The secret shift in arms sales policy concealed by ministers

Government cleared of conspiracy to send innocent men to jail by blocking release of papers in Matrix Churchill arms-to-Iraq trial; The Scott Report

The Howe guidelines barred the supply of defence equipment which would "significantly enhance the capability of Iran or Iraq to prolong or exacerbate the conflict". Once the conflict was at an end, there was nothing to be prolonged or exacerbated , and guideline[s] could not be applied . . . But the advent of the ceasefire opened up the prospect [of] . . . opportunities for British exporters. Prominent among the machine-tool exporters was Matrix Churchill. It was against this background that, in August 1988, discussions began between officials of the DTI [Department of Trade and Industry], the FCO [Foreign and Commonwealth Office] and the MoD [Ministry of Defence], and their respective ministers, regardi ng the direction that British policy on defence related exports to Iraq and Iran should take. These discussions continued, somewhat spasmodically, until July 1990 when, following a high-level ministerial meeting presided over by the Foreign Secretary, Do uglas Hurd, a new policy towards defence- related exports to Iran and Iraq was agreed. A question much debated in the course of the inquiry has been whether these changes constituted changes in Government policy or whether they constituted no more than a flexible application of the pre-ceasefire policy adjusted to take account of current c ircumstances. The story starts with a meeting of the Inter- Departmental Committee (MoD, DTI and Foreign Office) on 2 August 1988. There was agreement that "there would certainly be major opportunities for defence sales to both sides once the conflict was brought to an end". The ceasefire duly came into force on 20 August 1988 and, on 31 August, the Foreign Secretary, Lord Howe, sent a paper to the Prime Minister entitled Economic Consequences of an End to the Iran-Iraq Conflict." In a letter to the Prime Minister, Lord Howe emphasised the importance of making "the maximum available use of the opportunities for promoting British commercial interests". "In the early post-conflict era the opportunities for sales of defence equipment to Iran and Iraq will be considerable. Our defence sales policy will need to be reviewed." Lord Howe's paper was placed before the Prime Minister [then Margaret Thatcher] b y her Private Secretary, Sir Charles Powell, accompanied by a note of his own dated 1 September 1988. In regard to defence sales to Iran and Iraq Sir Charles's note advised that "there is also likely to be a great deal of defence sales business. We shall need to consider soon whether any amendment to our existing guidelines is required". On 9 September 1988, Hamish Cowell, of the Middle East Desk, submitted to senior FCO officials and to the Minister of State at the FCO,William Waldegrave, a paper on "policy in the very short term for defence sales to Iran and Iraq, in the light of the c easefire". Mr Waldegrave endorsed the paper. Neither in Lord Howe's paper to the Prime Minister nor in Mr Cowell's draft paper was any express reference made to the detention by Iran of the hostages or to the atrocities committed by the Iraqi government against the Kurds. Mr Clark wrote a letter dated 4 November 1988 to Mr Waldegrave . . . that ". . . the case for continuing to apply a wide- ranging unilateral UK embargo on defence sales is now well-nigh impossible to justify to British firms". The letter suggested licenc es should be issued without delay and argued this would represent only a "marginal relaxation of controls . . ." Mr Waldegrave wrote a letter dated 14 November 1988 to Mr Clark [saying] "we should within existing guidelines adopt a more flexible attitude ". Copies went to Lord Trefgarne and to the Prime Minister. As a result of [a] 21 November IDC meeting a further letter was sent by Mr Clark to Mr Waldegrave . . . to Lord Trefgarne and the Prime Minister. It commented: "From this dubious vantage point we can now see clearly the opportunities being denied toour defence industry." Mr Waldegrave's response, by letter dated 14 December 1988, was to suggest a meeting between himself, Lord Trefgarne and Mr Clark. The meeting was arranged for 21 December. A briefing for Lord Trefgarne included reference to "Matrix Churchill lathes" valued at pounds 16.5m. The briefing informed Lord Trefgarne that "intelligence sources indicated the lathes were to be used for makin g shells and missiles". A summary of the discussion at the ministerial meeting on 21 December 1988 [said]: "The Ministers agreed at the meeting that the ceasefire in the lran-Iraq war had changed the circumstances which the 1984 guidelines on defence sal es had been drawn up to meet." Mr Clark argued that it was becoming increasingly difficult to justify these guidelines to British firms. The ministers agreed after discussion it would now be right to consider modifying them . . . while preserving our fle xibility to interpret the restraints on supplying defence equipment to Iran and Iraq on a case by case basis. [Details were] not copied to the Prime Minister . . . but copies were sent to the Foreign Secretary and to the Secretary of State for Trade and Industry. Telexes were sent to the British Embassies in the main Gulf capitals and in Washington seeking comments on "The likely reaction of your host government to a slight relaxation of our policy on defence sales to Iran and Iraq." By May 1989 agreement between the junior ministers [was] reached. A more relaxed or liberal policy on defence-related exports to Iraq would be followed. The policy would be implemented by applying the revised form of guideline. The desired result could b e achieved by a flexible interpretation of the original guideline without the necessity of a formal change in the guidelines. It had been agreed that no publicity should be given to the differences between the policy to be followed and the policy previously followed. Mr Waldegrave explained: "Flexibility in interpretation of the guidelines did not have to be