How the UK fed a war machine: A European network of firms secretly supplied ammunition to both sides in the Iran/Iraq conflict, often with government complicity. Tim Kelsey reports

AT THE height of the war with Iraq, in the early autumn of 1987, 16 Iranian artillery crews were taken off active service to test some newly imported ammunition which had arrived in Iran via a circuitous route through western and eastern Europe.

The ammunition was, and still is, among the world's most sophisticated. The arms industry knows it as 155mm Extended Range Full Bore with Base Bleed. It can outrange anything in the Nato armoury by more than six miles. The Iraqis had it; the Iranians could not afford to be without it.

But this routine firing trial ended in disaster. Several of the crews were blown up and some senior officers died with them. The ammunition was faulty.

The sub-standard workmanship was British. Inside the shells were fuses riddled with lethal air bubbles that had been supplied by a British company, Allivane. But Britain contributed more than fuses to the shells: Royal Ordnance supplied explosive; ICI, fuse components and the propellant.

That firing trial marked the beginning of the end for a covert European organisation that had, since 1983, ignored embargoes and supplied Iran with millions of 155mm calibre shells, 81mm mortar bombs, and other hardware. Those involved - several of Europe's largest explosives and ammunition manufacturers - went to extravagant lengths to guarantee supply to the Middle East. Iran was furious with the trials, and the casualties, and defaulted on payment. A year later, the producers were still trying to win back the Iranians' confidence and shipping some material to the Middle East. But by August 1988, the Iran/Iraq war had ground to a halt and demand for the munitions dropped off.

The total value of the contracts with the Iranians during those five years was about dollars 2bn ( pounds 1.06bn). The British manufacturers involved were allocated about 20 per cent in each contract. To ensure its success, the producers needed at least tacit official approval. Most European nations had imposed an embargo on arms shipments to Iran. But for Western governments, there was a useful political objective: to sustain the Iran/Iraq war and ensure that neither side won.

In France, the Ministry of Defence approved the scheme. In Portugal, the Minister of Armaments issued a special and secret order in council permitting the trade with Iran. In Austria, arms producers claimed that government leaders knew. In Britain, the Ministry of Defence was briefed every month on the project.

It began in early 1981 when two small Italian-registered companies, SEA - the Societa di Armamento - and Consar opened discreet negotiations with the Iranian Ministry of Defence for the supply of ammunition: in particular, high-specification 155mm shells. SEA and Consar, despite their Italian provenance, were subsidiaries of the French arms manufacturer Luchaire, whose managing director, Daniel Dewavrin, was the majority shareholder in the two companies. But it was Luchaire's sales director, Mario Appiano, who conducted the original negotiations. By 1982 a deal had been agreed with the Iranians for supply, in instalments, of 150,000 shells.

However, hundreds of documents in the possession of the Independent on Sunday, and interviews with participants in the deals including three European arms dealers, prove that the heart of the network was not in France but in Britain. Luchaire believed, correctly as it turned out, that the UK was less likely to come under international scrutiny and that it was easier to obtain export licences from the UK authorities.

Luchaire sub-contracted work to six other European manufacturers: Gea-Remie of Italy, Muiden-Chemie of the Netherlands, NCS Pyrotechnie & Technologie de Survilliers of France, The Sociedade Portuguesa de Explosivos (SPEL) and Indep of Portugal, and a young British company, Allivane.

In 1982, Jim Guerin, an American arms entrepreneur and founder of International Signal & Control (ISC), offered to help a young American protege, Terry Byrne Jnr, to go into the arms business on his own. Ten years later, Guerin was jailed for 15 years for arms trafficking and fraud. In 1987, he sold ISC to the British defence contractor Ferranti for dollars 670m (pounds 355m). Two years later, Ferranti discovered massive fraudulent arms contracts and a huge money-laundering operation. It estimated its losses after the acquisition at around dollars 500m (pounds 265m).

Terry Byrne Jnr graduated in economics from Villenova University, Pennsylvania, and went to work with ISC for three years, becoming manager responsible for marketing weapon systems in Europe, the Middle East and North Africa. Guerin encouraged him to set up a company that in 1983 was registered as Allivane International Limited in London.

Mr Byrne set himself up in an office at 92 Horseferry Road in central London. Allivane then had no production facilities; it acted as a procurer. It sub-contracted to British arms manufacturers including Royal Ordnance, then the weapons arm of the Ministry of Defence, to supply the Luchaire network. Export licences were obtained in the name of Allivane and invoicing was done through the company. Parts were shipped to Greece, Austria, Spain and most frequently to Portugal, where the whole shells were assembled by SPEL, for trans-shipment to Iran.

