Gripen combat aircraft sales to the Czech Republic and Hungary

Introduction

Shortly after joining NATO in 1999, both the Czech Republic and Hungary started procurement processes to acquire new major combat aircraft to replace ageing Russian planes. In each case, the Gripen, produced jointly by Saab (Sweden) and BAE (UK), was selected over rival contenders, including the US F-16, believed to have been the favourite in each case.[1] Subsequent allegations of corruption centered around a network of agents employed by BAE Systems to bribe politicians in Central Europe to sway decisions in favour of the Gripen, in particular in the Czech Republic and Hungary.

Key facts

Buyer countries: Czech Republic, Hungary

Seller countries and companies: BAE Systems (UK), Saab (Sweden)

Year of procurement decisions: 2002/2004 (Czech Republic), 2001 (Hungary)

Equipment sold:

  • Czech Republic:14 JAS-Gripen combat aircraft on a 10-year lease. (The original order in 2002 to buy 24 Gripens outright was cancelled)
  • Hungary: 14 JAS 39-C Gripens, on a 10-year lease (2006-16), extended to 2026 in 2012.

Value of deal: Czech Republic: USD 750 million (original cancelled order was USD 1.9 billion) Hungary: USD 924m

Sum involved in corruption allegations: EUR 12.6 million

Dramatis Personae

 Count Alfons Mensdorff-Pouilly: Austrian businessman, BAE agent for Gripen sales in Central Europe.

Otto Jelinek: Former state finance minister in Canada, then a Prague businessman, BAE agent.

Richard Hava: head of Czech state arms firm Omnipol in 2003, BAE agent.

Victor Orban: Hungarian Prime Minister (1998-2002, 2010 – ).

Michael Zantovsky: Czech Senator for Civic Alliance Party, who alleged in 2002 that he had been offered SEK 10 million for his party in return for his vote for the Gripen.

Milos Zeman: Czech Prime Minister (1998-2002).

The arms deal

The Czech Republic started looking to buy new fighter aircraft in 1999, upon joining NATO, and issued a tender in 2000. Hungary likewise initiated a competition in 2000 to replace its Soviet Mig-29 fighters.[2] The JAS 39 Gripen, made by Saab in what was at the time a joint venture with BAE Systems, Gripen International, was one of the competitors.

The Czech Republic selected the Gripen in 2001, and the Czech Government approved an order for 24 planes for USD 1.8 billion in 2002. However, the deal was cancelled later that year as the government needed the money for reconstruction after the massive floods. Negotiations continued for a smaller purchase of possibly second hand or leased planes, and in the end the Czech Republic signed a USD 750m deal in 2004 for 14 Gripens leased for 10 years.

Meanwhile in Hungary, it had appeared that the American F-16, favoured by the military, was likely to win, but a last-minute change of mind in 2002 by Prime Minister Victor Orban resulted in selection of the Gripen instead.

Corruption allegations

The selection of the Gripen by both countries may have been influenced by commissions paid to Czech and Hungarian politicians and officials of at least EUR 12.6 million, via a network of BAE agents in Central Europe, in particular Austrian Count Alfons Mensdorff-Pouilly. Evidence of this reached the public domain via investigations by the Swedish and Austrian media, namely the SVT (Swedish Television) programme Uppdrag Granskning (mission investigation) and the Austrian magazine Profil. These media outlets revealed more than GBP 4 million of secret commission were paid in relation to the deal, through a variety of agents and shell companies in several countries. A subsequent Uppdrag Granskning report found evidence in documents obtained from police investigations, that the commissions were for bribes to members of the Czech and Hungarian political establishment. This included lists of recipients from Count Mensdorff-Pouilly’s notes, including lines such as:

“Hungary: 5 recipients, 126 million kronor; Czech Republic: 20 recipients, 735 million kronor”.

Some corruption allegations emerged already in 2002, when a Czech Senator reported to the police that he had been offered 10 million Swedish crowns (about USD 1m) to his party in return for his vote in favour of the deal. A police investigation was dropped after a few months, however, for lack of evidence. The US authorities also alleged corruption in relation to both the Czech and Hungarian deals, leading to US companies Boeing and Lockheed withdrawing from the Czech competition, saying that the tendering conditions made it impossible for them to compete with the Europeans.

Investigations and outcomes

The UK Serious Fraud Office (SFO) began an investigation in 2004 as part of a wider probe into BAE’s dealings following a series of reports from whistleblowers.

