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On Question, Motion agreed to.

BAE Systems: Al Yamamah Contract

5.21 pm

The Attorney-General (Lord Goldsmith): My Lords, with the leave of the House, I shall make a Statement which relates to the investigation by the Serious Fraud Office into BAE Systems plc concerning payments made in relation to the Al Yamamah programme with Saudi Arabia. This afternoon, the Serious Fraud Office has announced that it is discontinuing this investigation. Its statement says:

Given the intense interest in this issue and its market sensitivity, I have decided to inform the House this afternoon of this decision and to give a further brief explanation. The SFO has divided its investigation of these matters into three periods. The first period, which it has termed phase one, runs from the mid-1980s until the coming into force of the Anti-terrorism, Crime and Security Act 2001. This Act extended the pre-existing law of corruption to the bribery of overseas officials. The view of the SFO in relation to these payments is that no prosecution should be brought before the coming into force of the new Act. That is a view with which I concur.

The other phases concern the period after the coming into force of the new Act. Phase two covers payments made at about the time of the termination of the arrangements under which payments had previously been made by BAE. Phase three covers a longer period in relation to which at the moment there is little hard evidence that payments were made. In the SFO's view, there is no guarantee that this investigation would lead to prosecution and there are real issues to be determined. In order to complete this investigation, significant further inquiries would be necessary, which would last in the SFO’s judgment a further 18 months. It accordingly has concluded that in these circumstances the potential damage to the public interest which such a further period of investigation would cause is such that it should discontinue that investigation now. I agree that there are considerable uncertainties that a prosecution could be brought; indeed, my view goes somewhat further as I consider, having carefully considered the present evidence, that there are obstacles to a successful prosecution so that it is likely that it would not in the end go ahead.

As to the public interest considerations, there is a strong public interest in upholding and enforcing the criminal law, in particular against international corruption, which Parliament specifically legislated to prohibit in 2001. In addition I have, as is normal practice in any sensitive case, obtained the views of the Prime Minister and the Foreign and Defence Secretaries as to the public interest considerations raised by this investigation. They have expressed the clear view that continuation of the investigation would cause serious damage to UK/Saudi security, intelligence and diplomatic co-operation, which is likely to have seriously negative consequences for the United Kingdom public interest in terms of both national security and our highest priority foreign policy objectives in the Middle East. The heads of our security and intelligence agencies and our ambassador to Saudi Arabia share this assessment.

Article 5 of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions precludes me and the Serious Fraud Office from taking into account considerations of the national economic interest or the potential effect upon relations with another state, and we have

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not done so. Noble Lords will understand that further public comment about the case must inevitably be limited in order to avoid causing unfairness to individuals who have been the subject of investigation or any damage to the wider public interest. It is also appropriate that I should add that the company and individuals involved deny any wrongdoing.

My Lords, that concludes the Statement.
5.26 pm

Lord Kingsland: My Lords, I should like to say how much I appreciate the speed with which the noble and learned Lord the Attorney-General has acted in coming to your Lordships’ House following the decision of the Serious Fraud Office. It is important to stress at the outset that that decision has been made by the prosecutorial authority and by that authority alone. It is true, of course, that the noble and learned Lord the Attorney-General has supervisory powers over that authority and will have given that authority the benefit of his views when asked, but the decision is its alone; it is not a political decision.

In coming to a decision about a prosecution, the prosecuting authority always takes two factors into account. First, what are the chances of success? Secondly, is it in the public interest to go ahead? As to the chances of success in the post-2001 circumstances, the noble and learned Lord the Attorney-General has found himself able to agree with the judgment that the prosecuting authority has made about the likelihood of success, in particular in the context that it would take at least another 18 months before a final view could be taken about the likelihood.

There is, however, the further matter of public interest. In such an international matter, assessing public interest is inevitably complicated, and many diplomatic and other factors are taken into account. The noble and learned Lord the Attorney-General has outlined those factors in making the Statement this afternoon. They are inevitable factors, which are within the unique knowledge of executive authorities. I am in no position to make a judgment about them and it is right in our constitutional system that, unless we have compelling reasons to believe otherwise, we accept the judgment made by the Government. The noble and learned Lord the Attorney-General is, after all, accountable to Parliament for making that judgment, and there the matter should rest.

5.29 pm

Lord Thomas of Gresford: My Lords, I am most grateful to the noble and learned Lord the Attorney-General for bringing this matter before us so swiftly following the decision of the director of the Serious Fraud Office. However, I protest that the public interest in the prosecution of international corruption is of the highest order and, if we permit international corruption to continue in any way, or seem in any way to be giving a go-ahead to a large British industry, however much that may be in the economic interests of this country, we are damaging international relations in the broadest sense. Companies such as BAE Systems are in competition with foreign firms. If we get into a situation in which

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corruption is permitted or allowed to continue, there will be competition about the size of the bribes that can be offered internationally. In the broadest sense, that cannot be in the interests of this country.

The noble and learned Lord the Attorney-General said that any serious damage to UK/Saudi security, intelligence and diplomatic co-operation would have seriously negative consequences for the United Kingdom public interest. But how can that not be forbidden by Article 5 of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which says that you cannot take into account the potential effect on relations with another state? The two statements are contradictory.

