Scott misled over licence for arms to Iraq

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Lord Justice Scott was misled by Whitehall during an investigation into allegations that Royal Ordnance exported arms-related equipment and material to Iran and Iraq.

Michael Portillo, Secretary of State for Defence, has disclosed that that the company was uniquely exempt from normal legal requirements after the Government sold it off to British Aerospace in 1987.

The revelation follows an eight-month trawl of more than 1,000 Royal Ordnance export licence applications. According to Mr Portillo, the company did not provide "supporting documentation" when submitting applications for export licences.

But February's Scott report into the export of defence-related equipment to Iraq said that after Royal Ordnance had been incorporated in August 1984 - in preparation for privatisation, with Michael Heseltine, then Secretary of State for Defence, as sole shareholder - it "became subject to the ordinary export licensing regime". For good measure, the judge added: "This obviously continued after its sale to British Aerospace."

A letter Mr Portillo sent last week to Labour frontbencher Stephen Byers - in response to a letter from Mr Byers last October - shows that both those statements were false.

Mr Byers suspects Mr Portillo could be putting the knife into Mr Heseltine, the Deputy Prime Minister, who made a sensational Commons statement a year ago on an arms company, BMARC, and export licensing irregularities that allowed a diversion of arms-related equipment to Iran.

Jonathan Aitken, then Chief Secretary to the Treasury, had been a BMARC director and Mr Heseltine's disclosures left him open to embarrassment, but a Commons Select Committee investigation is expected to clear him of any impropriety, or knowledge, in a report to be published tomorrow.

Mr Byers told the Independent yesterday that Mr Portillo's revelations will embarrass Mr Heseltine because of his direct responsibility for Royal Ordnance before he walked out of Margaret Thatcher's Cabinet in January 1986. "Both Aitken and Portillo are close, politically. Revenge is a dish best eaten cold, and this could be it," he said.

He also said: "This statement raises a lot of questions for Heseltine; what did he know about this in 1985-86? Did he turn a blind eye ... and as sole shareholder how did he exercise his responsibilities?"

Mr Portillo said in his letter that while Royal Ordnance had asked to continue its exemption from export licensing rules - like government- owned International Military Sales and the Crown Agents - there was no record of that being agreed.

But, he added: "It would appear from the relative absence of supporting documentation among the export licence applications that some arrangement must also have been agreed in respect of Royal Ordnance."

He also said there was no evidence RO knew of any diversion of their goods to Iran. But he was careful not to clear them of all doubt, saying: "However, the possibility that a third party diverted RO goods without RO's knowledge cannot be excluded."