The Sleazy State: The Alternative Government: 'Power brokers' fixed aid and trade deals: Secret network included executives from companies that benefited from overseas contracts

A SECRET NETWORK of power brokers controlling the supply of British aid, trade and arms to overseas countries has operated like an alternative government since the early 1980s.

An investigation by the Independent has revealed how an inner circle of high-ranking civil servants and influential figures from industry and the City effectively decided how Britain's Aid and Trade Provision programme should be allocated and how contracts for arms sales should be won.

Some of the companies - whose directors were members of this exclusive Whitehall club - have been generous supporters of the Conservative Party over the years. Eighteen of them donated almost pounds 6m to the party or to British United Industrialists (which passes about 80 per cent of donations to the Conservatives) between 1979 and 1993.

Soon after the Thatcher government came to power, aid, trade and arms were linked through an intricate web of organisations and individuals. A coterie of trusted people control key positions on little- known Whitehall advisory groups and in organisations set up by the Department of Trade and Industry and the Ministry of Defence.

Executives from companies which benefit from overseas contracts sit on the advisory committees and help run the organisations. The same names appear repeatedly, on committees influencing policy on overseas aid and construction projects, and on working to secure defence exports agreements.

A study of ATP money allocated, conducted by Friends of the Earth, shows that a select group of defence manufacturers and civil contractors secured aid money to help finance contracts from overseas governments. Just five companies accounted for almost 43 per cent of the pounds 1.3bn ATP budget between 1978 and 1992 - Balfour Beatty, GEC, Davy McKee, Amec and Biwater. All have been well represented in the aid-and-trade club.

In addition to aid, many other contracts were supported by soft loans and underwriting facilities from the Export Credit Guarantee Department. Under export guarantee finance, the British taxpayer is left to pick up the bill if the overseas customer defaults on payment. Four organisations were at the heart of the aid, trade and arms supply programme and many of the key players became involved in both trade and defence circles. The four are: International Military Services, set up by the Ministry of Defence with shares wholly owned by the Secretary of State for Defence; the Defence Exports Services Organisation, an MoD department partly staffed by executives seconded from industry; the British Overseas Trade Board and the Overseas Projects Board, both set up by the Department of Trade and Industry with members drawn from the civil service, industry and commerce.

The first two help British defence contractors to win export orders; the last two help formulate and direct overseas aid policy on large construction projects.

A striking pattern of links has emerged from an analysis of the membership and activities of these groups. Throughout the 1980s and early 1990s, members of the Overseas Trade Board and the Overseas Projects Board were drawn from a small number of companies - many of which made substantial donations to the Conservative Party and many of which received ATP funding for overseas contracts.

International Military Services (IMS) ceased trading in 1991 and is being wound down. Originally Millbank Technical Services, it was set up in 1974 to work with the Crown Agents, which offered 'financial, professional and procurement services to developing countries'. IMS was to secure and discharge export contracts for UK defence equipment 'in the interests of the Government and of industry'. Subsidiaries have worked in Iran, India and Saudi Arabia.

The chairman of IMS from 1974 to 1985 was Sir John Cuckney, who was also chairman of the Crown Agents. Sir John served in MI5, according to Peter Wright, the former MI5 agent who wrote Spycatcher.

Sir John has held a collection of key posts at the heart of the arms, aid and trade world. Midland Bank, where he was deputy chairman from 1978 to 1988, had a special unit for financing arms sales, Midland International Trade Services, which had regular contacts with the Ministry of Defence and the Export Credit Guarantee Department.

While head of IMS, Sir John was also chairman of Brooke Bond and of Thomas Cook Group, deputy chairman of John Brown Engineering, deputy chairman of Royal Insurance Holdings and chairman of the International Maritime Bureau of the International Chamber of Commerce.