In 1986, after some shipments discovered in Cherbourg had been exposed in the French press, Luchaire wanted to ensure continued supply to the Iranians - partly because it was still owed considerable sums for earlier shipments - and the Iranians wanted to consolidate their arrangement with a new contract for 150,000 155mm rounds, worth dollars 93m (pounds 49m).

This time, the contract was to be managed by a company registered in Panama called Apremont, whose key director was Luchaire's lawyer. It obtained an export licence in Portugal and on 20 July produced a document, after production had started, identifying each of the sub-contractors on the project who had agreed to produce the shells for dollars 620 ( pounds 328) each. Allivane was to contribute fuses, propellant charges (the material that forces the shell out of the gun) and other minor components. Its portion of the contract was 17.4 per cent or dollars 16m ( pounds 8.5m).

But the company then began taking on further work to help other prime contractors to fulfil their part of the contract. Muiden-Chemie, which is a quarter owned by the Dutch government, had specifically been forbidden by the suspicious Dutch authorities from exporting to Portugal. Similarly, NCS of France, for reasons similar to those of Luchaire, wanted to distance itself from the Portuguese shipments, and so preferred to supply via Allivane. The result was that, on paper, Allivane became responsible for more than half the contract.

The last shipment under this contract, for 7,300 pieces of 'special equipment', left Setubal, Portugal, on 1 December 1987 aboard the MV Iran Nahad.

Despite the failure of the trials, Tehran had decided to make yet another contract with the Europeans. What the Europeans did not know was that it had no intention of paying. In earlier contracts, the Iranians had deposited money up front. On this occasion, they agreed only to pay on performance. In May 1988, the traffic continued, but by June Allivane was forced out of the running. It had no money left.

The Iranian contract of 1987, though the best documented, was not the only one Allivane had signed for supply to Iran. Besides the 155mm ammunition, the Iranians were also in the market for mortar bombs. Vast quantities were supplied through SPEL's parent company, Indep in Portugal, and via a company based in Spain known as Asforit. Some of the material supplied to Indep also reached Iraq. Antonio Cristovam, commercial director of Indep, admitted last week that shipments had come from the UK. He said that normally 'classified cargo' would be shipped from Setubal to Iraq.

Asforit was, for a time, based in the office of Allivane's Spanish subsidiary, Allivane SA, which was run by Allan Crossley, son of a former British ambassador to the Holy See. A considerable quantity was also supplied to Iran by the Austrian firm Hirtenberger. Allivane's primary role was to provide fuse components for the mortar bombs.

Cumbernauld, Glasgow, is an unlikely place for one of Britain's largest arms producers. But in a small factory on the Blairlinn Industrial Estate, in September 1986, Allivane opened its first production facility, with the aid of a local development grant. There were 23 staff and Terry Byrne recruited Gerrard Heneaghan as managing director.

Mr Heneaghan was a production engineering graduate from Strathclyde University. In 1975 he joined Ferranti Plc with responsibilities for ground support and automatic test equipment for Nato military aircraft and weapon systems. From 1982 until 1987, he worked for ISC Technologies Ltd, the London arm of Guerin's US operations, looking after the transfer of weapons technology to the Middle and Far East.

Cumbernauld was a start, but it was small-scale manufacturing - a few thousand mortar and ammunition fuses, nothing to compare with the vast quantities of fuses that Allivane was exporting from the UK.

Ardeer, an industrial district in the town of Stevenston near Kilmarnock, is home to the Nobel's Explosives Company, a wholly-owned subsidiary of ICI. It makes, among other things, propellant and fuse components. Mike Menzies of ICI admitted last week that Nobel's had supplied Allivane between 1985 and 1988, but only with fuse components. He said he had no knowledge of a shipment in 1986 of propellant for Allivane from the ICI port at Garnock, near Kilmarnock, ostensibly destined for Manila, nor of any further supplies of propellant to Allivane.

He said Allivane was responsible for obtaining export licences, and denied that ICI 'knowingly' supplied material in breach of arms embargoes. The company was aware that Allivane supplied one client within Europe.

In September 1986, Nobel's twice shipped fuses to Radmer in Austria, home of the arms firm Noricum, where goods were stockpiled before shipment to the Middle East. In February 1991, 14 executives of Noricum were convicted of selling arms and munitions worth dollars 300m ( pounds 159m), including 155mm artillery, to Iran. Two were jailed.