I appreciate that the director of the Serious Fraud Office has taken this decision, but I assume that the noble and learned Lord the Attorney-General conveyed the views of the Prime Minister and the Foreign and Defence Secretaries to the director of the Serious Fraud Office. Again, that is no doubt permitted to an Attorney-General, but it puts enormous pressure on the director to take the decision that she has taken.

I respectfully suggest that the decision is premature. This is not the moment to decide whether the prosecutions would succeed or fail. A further 18 months of investigations, having regard to the amounts of money allegedly involved, is not a huge amount of time in this sort of investigation in criminal law, with which I am familiar to a degree. I appreciate the speed of the Statement, but we on these Benches must protest at the decision and the way in which it has been made.

5.33 pm

Lord Goldsmith: My Lords, I first thank both noble Lords for welcoming the fact that the Statement has been made. I particularly thank the noble Lord, Lord Kingsland, for what he said. He is absolutely right: this is a decision by the prosecutor. It is not a political decision, as he rightly said. In his final words, he took the view—which I strongly endorse—that there the matter should rest.

Given the speed with which everything has happened, the noble Lord is not in any sense to be criticised for this, but I should draw a distinction: he said that the SFO had taken a view about the likelihood of success. The SFO has taken the view as set out in the Statement that there is no guarantee that there would be a successful prosecution, that there are real issues to be determined and that it would take a long time to reach that point. However, the assessment of whether it is likely to happen is mine, not the SFO’s, which made the decision on the basis that is set out.

I turn to what the noble Lord, Lord Thomas, said. I absolutely agree that the fight against international corruption is a very important issue, and I imagine that everyone in this House would agree with him. We do not in any sense want to permit or condone corruption; I want to make that plain. As the end of the Statement says, the particular company involved has denied any wrongdoing. Nothing that I say should be taken as a different view. However, the prosecutor has a tough decision to make. It is unrealistic to say that, faced

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with the risk of serious damage to UK national security and wider international security issues, it would be right to wait for 18 months and see all that damage take place, when at the end of the day there might not even be a prosecution.

I have wanted to go further, because I have wanted to look very carefully at the matter. I have spent days with the investigators and lawyers, examining the detailed briefing in trying to form a view, as best one can at this stage, on whether it is likely that there would be a successful prosecution at the end of the day. That is an exercise that I thought it was important for me to undertake to help in this assessment, and the view that I reached is there set out.

I understand the importance of what has been said. The decision has been taken by the director, having very carefully examined the matter and not under pressure in any sense. Yes, the views have been conveyed in terms of what has been said—and the director and officials were able to talk and listen directly to our ambassador, whose assessment helped to form their judgment on the balance that is being struck. At the end of the day, it a very difficult balance to strike. The short statement from the SFO makes that clear by saying that it has been necessary to balance the need to maintain the rule of law against the wider public interest.

5.35 pm

Lord Goodhart: My Lords, I entirely agree with what my noble friend Lord Thomas of Gresford has said. I have two brief questions. First, if, as appears to be the case, further investigation is being stopped because of potential damage to security, intelligence and diplomatic relations with Saudi Arabia, does not that really amount to blackmail by Saudi Arabia to prevent this matter going further? That must be the case. Saudi Arabia is using every weapon in its hands to block the investigation.

The second question arises out of that. What about future dealings, by BAE or any other company? Does not this decision potentially give a green light to them to go ahead with submitting to requests for bribes from Saudi Arabians on the grounds that any investigation into that process will lead to further blackmail from Saudi Arabia?

Lord Goldsmith: My Lords, I would not agree with the formulation that the noble Lord gave in his first question. The decision to discontinue the investigation has been based on an assessment of the case as a whole, including from my point of view the evidence and the likelihood of a prosecution and the law, coupled with a consideration of what I have no doubt are legitimate public interest considerations in proceeding with an uncertain investigation. This is not at all an easy issue for the SFO or for anybody, for just the reasons that all noble Lords have raised.

As to the noble Lord’s second question, I do not agree that the decision gives a green light in any sense. The decision sets no precedent of any kind. The Government’s commitment to tackling international corruption is reflected not only in the new law introduced

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in the 2001 Act but in the steps that have been taken to increase the capacity to deal with international corruption in different ways. As for prosecutors—the SFO or any other prosecutor concerned with the matter—I will consider any such cases robustly and independently, on the basis of the evidence and the public interest.

Lord Clinton-Davis: My Lords, does my noble and learned friend agree that the Saudi authorities have exerted undue pressure to avoid any prosecution? They are able to say that the relationship between the UK Government and Saudi Arabia will be irretrievably damaged if that advice is not heeded. I hope, therefore—and I look to my noble and learned friend to say this—that those sorts of pressures, which are undesirable, have played no part in the consideration of this issue by the Government.

Lord Goldsmith: My Lords, in answer to my noble friend, first, I want to make it plain, as the noble Lord, Lord Kingsland, said, that it is a decision for the prosecutor, not for the Government. The decision by the prosecutor has been based on an assessment of the case. It has involved an understanding of what the public interest consequences would be with continuing against the overall uncertainty of the case and the length of time that a further investigation would take.