Other directors of IMS have had interests which cross over from defence to trade. Sir Colin Chandler, who was seconded from British Aerospace to head the Defence Exports Services Organisation from 1985 to 1989, was a director of IMS from 1986 to 1989. He has also been a director of Siemens Plessey Electronic Systems and the Ti Group (a non-defence company) and is now chief executive of Vickers. Sir Colin was president of the Engineering Employers Federation and a member of the Engineering Council in 1991 and the National Defence Industries Council in 1992.

Peter Grey, who was general manager of finance at IMS in 1989, moved to become company secretary and financial director at Biwater, a civil engineering company which won pounds 60m of Aid and Trade Provision money in 1986 for a rural water supply project in Malaysia. This project was not linked to the Pergau dam deal. Biwater then won pounds 2m of aid for a project in Sri Lanka in 1988 and was seeking more for a pounds 1.2bn water and forestry project in Thailand.

In May 1990, the Sunday Telegraph reported that Britain was about to grant pounds 350m in aid to help finance the Thai irrigation project in order to clinch an arms deal to sell British Aerospace Tornado and Hawk fighters to the Thai government. Soon after the publicity, the water project was cancelled and the aircraft sale did not go through.

Eric Bridgen, managing director of IMS from 1981 to 1986, was a civil servant appointed to represent the interests of the Secretary of State for Defence. After his resignation he became chief executive of the Acer group, a firm of consultants who in 1987 received pounds 4m in ATP money to supervise the Biwater project in Malaysia on behalf of the Overseas Development Administration.

Another director of IMS from 1980 to 1991 was Michael Muller, managing director of consulting engineers W S Atkins, which received pounds 200,000 of ATP money in 1989 for projects in Zimbabwe and Morocco.

Keith Walley was chairman of IMS from 1985 to 1991 while deputy chairman of Johnson Matthey Group plc, a director of John Brown plc and of Reckitt and Colman plc. He was once managing director of Shell UK and Shell Chemicals.

The current chairman of IMS, Sir Kenneth Carmichael Macdonald, is also chairman of Raytheon Europe, which manages subsidiary defence companies. A Raytheon director, Sir Alan Thomas, is head of the Defence Exports Services Organisation (DESO).

This, called the Defence Sales Organisation until 1985, was set up by the Labour government in 1966 to boost sales of British defence equipment abroad. DESO is directly responsible for government- to-government memoranda of understanding on major defence sales and it takes the lead on sales negotiations and the administration of related contracts. It also provides advice and support to British firms to help secure the sale.

DESO employs staff in London and overseas, including Saudi Arabia, Malaysia and Kuwait where Britain has big government-to-

government arms deals. Its four recent heads have been Sir Ronald Ellis, 1976-1981; Sir James Blyth, until 1985; Sir Colin Chandler, until 1989; and Sir Alan Thomas, to date. Sir Ronald was seconded from the Bus Manufacturers Holding company, Sir James from Lucas Aerospace, Sir Colin from British Aerospace and Sir Alan from Raytheon Europe.

In answer to a parliamentary question by Stephen Byers, Labour MP for Wallsend, the Government has revealed the names of the 17 people seconded from the private sector to DESO since 1979. They include five from British Aerospace, three in 1988 when the memorandum of understanding on a pounds 1bn arms package was agreed with the Malaysian government. British Aerospace secured a pounds 403m order for 28 Hawk aircraft as part of the deal. Other companies represented, which have attracted aid and trade backing for exports or won defence contracts, include Trafalgar House and Rolls-Royce. Four banks which help arrange finance for exports have also been represented - Midland Montague (owned by Midland Bank), Lloyds, Grindlays and Morgan Grenfell.

Mr Byers, who has Swan Hunter shipbuilders in his constituency, said: 'No doubt DESO played an important role in advising the Malaysians on technical competence. As a result large contracts went to British Aerospace whereas other leading defence contractors like VSEL in Barrow and Swan Hunter on Tyneside were effectively excluded. The membership of DESO reveals a clear conflict of interest and shows a cosy cartel in existence at the heart of the UK defence exports industry. These executives are not batting for Britain but are simply promoting the interests of their own companies.'

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