announced in Parliament and in an extremely fluid and dangerous situation it was inadvisable that it should be." There had been no formal confirmation or approval given by any of the secretaries of state of the three departments to the agreement that had been reached by the junior ministers. Nor was any minute explaining the agreement and the reasons for it ever su bmitted to the Prime Minister. Both Lord Howe and Mr Waldegrave offered explanations for the absence of any communication to the Prime Minister . . . I find these explanations unconvincing. Even if it is right to regard the changes as only "minor adjustments" to policy, that viewdoes not explain why the Prime Minister was not informed. The notion that the ministers refrained from keeping the Prime Minister informed for fear of unnecessarily bothering her is, in my opinion, without substance . . . a decision was taken by the junior m inisters that there should be no public announcement. As a consequence of this decision, answers given by Ministers to parliamentary questions and letters raised by MPs in correspondence were designedly uninformative. I can well follow that a fear of Iranian reactions adverse to the hostages under Iranian c ontrol would have been a reason for avoiding provoking the Iranians. I have read and reread, the contemporary documents in which the proposal that there be no announcement of the new relaxed line towards defence sales to Iraq was put forward . . . There is no mention in these documents of any fear for the Iranian hostages. I have referred to arguments that the guidelines, as announced in 1985, remained in force . . . I do not accept that proposition or the arguments. I accept that Mr Waldegrave and the other adherents of the "interpretation" thesis did not . . . have any duplicitous intention. But that that was so underlines, to my mind, the duplicitous nature of the flexibility claimed for the guidelines. I accept that the three junior ministers . . . knew that any formal alteration in the guidelines would require the approval of senior ministers and the Prime Minister. But if the substance of the agreement was to change the criterion that would be applie d to applications to export defence equipment to Iraq, they were . . . agreeing on a change of policy. I regard the explanation that this could not be so because the approval of the senior Ministers and the Prime Minister had not been obtained as sophistry. Over the period February, 1989 to July 1989 letters [from Mr Waldegrave and Lord Howe] were sent to MPs. The responses included the following . . . "British arms supplies to both Iran and Iraq continue to be governed by the strict application of guideli nes which prevent the supply of lethal equipment or equipment which would significantly enhance the capability of either side to resume hostilities. These guidelines are applied on a case by case basis." Letters to MPs incorporating these sentences and s igned by Mr Waldegrave numbered [15]. The reference in each of these letters to the criterion that governed the supply of non-lethal defence equipment to Iraq was not accurate. In a letter to Tom Sackville, MP, Mr Waldegrave said: "It is untrue to suggest that Britain is selling arms to Iraq. Strict guidelines were introduced in 1985 to prevent the sale of lethal equipment to either Iran or Iraq during the Gulf conflict. Those guidelines have remained in effect despite the ceasefire of July 1988." The first sentence of this paragraph was correct if "arms" is understood in the strict "lethal weapon" sense, but not correct if "arms" is understood in its general "military equipment" sense. Serious criticism applies to the letters in which the expression "lethal equipment" or "lethal military equipment" has been replaced by "military equipment." The reference to "military equipment" gives a corresponding meaning to the word arms. The sugges tion is clearly conveyed in three letters . . . that no military equipment had been sold by Britain to Iraq during the Gulf conflict and that none was currently being sold. The assertion . . . could not truthfully have been made, and should not havebeen made, in respect of lethal equipment. It could not truthfully have been made, and should not have been made, in respect of military equipment . . . I think it in the highest degree likely that Mr Waldegrave did not notice, when he signed the "military e quipment" letters, that the expression "lethal equipment" which the earlier letters had contained had been altered. But I think he ought to have. On 28 February 1989 Mr Waldegrave answering a question by David Alton, MP, [said]:"There has been no change in our policy on arms sales to Iran as set out in the answer by [Mr Clark] on 18 January." But Mr Waldegrave's private secretary's letter of 7 Feb ruary 1989 said: "Mr Waldegrave is content for us to implement a more liberal policy on defence sales, without any public announcement on the subject." In March 1989 Ann Clwyd MP asked "if UK arms manufacturers will be granted export licences for sales to Iran or Iraq in the near future." The eventual answer was not in the same form as the draft answer . . . "The guidelines on the export of armaments to Iran and Iraq announced by [Lord Howe] on 29 October 1985" had said that "The guidelines were . . . to prevent the export of non-lethal equipment which . . . would significantly enhance the capability of either side to prolong or exacerbate the conflict in the Gulf" . . . both the draft answer and the actual answer were, in my opinion, misleading; the draft answer more blatantly so. The answers to PQs, in both Houses of Parliament, failed to inform Parliament of the current state of Government policy on non-lethal arms sales to Iraq. This failure was deliberate and was an inevitable result of the agreement between the three junior m inisters that no publicity would be given to the decision to adopt a more liberal, or relaxed, policy, or interpretation of the guidelines. I have come to the conclusion that the overriding and determinative reason was a fear of strong public opposition to the loosening of the restrictions.

