Ministry knew of Iran arms deal that broke embargo: Tim Kelsey examines the links between government licensing bodies and a British company that sent products abroad to fuel a war in the Middle East

SENIOR officials at the Ministry of Defence were briefed every month on a secret deal to export arms to Iran in breach of government embargoes. The MoD also supplied the British company involved with arms components.

Department of Trade and Industry officials issued the company export licences for products that they did not make, apparently without checking the authenticity of end-user certificates.

Executives from Allivane, a British company involved in a complex international operation to circumvent trade restrictions, attended meetings with a senior official in the Defence Export Services Organisation every month at the MoD in Whitehall.

This was within walking distance of Allivane's office at 92 Horseferry Road, in Victoria. Sources close to the company have indicated that the details of the operation - licence applications, issues of supply and shipment - were discussed.

Lord Younger of Prestwick, Secretary of State for Defence between 1986 and 1989 - when meetings are known to have taken place, has denied to the Independent having any knowledge of them. 'If anybody in Whitehall had heard anything about that they should have reported it at once up the line to a senior official or a minister,' he said last week. 'It was quite clearly contrary to all policy.'

However, Lord Younger did not deny knowing the company. In 1988 Allivane was fulfilling an export order for ammunition to Saudi Arabia. In its final stages, Lord Younger authorised the MoD to intervene directly in ensuring the arms were shipped on time because Allivane was insolvent and unable to do so.

Lord Younger said: 'I can't personally recall doing it . . . but I'm not saying in any way that it's not true. It probably is.' Lord Trefgarne, Minister for Defence Procurement at the time, was not available last week for comment.

In France, defence ministry officials were aware that Luchaire, one of the country's largest arms producers, which masterminded the operation of which Allivane was a part, was exporting to Iran.

In 1986 the shipments were exposed in the press and, after an inquiry by Jean-Francois Barba, the Inspector-General of the Armed Forces, the government involvement was revealed.

There has been no such publicity in the UK. In 1988 Gerrard Heneaghan, managing director of Allivane since 1987, alleged in court in Edinburgh that Terry Byrne Jnr, Allivane's chairman, had embezzled pounds 2.2m from the company - for which there is no clearcut evidence in documents in the possession of the Independent the Independent on Sunday - and was illegally exporting arms to Iran and Iraq.

Strathclyde police began an investigation into the fraud claims. The inquiry was closed and no prosecutions resulted. The police did, however, pass on information regarding illegal shipments to the Customs and Excise, which had mounted a separate inquiry. But for reasons that are not clear, this investigation came to nothing.

The same fate befell an inquiry the year before. In October 1987, at the height of the Iranian contract, British police raided the London office of Allivane after the Dutch authorities had raided Muiden Chemie, a Dutch partner in the project, and claimed to have evidence of British involvement in shipments to Iran.

The British officers took away boxes of paper. But the investigation was never concluded. However, not only did the MoD know of Allivane's work, it also supplied the company with artillery spares. Evidence is drawn from hundreds of documents in the possession of the Independent and interviews with sources close to the company and other arms dealers. In September 1986, for instance, Allivane was supplied with spares from the RNSTS Naval Armament Stores in Beith, Strathclyde. The sales at the depot were authorised by a Mr C James.

Vouchers issued to confirm the sale are made out to Allivane International Group. That company, according to Companies House, has never had any legal existence in the UK. It was in fact invented in 1986 to give the traffic with the Middle East extra protection and and to give it some legal distance from the real company, Allivane International Limited.

Not only was the name of the company receiving the spares bogus, so too was the address. It was given as 15 John Street, London, which was the company's registered address until mid-1985. In 1986, when the spares were issued, Allivane had its registered address and its office in 92 Horseferry Road.

The MoD knew the real identity of the legal company and its legal address. When it invoiced the company for the spares, the paperwork was accurate.

More significant to the success of Allivane's role in supplying Iran was the success it had in obtaining export licences from the DTI. Usually the Ministry of Defence would be consulted by the DTI prior to issuing an export licence that involved the shipment of lethal weaponry.

