Civil servants knew of Iraq nuclear sales

Officials aware of deal eight months before action taken
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Senior Whitehall officials knew that Matrix Churchill - the Coventry machine tool company at the centre of the Scott inquiry - was supplying nuclear technology to Iraq, eight months before Customs and Excise moved against the firm, stopping its exports.

US and German intelligence agencies warned their governments that Matrix Churchill was supplying the equipment. Declassified US documents show that the CIA knew in November 1989 that Matrix Churchill was assisting Saddam Hussein's efforts to build a nuclear weapon.

A senior US defence official told the Independent: "We have no real sources in Iraq of our own. We get all our intelligence about Iraq from your guys." The official, who supplied the reports to the Independent, said he thought it inconceivable the US government knew about Matrix Churchill's nuclear exports before the British intelligence services.

The official's remarks cast serious doubt on claims repeatedly made by MI6, the intelligence service, that Paul Henderson, Matrix Churchill's chief, did not tell them about his nuclear activities. They also raise questions about the state of ministers' knowledge, as they await publication of the Scott arms-to-Iraq report on Thursday.

It was the collapse of the prosecution of Mr Henderson and two colleagues for making illegal exports to Iraq in November 1992 that immediately led to the setting up of the Scott inquiry. Ministers signed Public Interest Immunity Certificates which prevented important documents being released to the defence.

Matrix Churchill's Coventry plant was first visited by Customs in June 1990. But a CIA report dated 4 November 1989 warned: "Baghdad has created complex procurement networks of holding companies in western Europe to acquire technology for its chemical, biological, nuclear and ballistic missile development programs ... One such network begins in Baghdad with the Al-Arabi Trading Company which controls the London-based Technology and Development Group (TDG) and ... TMG Engineering."

The CIA brief continues: "In 1987, TMG gained control of Matrix Churchill Ltd, the UK's leading producer of computer-controlled machine tools that can be used in the production of sophisticated armaments."

Government ministers were approving exports by Matrix Churchill to Iraq, despite mounting Western intelligence information that the company was helping Saddam develop a bomb.

On 5 April 1990, a German intelligence report noted: "Since no later than the middle of 1983, Iraq has been trying to acquire the components and technology for uranium enrichment by means of the gas centrifuge process in Great Britain ... Germany, and Holland." The German report is entitled Iraq: Nuclear Activities and lists companies round the world involved in the Iraqi programme, including Matrix Churchill. Mr Henderson has consistently maintained he did not know the parts had a nuclear capability. Yesterday's Financial Times said he "knowingly deceived" the British Government about the trade.

Mr Henderson said the story was "an attempt to create innuendo, it is part of the Government's need to discredit me prior to publication of the Scott report". Kevin Robinson, Mr Henderson's solicitor, said that the sale to Iraq had been fully investigated by Customs and Excise, "who decided no offence was disclosed".

John Major yesterday firmly ruled out giving MPs advance access to the Scott report - despite an admission from Downing Street that the circle of ministers already in possession of it could be widened to prepare the government's response. Mr Major said that the Government was still "in discussion with the inquiry" about whether civil servants criticised in the report would be able to see the report in advance.

Inside Parliament, page 10