Subsequent media revelations led to investigations in Sweden and the Czech Republic, as well as in Austria where Mensdorff-Pouilly was also involved as an agent in multiple arms deals. In total, investigations were pursued in 8 countries, including the US, due to the complex financial networks through which payments were made. However, Hungarian prosecutors have never investigated the affair, although there was a Parliamentary investigation in 2007, the results of which were kept secret. The investigation apparently encountered problems in that all of the original documentation relating to the procurement process had disappeared.

The UK SFO charged Count Mensdorff-Pouilly in 2009 with conspiracy to corrupt, specifically, that he:

“conspired with others to give or agree to give corrupt payments to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely Saab/Gripen fighter jets, by BAe Systems plc.”

However, the charges were subsequently dropped in February 2010 in connection with plea-deals by BAE Systems in both the US and the UK in relation to a range of corruption charges. BAE admitted to lesser charges of false accounting, paid a fine of USD 400 million in the USA and BGP 500,000 (USD 625,000) in the UK, and agreed to make an ex gratia payment of GBP 29.5 million (USD 39.4 million) towards development purposes in Tanzania. The SFO claimed that as the US settlement included the Central European cases, prosecuting Mensdorff-Pouilly would represent double jeopardy.

Mensdorff-Pouilly was later charged in an Austrian court with money laundering, in connection EUR 12.6 million of bribes allegedly paid to influence the Gripen purchase in Hungary and Czech Republic, but was acquitted in 2013. He was convicted on a lesser charge of falsifying evidence. The judge emphasized that this was not a clean bill of health, and that “the whole thing stinks”. One problem for the prosecutors was proving who received bribes.[3]

The Swedish prosecution authorities are continuing to investigate the Gripen deals with the Czech Republic, Hungary and South Africa, and have stated openly that the deals were corrupt. As of yet, there has not been sufficient evidence to convict anyone in relation to the Czech (or Hungarian) deals.

Sources

“Czech politicians under suspicion of corruption involving Gripen deal”, Ditu Asiedu, Czech Radio, 21 Feb. 2007, http://www.radio.cz/en/section/curraffrs/czech-politicians-under-suspicion-of-corruption-involving-gripen-deal

“Count named in BAE corruption inquiry”, David Leigh & Rob Evans, The Guardian, 21 Feb. 2007, https://www.theguardian.com/business/2007/feb/21/arms.uknews

“BAE files: Czech Republic”. David Leigh & Rob Evans, The Guardian, https://www.theguardian.com/world/2007/jun/07/bae23

“The Austrian Count and the Gripen sales to Hungary”, Eva Balogh, Hungarian Spectrum, 4 March 2009, http://hungarianspectrum.org/2009/03/04/the-austrian-count-and-the-gripen-sales-to-hungary/

“Ex-BAE middleman charged with bribery”, David Leigh & Rob Evans, The Guardian, 29 Jan. 2009, https://www.theguardian.com/world/2010/jan/29/bae-mensdorff-pouilly-bribery

“Payload: taking aim at corporate bribery”, Nelson D. Schwarz & Lowell Bergman, New York Times, 25 Nov. 2007, http://www.nytimes.com/2007/11/25/business/25bae.html

“BAE … Inside the SFO”, Mike Koehler, FCPA Blog, 30 April 2010, http://fcpaprofessor.com/bae-inside-the-sfo

“Bribery in Hungary: a close encounter of the third

Kind”, Adam Foldes, Transparency International blog, 21 Sep. 2012, http://blog.transparency.org/2012/09/21/bribery-in-hungary-a-close-encounter-of-the-third-kind/

“The Gripen affair redux”, Eva Balogh, Hungarian Spectrum, 26 Sep. 2012, http://hungarianspectrum.org/2012/09/26/the-gripen-affair-redux/

“Austrian count cleared of arms deal money laundering”, Reuters, 17 Jan. 2013, http://uk.reuters.com/article/uk-austria-count-trial-idUKBRE90G0J920130117

“Saab avfärdar mutanklagelser” [Saab dismisses bribe accusations], Magnus Johansson, Swedish Television Uppdrag Granskning, 13 March 2013, http://www.svt.se/ug/saab-avfardar-mutanklagelserna

[1] Shadow World, p218

[2] Information from SIPRi Arms Transfers Database

[3] In the absence of a proof that funds handled by Mensdorff-Pouilly were the proceeds of bribery (as a result of the dropping of charges against him by the SFO), a charge of money laundering could not be sustained. For a more detailed description of a subsequent Higher Regional Court of Appeals verdict, upholing the acquittal, (in German) see https://www.news.at/a/mensdorff-pouilly-geldwaesche-freispruch

Leave a Reply

Your email address will not be published. Required fields are marked *