The DTI, like the MoD, for reasons best known to itself, and in contravention of its own guideline, issued licences in the name of the fictitious company - for items the company did not make, to countries which could not have had any reasonable use for them.

Licences in the possession of Independent reveal that the DTI licensed the export of 200,000 M525 fuses for mortar rockets to Indep, the Portuguese state manufacturer, in August 1986. The serial number for the licence is 1A/5269/86. Portugal was already known as a point of transshipment to the Middle East.

This and the fact that the Portuguese armed forces could have no use for so many mortar shells, should have stopped the licence being issued. In fact, on this licence vast quantities of munitions - not only of M525 fuses but also of 155mm ammunition - were shipped from Liverpool to Lisbon and then to Iran aboard two boats: the Hasselwerder and the Celtic Ambassador.

Antonio Cristovam, commercial director of Indep, confirmed last week that some of what he described the 'classified cargo' that came from Liverpool also went to Baghdad.

Not only did the DTI issue the licence in the first place, it also agreed to an extension. On 13 April 1988 Lawrence Byrne, brother of Terry Byrne Jnr, chairman of Allivane, wrote to Dave Macarthy, an official in the DTI's export licensing department asking for the 1986 licence to be revalidated for the shipment of a further 117,262 mortar fuses.

In 1987 Allivane won a contract to supply Saudi Arabia with 155mm ammunition. The Saudi licence constitutes evidence of either DTI incompetence or complicity.

Under the terms of export licence 1A/4650/87, Allivane was permitted to export 15,000 complete rounds of long- range 155mm ammunition to Saudi Arabia. The licence also allowed for the export of parts for a further 15,000 complete shells - in total, 30,000 rounds.

But Saudi Arabia had only ordered 15,000 rounds, as the DTI would have known from its own copy of the contract. What it also knew was that Allivane had only undertaken to produce two components of that ammunition: fuses and propellant. Most of the order was being produced in Spain.

Allivane could not make anything else. The DTI should have known and the MoD must have known, Allivane did not have the facilities to make complete shells. In fact no other manufacturer in the UK, including Royal Ordnance, could make long range 155mm ammunition of this type. Why the DTI issued this fictitious paperwork remains uncertain.

More extraordinary was the DTI's willingness to extend the licence. On 6 April 1988, Lawrence Byrne wrote to Mr Macarthy at the export licensing department and asked for the licence to be revalidated for five more months.

He added: 'Our first consignment will be shipped 29 April 1988 and then two others in June and July/August.' Mr Macarthy and his managers should have been aware that the legitimate Saudi contract was to be shipped in only two parts.

It appears that the Foreign Office had been consulted by the DTI on the issue of this licence. One Allivane employee noted: 'Talked to DTI. They are processing our S Arabia licence and expect to receive very quickly. It is still at the Foreign Office.'

By March 1988 Allivane had been issued with more export licences by the DTI. Licence 1A/8325/87 allowed the export of 155mm rounds to Jordan, a traditional bogus end-user for Iraq.

Another licence allowed for 60,000 mortar fuses to go to Hirtenberger, an Austrian arms producer, which shipped huge quantities of war material to Iran. The Austrian army could not possibly have been interested in acquiring so much ammunition.

The Health and Safety Executive, like the DTI, also issued Allivane with questionable paperwork. The HSE is responsible for authorising the import of explosives into the UK. It grants import licenses which are used by exporting manufacturers as evidence of destination.

In licence X1/4411/20171 dated 25 April 1988, the HSE allows for the import of a huge quantity of explosives - including 155mm ERFB-BB rounds, in spite of the fact that the British army did not use them - from a variety of sources: Holland, France, Italy, Spain and Yugoslavia.

This was in spite of the fact that the HSE had the year previously only given Allivane permission to store 3.5 tonnes of explosive - far less than the weight of the approved imports.

(Photograph omitted)