The South African Arms Deal

Introduction

How did post-apartheid South Africa succumb to one of the most infamous and long-lasting corruption scandals in recent memory? The allegations, that leading politicians manipulated the procurement process for an arms deal worth USD 5 billion at the time in return for bribes of as much as USD 300 million from the seller companies, have dogged President Jacob Zuma since the early 2000s and led to investigations in five jurisdictions. Yet most of the decision-makers involved in the Strategic Arms Procurement Package episode have escaped justice, and the most promising revelations uncovered by investigators have never been fully developed into prosecutions. After only two convictions, the arms deal has left a legacy of impunity in one of Africa’s most promising young democracies.

Key Facts

Buyer country: South Africa

Selling countries and companies:

  • United Kingdom (BAE Systems)
  • Sweden (Saab)
  • France (Thomson-CSF)
  • Germany (Thyssen-Krupp, Blohm+Voss, Howaldtswerke-Deutsche Werft, Ferrostaal)
  • Italy (Agusta)

Year of Procurement Decision: 1999

The equipment sold:

  • 4 MEKO A200 patrol corvettes
  • 3 Type 209 Submarines
  • 27 Gripens (Dual-Seat)
  • 24 BAE Hawk 100 Trainers
  • 30 Agusta A109 light utility helicopters

Initial price: South African Rand (ZAR) 29.99 billion (in 1999) or USD (1999) 5 billion

Total sum involved in corruption allegations: USD 300 million

Dramatis Personae

Jacob Zuma – deputy president of South Africa (1999-2005) at the time the deal was negotiated; currently president (2009 – present). Allegedly took bribes to facilitate the deal.

Joe Modise – South African Minister of Defense (1994-1999, died 2001).

Shabir Shaik – Zuma’s personal aide. Convicted of soliciting bribes.

Tony Yengeni – ANC parliamentarian leader. Convicted of fraud, stemming from bribe-taking.

Fana Hlongwane – defense consultant and advisor to former defense minister Joe Modise. Allegedly received bribes to help facilitate the deal.

The arms deals

While some components of the Strategic Arms Procurement Package were first discussed in modernization programs dating back to the last days of apartheid, the requirements approved in 1998 by parliament derived from the results of an all-services defense review launched in 1995. In this process, the navy made it known that it wanted to re-establish South Africa’s role as a regional maritime power through the acquisition of new surface combatants as well as an upgrade to aging French submarines. The air force entered the review needing replacements for both a cheap advanced trainer and a new medium fighter.

The review concluded that the primary function of the South African National Defence Force (SANDF) would be to protect the sovereignty and territorial integrity of the post-apartheid nation. This rather conventional goal, was therefore used to justify a conventional acquisitions policy. The defense review prescribed a recapitalization of a blue water navy, new fighter trainer and multi-role combat aircraft, and new helicopters for the air force and navy. Nonetheless, the review was not an unconditional endorsement of this list; it also concluded that the recapitalization should be balanced against the more pressing need to address security threats posed by poverty, crime, unemployment, and the legacy of apartheid. Critically, parliamentary approval of the defense review was not to amount to approval of the recommended force design. The South African government ultimately ignored that requirement and treated parliamentary approval of the review as sign-off on the arms package.

The European consortia which won the resulting tenders, collectively known as the Strategic Arms Procurement Package, came to South Africa during a period of thin demand, market consolidation, and chronic oversupply. In this environment, corruption was evidently a price worth paying to secure a foothold in the new market, and even some of the losing bidders, such as Daimler Benz Aerospace, were later found to have provided bribes.

Corruption allegations

The alleged corruption associated with the package was meant to give each bidder an advantage in the requirements-setting and tender processes. BAE’s offerings for the fighter trainer aircraft tender, the Hawk and Saab Gripen, were originally eliminated in March 1997 on cost grounds, but became viable after a controversial revision of requirements later that summer. In particular, then-defence minister Joe Modise (who died in 2001) unilaterally decided to remove cost as a consideration for the package of fighter and trainer aircraft, which was ultimately awarded to BAE Systems and Saab for the Gripen fighter aircraft (Saab/BAE) and the Hawk trainer (BAE). The bribes were allegedly offered in cash, in gifts, and in preferential selection of industrial partners.

Investigations and outcomes

Questions of wrongdoing emerged in September 1999, shortly after the deals were signed earlier that year, when parliamentarian Patricia de Lille produced a dossier of allegations. The Auditor-General, Shauket Fakie, found the next year that proper procurement practices had not been followed correctly and recommended an investigation. Resulting prosecutions led to the conviction of Tony Yengeni, an African National Congress (ANC) MP and chair of the joint standing committee on defence during the deal’s negotiation, of fraud, and that of Shabir Shaik, deputy-president Jacob Zuma’s financial aide, for soliciting a bribe for Zuma.

Zuma himself, however, avoided a conviction; in 2006 and 2008, charges against him were first set aside and then withdrawn by the prosecutor. At first, it appeared he would pay a political price for his alleged involvement, having being dismissed as deputy president by Thabo Mbeki in 2005. But in 2007, he won over the ANC and secured a comeback, becoming the new president himself in 2009. In 2011, a new commission of inquiry headed by Justice Willie Seriti was established, but concluded in a report published April 2016 that no new charges should be brought. That report was criticized by opposition parties and watchdog NGOs for having barely conducted any real investigation.