Lord Garden: My Lords, I declare an interest as an adviser to Transparency International on the prevention of corruption in the official arms trade. Listening to the complexities of the legal arguments going to and fro, I am left with a very uncomfortable feeling and a question in my own mind as to whether we are talking about the national interest. Presumably, as a result of this decision, we will be left uncertain about whether the accusations were true or false.

The United Kingdom has a slightly iffy reputation on the use of money to facilitate defence contracts. I should have thought that it was in the national interest to clarify that. If—and I say if—commissions are paid in a corrupt way, it makes for an inefficient defence industry, so we pay more at home for our defence equipment, and it undermines Governments overseas, so we reduce our security. In the wider international security interest, we need to be sure that we have measures in place to prevent corruption in the official arms trade. What are the Government going to do as a result of this decision to help to clarify the unfortunate reputation that we are gaining among other arms exporting countries?

Lord Goldsmith: My Lords, I agree entirely with the noble Lord about the importance of taking steps to prevent corruption in significant international trades, including the arms trade. The noble Lord asked me what steps will be taken as a result of this case. I will need to write to him about that. I am not in a position to answer that today, given that the event has just occurred as we speak.

The noble Lord’s point comes back to the same basic point that other noble Lords have raised, which is that it is a very difficult issue. It is necessary to balance the strong public interest in the rule of law

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and in prosecuting crime, including international corruption, but not with national economic interest. There has been a certain amount in the press about particular economic interests. Those are not, as is made clear in the Statement, the reason for the decision. Whether contracts are going to be placed is not balanced in the decision. It is a question of national security and intelligence, given the particular relationships that there are between this country and Saudi Arabia in relation to that.

I hope noble Lords will understand that, as I said at the end of my Statement, I have to be somewhat cautious about what I say publicly to avoid by what I say doing damage to the wider public interest myself.

Technology Strategy Board Order 2007

5.43 pm

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Truscott) rose to move, That the draft order laid before the House on 23 November be approved. Second Report from the Statutory Instruments Committee.

The noble Lord said: My Lords, in a competitive global economy, innovation and the successful exploitation of creative ideas are increasingly necessary to business success, productivity and long-term economic growth. United Kingdom business is often criticised for its failure to develop and exploit to the full technology and new ideas. The Technology Strategy Board Order will help to address that problem.

The order establishes the Technology Strategy Board, under the Science and Technology Act 1965. Its operational approach will, however, be very different from research councils created so far under the Act in that it will have a very strong business focus. The Act requires that a draft of the Order in Council, declaring the Technology Strategy Board to be a research council and specifying the new body’s objectives, must be laid before Parliament and approved by a resolution of each House. The draft royal charter under which the new body will be incorporated has been placed in the Library to provide a background to our debate.

The present Technology Strategy Board has made an impressive start as an advisory body. Since October 2004, it has advised the Secretary of State for Trade and Industry on business research, technology and innovation priorities for the UK, the allocation of funding across those priorities and the most appropriate ways to support them. The board has been instrumental in the success of the Government’s technology programme. More than 600 projects have been supported, mobilising over £900 million devoted to research and development in many areas of the UK economy.

The Secretary of State for Trade and Industry announced to Parliament on 1 November 2006 that he had decided that the best way to build on the success of the current board and ensure that the programme of technology support continued to be delivered efficiently and effectively was to create a new Technology Strategy Board as an executive arm’s- length body. Its primary location will be Swindon.

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The new body will work closely with Ministers in achieving its objectives. It will promote and support research into and the development and exploitation of science, technology and new ideas for the benefit of business, in order to increase economic growth and improve quality of life in the UK through the delivery of key products and services, as agreed with the Secretary of State.

The new body will have executive responsibility for delivering programmes of government financial support to encourage business investment in and use of technology across all sectors of the UK economy. These programmes will include continuing support for collaborative research and development for business investment, and the use of technology, in both manufacturing and service industries. The aim will be to achieve increased innovation in sectors where the UK economy is strong; the development of new sectors, through the creation and growth of research and development, of intensive small and medium-sized enterprises; and support for the use of technology in areas important to the future of existing and emerging sectors in the UK.

The Technology Strategy Board will also support knowledge transfer networks. These are national over-arching networks that aim to improve the UK’s innovation performance by increasing the breadth and depth of knowledge transfer of technology into UK businesses. The establishment of the new body will provide improved strategic focus, better operational flexibility, and greater consistency and coherence in the delivery of the Government’s programme of technology support.

The new body will be business focused, with a business-led board. It will work closely with departments and agencies of Her Majesty’s Government, with the devolved Administrations, the regional development agencies and the research councils. It will collaborate with these bodies and businesses on technological developments and innovations of importance to the UK and to government procurement. A key role of the new body will be to support close working between Her Majesty’s Government and business in developing and exploiting new technologies through its programmes.

In its advisory role, the new body will alert the Government to areas where barriers exist to the exploitation of new technologies. It may be asked to make recommendations on how those barriers can be removed, but responsibility for the overall direction of innovation policy will remain with Ministers.

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