According to documents seen by the Independent on Sunday, in October 1987 Allivane paid Nobel's pounds 234,841.39 for supplies. On 19 November, Nobel's is shown owing pounds 64,000 for boostering mortar fuses for the Asforit and Indep projects. Shipments took place the same day. In April 1987 Nobel's was owed pounds 62,305.02 for other shipments.

In mid-1987, Allivane was preparing itself for two huge fuse orders for the Middle East via Austria and Asforit. ICI did the lead and booster for the fuses from which they benefited by dollars 177,480 ( pounds 94,000). In October 1987, Mr Heneaghan wrote a memo for Allan Crossley in Allivane's Spanish office. ICI had only committed, it said, to producing 35,000 units for Asforit by 23 October. ICI, he added, had become 'an unwilling partner' perhaps because Allivane was a notoriously late payer.

In May 1988, the monthly materials department report noted that ICI was still supplying safety and arming devices to Allivane. 'Steven Morris at Nobel has given a favourable indication that we may be able to uplift the S&A (safety and arming) units on Monday 9th May.' Mr Morris, a business development manager, told the Independent last week that Nobel's does not make these devices but that the company had undertaken to supply them. He declined to say who was ICI's contractor. He said: 'We (Nobel's) supplied certain materials they required. We were just a supplier along with others.'

Royal Ordnance was an equally important supplier. Between the end of 1985 and 1987, more than 50 shipments left Liverpool docks aboard an explosives vessel, the Hasselwerder, bound for Lisbon. Customs documents confirm that these formed part of Allivane's arrangement with the Portuguese manufacturer Indep for the supply of M525 mortar fuses. But after September 1987, these ships were also carrying huge quantities of 155mm shells. The shells had been filled with high explosive, a complex process, at the Royal Ordnance factory at Chorley in Lancashire.

Allivane documents indicate that Royal Ordnance started to help on 28 September 1987, five months after its sale to British Aerospace. According to Allivane sources, SPEL, which was supposed to be filling the projectiles with explosive, could not cope with the workload.

The projectiles came from Lisbon. Royal Ordnance simply filled and returned them. In 1987 Royal Ordnance did not have a production line for the manufacture of 155mm Extended Range shells. These were designed by Gerald Bull, creator of the Iraqi supergun. They were not in use by the British Army.

Royal Ordnance continued filling the projectiles in 1988. According to Allivane documentation dated 8 January 1988, the total value to the firm of this consignment of 15,000 shells was just under dollars 3m ( pounds 1.59m).

The same contract list discloses that the Royal Ordnance plant at Bridgwater, Somerset, was to contribute, for a fee of over dollars 250,000 ( pounds 132,000), to the manufacture of the base-bleed assembly, and to the supply of the booster explosive. Dr Nigel Greenwood, formerly head of strategic planning at Chorley and now working in the machine-tool division in Germany, said last week that the business with Allivane started before 1987.

The company, however, officially denied any involvement with the Allivane or with exports to Iran. It said it had stored propellant on one occasion in 1988 for Allivane, but that this was the extent of its connection. It admitted that RO Bridgwater had in 1988 been sub-contracted to assist in the manufacture of base- bleeds, but said this was by Muiden-Chemie and not Allivane. The base-bleeds, it said, were returned to the Netherlands for shipment to Austria.

Among the key sub-contractors was British Steel, which supplied metal parts for fuse adaptors. Internal Allivane documents reveal that BSC contributed in the shipments to SPEL in 1987 and 1988. It did so through a subsidiary, British Tubes Stockholding, which is based in Glasgow. By October 1987, BTS was owed pounds 4,558.57. In December 1987, BTS was listed on Allivane's accounts as a 'SPEL contract supplier' and was owed a further pounds 30,644.82 by Allivane.

British Steel was commissioned to produce 20,000 parts per month for six months in 1987. But difficulties in the relationship arose because of non-payment by Allivane. On 12 November 1987, Gerrard Heneaghan wrote to Terry Byrne Jnr - just as the dispute with the Iranians over their non-payment was at its height - advising that British Tubes Stockholding was 'essential to the continuance of the operation'. BTS had imposed a credit hold and was awaiting payment of pounds 10,000.

British Steel admitted last week that it supplied goods to Allivane. A spokesman said it had supplied thick walled seamless tubing 'which has a very wide application'; BSC understood Allivane made 'detonators'. He declined to reveal whether BSC was made aware by Allivane that the metal was destined for Iran.

Earlier this year Allivane was formally wound up after a four-year struggle by creditors to retrieve money they were owed. The architects of Allivane have gone to ground: Terry Byrne Jr has returned to the US and his whereabouts are unknown. The British directors also cannot be traced.

(Photographs omitted)

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