The Matrix Churchill affair The collapse of the Matrix Churchill trial in November 1992 following evidence from Alan Clark, the defence minister, was the event that led to Sir Richard's inquiry. The report examines the background to the Customs inquiry, the prosecution, the disclosure of Government knowledge and the use of Public Interest Immunity certificates by ministers. It is scathing of official behaviour in almost every instance.

Having traced the progress of the trial of the three Matrix Churchill directors from the initial investigation through to the trial and its collapse after Mr Clark's evidence, it is, I think, possible to identify what went wrong. Responsibility for the i nadequate investigation and search for documents must, in my opinion, be borne by the whole prosecution team. The investigation was inadequate, also, in my opinion, in that no attempt was made to interview any of the FCO or MoD ministers and officials involved in the licensing decisions. In summary: (i) If all the relevant documents and, especially, the Intelligence Report of 13 October 1989 and the associated minutes, had been identified by Customs ID and taken into account by Customs Solicitors and counsel, the prosecution would not have beencomm enced. (ii) If Mr Clark had been carefully and rigorously questioned about his attitude to machine-tool exports to Iraq and about the message he was endeavouring to convey to the machine-tool manufacturers at the 20 January 1988 meeting, I think it probable he would have answered in much the same way as he answered at the trial and before the inquiry. In that event, the prosecution would not have been continued. (iii) If FCO and MOD officials had been interviewed, a more comprehensive and soundly based understanding of the Government's licensing policy as applied to machine-tool exports to Iraq would have been obtained. FROM PAGE 13 (iv) The inadequacies and failures of the investigation were mainly attributable, in my opinion, to the undoubted strength of the evidence accumulated by Customs ID of apparently deliberately deceptive statements made by Matrix Churchill executives to DT I officials (and to Lord Trefgarne) as to the use to which the machine tools and accessories, proposed to be exported to Iraq, would be put in Iraq. The result of this accumulation of evidence was that Customs ID became satisfied at an early stage that t he defendants, and in particular Mr Henderson, had committed offences under CEMA [Customs and Excise Management Act]. The anticipated defences of government "encouragement" and of government "knowledge" were never, in my opinion, treated as defencesof p otential substance. Mr Andrew and Mr Wiltshire and, perhaps, the whole prosecution team, were, in a sense, led into a trap created by the apparent strength of the evidence of deception that they had obtained. So far as departmental documents were concerned, the attitude to disclosure of documents to the defence was throughout consistently grudging. The approach ought to have been to consider what documents the defence might reasonably need and then to consider whether there was any good reason why the defence s hould not have them. The actual approach . . . seems to have been to seek some means by which refusal to disclose could be justified. The result of this approach was that, in respect of the documents held by each of the departments, no attempt was made t o distinguish between documents that would be of obvious assistance to the defence and documents of only peripheral significance, nor, although this is more a PII point, to distinguish between documents with a genuine sensitivity and run of the milldocu ments . . . There was no good reason why the preparation of the PII Certificates should have been left uncompleted for so long. There was no reason why the defence should not have been given details of the nature and number of the documents for which class claims we re to be made. There was no good reason why the schedule of documents should have been omitted from Mr Lilley's PII Certificate . . . In summary: (i) Class claims were made which were not, in my opinion, warranted by [legal] authority and which ought to have had no place in a criminal trial. Mr Heseltine's reluctance to sign the PII Certificate in case he thereby deprived the defendants of access to material documents evidenced an instinct for the requirements of justice that was fully justified and corresponded, in my opinion, with the legal principles correctly understood. (ii) The Category B class claims included a number of documents of which no more could be said than that they were confidential and in respect of which, even in a civil case, a PII claim would not, in my view, have been warranted by any of the judicial a uthorities that have underwritten the propriety of class claims. (iii) Ministers were led to believe that they were not entitled, when assessing whether the PII class claims should be made, to take into account that the documents in question had the degree of materiality in a criminal trial that would, bar PII, have r equired their disclosure to the defence. (iv) Mr Heseltine was led to believe that it was his legal duty to make the PII class claim notwithstanding that it was his view that the overall public interest required the disclosure of the documents to the defence. The proper concern over the prospect of disclosure of the parts of the departmental documents that referred to intelligence matters and the prospect of disclosure of the intelligence agencies' documents, was capable of being, and indeed was, fully catere d for by suitable redactions to the documents in question. A PII contents claim in respect of the redacted parts of the documents sufficed to meet the concerns of the intelligence agencies. Finally, I must refer to the charges, made and repeated in the media, that the Ministers who signed the PII Certificates were seeking to deprive defendants in a criminal trial of the means by which to clear themselves of the charges. Mr Heseltine must, i n any event, be exonerated from these charges, but I do not regard the charges as fairly levelled against the other ministers. None was advised of the point that the practice they were being asked to follow had been prescribed in civil cases and hadno a uthoritative precedent in a criminal trial. I regard some of the justification that was offered to me by ministers in support of the need for the Category B PII class claims to be made as prompted by a natural ex post facto desire to justify what had bee n done rather than by an accurate reflection of what was in the ministers' minds at the time. But in relation to a legal issue of some complexity the ministers were entitled to rely on advice from their lawyers and cannot be blamed for following it . . .

