the Nazis warned his division was cut off: "They've got us surrounded, the poor bastards."

CHINA MAKES SURE IT GETS THE CREAM: While much attention has been focused on rising fuel prices, food is also causing increased alarm.

Riots have been breaking out in the poorer nations -- last week it was the turn of Haiti -- as people go hungry. According to the United Nations, the cost of food has risen 65 percent since 2002. Last year alone, grain was up 42 percent and dairy products, 80 percent.

So it can't be any coincidence that China, the nation with the most mouths to feed, has gone and signed a ground-breaking free-trade pact with New Zealand, a country that churns out far more food than it needs.

Of course, the deal covers Chinese-made goods and New Zealand wool. But dairy produce is the driver.

China's booming middle class has got an insatiable taste for anything made from milk. They see it as healthy. The effect has been a surge in prices which is pushing food inflation. What do the Chinese do? Remove all tariffs on New Zealand dairy produce.

You have to hand it to them -- the Chinese don't mess around.

To see more of the Evening Standard, or to subscribe to the newspaper, go to Copyright (c) 2008, Evening Standard, London
Distributed by McClatchy-Tribune Information Services. For reprints, email, call 800-374-7985 or 847-635-6550, send a fax to
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Copyright (C) 2008 Evening Standard, London
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