Meanwhile, both the United Kingdom and the United States opened general inquiries into BAE’s use of bribery in securing contracts. The British investigation determined that BAE had paid roughly GBP 115 million in bribes to secure the deal, and had acted through numerous middlemen such as Richard Charter, a consultant, and John Bredenkamp, a Zimbabwean rugby player and later suspected arms dealer. The British investigation was terminated in 2010 after BAE acknowledged a “serious accounting offence” and settled with the Serious Fraud Office for GBP 30 million. The United States settled with BAE in the same year, demanding USD 400 million for violations of laws that barred bribes paid to secure deals in Saudi Arabia, the Czech Republic, Hungary, and other countries.

An investigation in Germany was active at least from 2006 to 2010, and focused on possibilities of wrongdoing at MAN Ferrostaal and ThyssenKrupp. Leaked correspondence between investigators suggested that ThyssenKrupp had paid ZAR 6 million to Yengeni to secure the frigate deal. An independent audit of MAN Ferrostaal from 2011, acquired by German journalists, suggested that the company paid ZAR 300 million in total bribes to secure the submarine contract. The audit named two middlemen, Tony Georgiades and Tony Ellingford, each of whom claimed access to senior ANC officials and were paid fees of EUR 16.5 million. These considerations have not been taken up by a court.

In 2010, investigative journalists in South Africa revealed that the chief of the SANDF at the time of the deal, Siphiwe Nyanda, had received a loan from Hlongwane in 2005 to buy a house. The loan had been written off in 2009 when Nyanda became minister of communications. Hlongwane had given Nyanda a job in the interim years as head of the former’s group of companies, Ngwane Defence.

Finally, in June 2011, Saab publicly announced that BAE, its marketing partner for the Gripen combat aircraft, had used a Saab subsidiary without its knowledge to pay out bribes, including ZAR 24 million between 2003 and 2005.

Only two convictions, those of Tony Yengeni and Shabir Shaik, have been made in relation to the Strategic Arms Procurement Package, yet allegations continue to taint Zuma, his former boss Thabo Mbeki, and various other agents and participants. The Seriti Commission ultimately recommended that no new charges should be brought, although the commission’s credibility has been questioned given the resignation of two of its original members.

The U.S. and UK investigations led to corporate settlements without establishment of personal responsibility. The German investigation ultimately cleared ThyssenKrupp, although a parallel probe unrelated to South Africa led to the conviction of two executives for fraud.

Sources

Andrew Feinstein, The Shadow World, Farrar, Straus, and Giroux, 2011, Chapter 9.

“BAE and the arms trade”, James Myburgh, The Money Expo, 14 August 2007, https://www.moneyweb.co.za/archive/bae-and-the-arms-deal/

“A South African MP’s campaign against government corruption has sparked a global police inquiry that touches some of the world’s most powerful men. One of them is Tony Blair”, The Herald Scotland, 19 January 2007, http://www.heraldscotland.com/news/12768281.A_South_African_MP_apos_s_campaign_against_government_corruption_has_sparked_a_global_police_inquiry_that_touches_some_of_the_world_apos_s_most_powerful_men__One_of_them_is_Tony_Blair/

“ANC official released from prison”, BBC News, 15 January 2007, http://news.bbc.co.uk/2/hi/africa/6262485.stm

“S Africa’s controversial arms deal”, BBC News, 20 December 2007, http://news.bbc.co.uk/2/hi/africa/7153473.stm

“BAE Systems: timeline of bribery allegations”, Daily Telegraph, 21 December 2010, http://www.telegraph.co.uk/finance/newsbysector/industry/defence/8216172/BAE-Systems-timeline-of-bribery-allegations.html

“BAE Settles corruption charges”, Christopher Drew & Nicola Clark, New York Times, 5 February 2010, http://www.nytimes.com/2010/02/06/business/global/06bribe.html

“Revealed: Yengeni’s R6-million ‘kickback’ agreement”, Stefaans Brümmer, Mail & Guardian, 14 June 2013, https://mg.co.za/article/2013-06-14-00-revealed-yengenis-r6-million-kickback-agreement

“Germans paid SA R300m for submarines, says report”, Mail & Guardian, 5 August 2011, https://mg.co.za/article/2011-08-05-germans-paid-sa-r300m-for-submarines-says-report

“The house the arms deal bought”, Stefaans Brümmer & Sam Sole, Mail & Guardian,3 December 2010, https://mg.co.za/article/2010-12-03-the-house-arms-deal-bought

“Saab admits R24-million bribe paid to clinch arms deal”, Mail & Guardian, 16 June 2011, https://mg.co.za/article/2011-06-16-saab-admits-r24million-bribe-paid-to-clinch-arms-deal

“Thyssen Krupp gets all clear”, News 24, 18 June 2008, http://www.news24.com/SouthAfrica/News/ThyssenKrupp-gets-all-clear-20080618

One Comment

Leave a Reply

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