The gagging orders

In this section Sir Richard examines the circumstances under which ministers granted Public Interest Immunity certificates to the prosecution in the Matrix Churchill case. He says that different ministers were confused about the circumstances in which ce rtificates should be signed and that Mr Heseltine's misgivings about signing the documents were not passed on to the prosecution team. Sir Richard finds that the instructions by Sir Nicholas Lyell, the Attorney General, to the prosecution were inadequate .

The DTI Certificate signed by Mr Lilley protected 16 documents of the Category B type. Mr Lilley believed that there was a need to protect the confidentiality of documents within Category B in order to ensure that officials were candid in the advicewhic h they gave. In his view, Category B covered documents concerned with the formulation and development of policy, as long as policy involved "people at a high level at some stage in its formulation or development". The DTI Certificate signed by Mr Heseltine protected a large number of Category B documents and some Category C ones. It was Mr Heseltine's view that at least some of these documents, if not all, ought to be disclosed to the defence . . . If he had known he had discretion to authorise disclosure of DTI documents if he considered there to be a clear case in the interests of justice for such disclosure, he would have exercised it . . . Mr [Tristan] Garel-Jones and Mr [Malcolm] Rifkind had signed Certificates protecting mainly Category B documents. Each had done so on the footing that Category B documents required to be given PII protection on account of their inherent confidentiality a nd in order to avoid prejudice to the efficient functioning of government . . . It is plain from Mr Heseltine's written and oral evidence that he had formed the view that the documents ought to be disclosed for use by the defence and that he expected the court so to be informed. Mr Heseltine's willingness to sign the redrafted certi ficate was not an indication that his view that the documents should be disclosed had changed. All that had changed was his willingness to sign a certificate to the effect that the documents he had examined fell into Category B or Category C ... He had b een told in terms that it was his duty to sign at least a limited certificate to that effect ... The notion expressed by Government lawyers that his [Mr Heseltine's] reservations about withholding the documents constituted merely a personal view inconsis tent with the class claim which he had made and that the court need not be told of them reveals, in my opinion, a serious misunderstanding of the role and duty of a Minister asserting a PII claim. The brief to Mr [Alan] Moses [QC] was, in my opinion, uns atisfactory in two respects; first, because it failed to attach copies of the correspondence between the Attorney General and Mr Heseltine; secondly, because it gave, in paragraph 6, instructions on behalf of the DTI that were contrary to the wishesof t he senior Minister of the Department. Major responsibility for the inadequacy of the instructions to Mr Moses must . . . be borne by the Attorney General. In answer to questions whether . . . he ought to have taken steps to see that the brief to Mr Moses adequately reflected Mr Heseltine's concerns, or whether he ought to have given any guidance to the Treasury Solicitor's Department as to how they were to approach the briefing of counsel on the PII issue, the Attorney General responded "No". He elaborated his answer as follows: I have a small team that works with me dealing with a huge volume of advice-giving as well as prosecution superintending functions, day in and day out . . . . If my small team started to second-guess or substitute themselves for those who basically are a nd certainly expected to be both experienced and competent in their functions, for example, here, of being instructing solicitors on a PII matter such as this, and if we attempted to substitute our role for theirs, the system would break down." I accept the general statement of practice made by the Attorney General . . . And I accept the genuineness of his belief that he was personally, as opposed to constitutionally, blameless for the inadequacy of the instructions sent to Mr Moses. But Ido n ot accept that he was not personally at fault. The issues that had been raised by Mr Heseltine's stand on the PII Certificate did not fall into the category of . . . routine . . . issues that could properly be left to be dealt with by officials in the Tr easury Solicitor's Department . . . Mr Heseltine had taken his stand . . . as a result of an apprehension that justice might not be done if the documents were withheld from the defendants. Such an apprehension on the part of a senior Minister . . . raise d very serious issues . . . as to the role of PII Certificates in criminal cases . . .

