Tanzania’s air traffic control system

Introduction

Of the many cases of alleged bribery that BAE Systems, the United Kingdom’s leading defense firm, was accused of over the last decades, only one survived political interference and finally made its way to a UK court. In 2001, the company had signed a contract with Tanzania to supply two ‘Watchman’ radar systems to monitor the country’s airspace for a cost of GBP 28 million. The deal was controversial even before its finalization, with the World Bank and International Civil Aviation Organization warning that the Watchman, primarily a military radar, was over-priced and ill-suited for use as a civil air traffic control system. The British cabinet split publically over whether to grant an export license for the radar system, but the sale was ultimately approved with the support of Prime Minister Tony Blair. Investigations revealed that BAE had payed USD 12 million to an agent, almost certainly to be distributed in bribes to Tanzanian officials, to secure the deal.

Key Facts

Buyer country: Tanzania

Selling Countries and Companies: BAE Systems (United Kingdom)

Year of Procurement Decisions: 2001

The Equipment Sold: 2 Watchman Radar Systems

Initial Price: GBP 28 million

Sum involved in corruption allegations: USD 12 million

Dramatis Personae

Sailesh (or Shailesh) Pragji Vithlani – an agent working first for Siemens Plessey, the manufacturer of the Watchman, and later its new owner, BAE Systems. Suspected of paying bribes to Tanzanian officials, later charged in Tanzania with perjury. Fled the country.

Tanil Kumar Chandulal Somaiya – an agent and business partner of Vithlani. Had power of attorney over company used to transmit bribes.

Andrew John Chenge – Attorney General of Tanzania (1993-2005) at the time of the arms deal, subsequently Minister of Infrastructure (2006-2008). Signed off on the terms of the loan which financed the purchase. Suspected bribe taker; resigned in 2008 from position as minister of infrastructure.

Idriss (or Idrissa) Rashidi – Governor of the Bank of Tanzania (1993-1998). Signed off on the terms of the financing loan. Suspected as a bribe taker.

The arms deal

Tanzania recognized that it needed modern air traffic control radar since at least 1990, when coverage failed over the capital Dar es Salaam. In 1992, it launched a search for a new supplier and selected Siemens Plessey Systems the following year. Bankers Trust offered to hold the entirety of the country’s gold reserves as security over a ten-year period while Tanzania paid off the radar system using future cash generated through gold exports; negotiations foundered, however, over the objections of the Tanzanian Central Bank. While a conditional contract worth USD 88 million was signed in September 1997, it never entered into force.

Around the same time, Siemens Plessey was bought by BAE Systems and renamed British Aerospace Defence Systems Ltd. In 1999, Tanzania and BAE Systems finalized a deal for the sale of two Watchman radar units, commonly used for both military and civil air defense purposes, at the price of GBP 28 million, with the help of a commercial loan from Barclays Bank. This loan was offered at rates lower than normal for commercial debt, but far above those typical of a financial assistance package for developing countries. Tanzania claimed at the time that increased air usage taxes would net the country several million dollars in additional revenue each year.

Corruption allegations

To secure the deal, BAE Systems paid USD 12 million to their agent Sailesh Vithlani through their off-shore trading company Red Diamond, which is registered in the British Virgin Islands and associated with several other allegedly corrupt BAE exports. The money paid to Vithlani is likely to have been distributed in bribes to Tanzanian officials. In particular, Andrew Chenge, Attorney General at the time of the deal, who signed off on the terms of the associated loan, was suspected by the UK Serious Fraud Office (SFO) of receiving bribes.

In November 2001, Tanzania was granted USD 3 billion in debt relief by international donors. The World Bank and IMF, as a condition of debt relief, required Tanzania to allow the two institutions to review the acquisition of the air traffic control system. In December 2001, the World Bank—relying on advice from the International Civil Aviation Organization—was reportedly pressuring Tanzania to cancel the deal and to purchase a cheaper civil air traffic control system—lacking the military functions of the Watchman—for as little as USD 10 million. The European Investment Bank was also prepared to offer a cheaper loan for a civilian alternative. Nonetheless, after the British cabinet approved the export license for the Watchman units, Tanzania opted to continue with the original program.

Investigations and outcomes

The air traffic control deal was controversial from its very beginnings, and as early as 2001 the UK secretary for international development, Clare Short, had suggested that the project was corrupt. The UK’s Serious Fraud Office (SFO) began investigating a set of BAE’s sales in 2004, and confirmed that it was looking into the Tanzanian radar deal specifically in 2006. In early 2007, a journalist claimed to have extracted a candid confession from Sailesh Vithlani, BAE System’s alleged agent, of acting as an intermediary for the payment of USD 12 million in bribes for the radar deal.