The Ordtech affair In the section of his report, on Ordtech, a Reading-based arms manufacturer, Sir Richard criticises officials at Customs and at the Department of Trade and Industry for their role in withholding documents that would have assisted the defence. In this cas e, Public Interest Immunity certificates were signed by ministers but were never used in court because the court had already accepted assurances that there were no documents of relevance to the defence.

According to Customs, the formal investigation into Ordtech did not begin until 16 July 1990 . . . Ordtech, unlike Matrix Churchill, did not hold a licence for the export of the equipment to Iraq. The only licences obtained by Ordtech were in respect of the export of the fuse assembly line and associated components to Jordan . . . . The first main request for documents and information made on behalf of Mr [Stuart] Blackledge [one of the defendants] was made in a letter dated 30 September 1991 to Customs . . . The approach adopted by Customs of simply referring John Budd & Co (Blackl edge's solicitors) to the DTI was not, in my opinion, an adequate discharge of their responsibilities . . . . Lt-Col Glazebrook's minutes (a Ministry of Defence official who considered Ordtech's Export Licensing Applications), and in particular his 19 January minute, were, in my opinion, plainly relevant to, and would have "materially assisted", the line ofdefe nce which Mr Blackledge and Mr [Paul] Grecian [the principal defendant] intended to run . . . . As I have previously described, Paul Grecian, like Paul Henderson, had provided information to the intelligence agencies . . . . It was DS Wilkinson who introduced Mr Grecian to members of the Security Service and SIS . . . . DS Wilkinson's statement gav e no indication of the number of meetings which Mr Grecian had had with him or with members of the SIS and the Security Service, nor did it give the dates of the meetings. It provided very little detail about the information which Mr Grecian had in fact supplied . . . . The clear inference from Mr [Sir Andrew] Collins' [prosecuting counsel] submissions to court, cited in the previous paragraph, and from his written evidence to the Inquiry, is that in reaching the decision that the meeting notes need not be disclosed to the defendants he was relying on instructions given to him by Mr Wiltshire (Customs) that they contained nothing that might assist Mr Grecian's defence. His Honour Judge Spence [the Judge at the Ordtech trial at Reading, 1992], having considered theappl ication, ruled that "counsel for the prosecution [had] done all that he properly should have done" and said that he took "the view that there is nothing to be disclosed". I disagree with Judge Spence's ruling in this regard . . . . In their written comments, Miss Bolt and Sir Andrew Collins have suggested that some of the documents identified above could not, on account of certain statutory restrictions, have been disclosed to Customs Solicitors or to Counsel. I doubt the correctne ss of this proposition. But, in any event, the statutory restrictions that may have applied do not in the least excuse the failure of Customs to investigate a search for relevant documents . . . Two public interest immunity certificates were signed for the purposes of the Ordtech prosecution: On 6 February 1992 Mr Lilley, the Secretary of State for the DTI, signed a certificate seeking immunity from disclosure of sixteen documents on DTI files; On 6 February 1992 Mr [Kenneth] Baker, the Home Secretary, signed a certificate seeking to protect information relating to the intelligence agencies from being elicited by questions to witnesses, in particular, to DS Wilkinson in the course of oral testi mony . . . . In my opinion, the statement made in paragraph 6 of Mr Lilley's PII certificate that it was "improbable that such documents can have any significant relevance to these proceedings" was mistaken in respect of Lt-Col Glazebrook's minutes and in respect of the dummy-run correspondence. In evidence to the inquiry Mr Lilley made it clear that in signing the certificate he had relied on the assessment as to the relevance of the documents made by Mr Collins. He was fully entitled to do so . . . .