According to a request for mutual legal assistance sent to Tanzanian authorities in 2008, the SFO suspected that Vithalni had received 30% of the value of the radar deal from BAE through companies registered in tax havens. The two Tanzanian officials named by the SFO in its investigation as likely bribe-takers were Andrew Chenge, the attorney general, and Idriss Rashidi, formerly the governor of the Bank of Tanzania. Chenge was a key decision-maker in the negotiations because his signature was required to meet Barclays Bank’s demand that disputes arising from the commercial loan be adjudicated under English law. He allegedly received USD 1.5 million for his support. After the request for assistance was leaked, Chenge stepped down from his new role as minister of infrastructure in 2008.

In fact, the Prevention and Combating of Corruption Bureau (PCCB) of Tanzania was already pursuing its own case against Vithlani and at least one other figure as early as 2007, according to U.S. diplomatic cables released by the Wikileaks website. Political pressure, however, appears to have suppressed the investigation.

The SFO took BAE Systems to court, and settled for a plea bargain with the defendant. The company admitted in 2010 to an accounting wrongdoing stemming from its misleading description of the payments to Vithlani as “technical services.” The SFO did not attempt to establish that Vithlani had paid the money onward as bribes, or that any of the monies were otherwise improperly used. In the course of the trial, the presiding judge stated that it was “naïve in the extreme” to believe that BAE Systems had not committed bribery and was “astonished” that the SFO had not been able to present evidence to support a charge.

BAE Systems agreed to pay a token fine of GBP 500,000, and to make an ex-gratia payment of GBP 29.5 million to the Tanzanian people. In exchange the SFO pledged to drop all of its investigations into the company’s past potential wrongdoings in this and other cases. The Campaign Against the Arms Trade and The Cornerhouse unsuccessfully brought a legal case alleging that the SFO should have charged BAE Systems with corruption. Initially, the vague wording of the settlement allowed BAE to pay this donation in any way they saw fit, but following objections in Parliament, the donated funds were placed under the management of the Department for International Development (DfID). The money was eventually paid out in 2012 to fund education programs in Tanzania.

The Tanzanian investigation has not yet led to the prosecution of any bribe-takers, and Andrew Chenge continued serving in parliament. In January 2016, he was elected as the legislature’s chairman. Vithlani faces charges of perjury in Tanzania, and was at one point—but no longer—listed as a wanted man by Interpol. In July 2016, Tanzania’s Civil Aviation Authority announced that it was looking to purchase a new radar system for the airport at Dar es Salaam and was likely to spend between TZS 12 and 16 billion (USD 5 to 7 million) on the acquisition.

Sources

“World Bank could bar £28m Tanzania air traffic deal”, David Hencke, The Guardian, 21 December 2001, https://www.theguardian.com/world/2001/dec/21/politics.tanzania

“Tanzania: Short ‘Lobbying Against Dar’”, Paul Redfern, AllAfrica.com, 20 May 2002, http://allafrica.com/stories/200205200230.html

“World Bank critical of Tanzania air traffic plan”, Creamer Media’s Engineering News,17 June 2002, http://www.engineeringnews.co.za/print-version/world-bank-critical-of-tanzania-air-traffic-plan-2002-06-17

“The arms deal, the agent and the Swiss bank account “, David Leigh, The Guardian, 15 January 2007, https://www.theguardian.com/world/2007/jan/15/bae.freedomofinformation

Serious Fraud Office letter of request for assistance to Tanzania Attorney General, 21 March 2008, http://www.thecornerhouse.org.uk/sites/thecornerhouse.org.uk/files/sfo-tanzania-request_0.pdf

“Radar deal’s top 10”, The Zimbabwean, 9 February 2009, http://thezimbabwean.co/2009/02/radar-deals-top-10/

“BAE: the Tanzanian connection”, Andrew Hosken, BBC News, 1 October 2009, http://news.bbc.co.uk/today/hi/today/newsid_8284000/8284510.stm

“The radar scandal is back”, Africa Confidential, vol. 52 no. 15, 22 July 2011, http://www.africa-confidential.com/article/id/4106/The_radar_scandal_is_back

“Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers”, Gerard Ryle, Will Fitzgibbon, Mar Cabra, Rigoberto Carvajal, Marina Walker Guevara, Martha M. Hamilton and Tom Stites, International Consortium of Investigative Journalists, 8 February 2015, https://www.icij.org/project/swiss-leaks/banking-giant-hsbc-sheltered-murky-cash-linked-dictators-and-arms-dealers

“BAE pleads guilty to minor accounting offence in Tanzania radar scandal”, The Cornerhouse press release, 23 November 2010, http://www.thecornerhouse.org.uk/resource/bae-pleads-guilty-minor-accounting-offence-tanzania-radar-scandal

Ernst & Young Fraud Investigation And Dispute Service, “UK bribery digest special edition”, February 2016, http://www.ey.com/Publication/vwLUAssets/EY-UK-Bribery-Digest-special-edition-February-2016/$FILE/EY-UK-Bribery-Digest-special-edition-February-2016.pdf

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