Two former directors of engineering firm Mabey & Johnson Ltd have been found guilty of inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein. A company sales executive has already admitted his involvement. The company pleaded guilty to breaching United Nation's sanctions (along with other offences) in September 2009.
Today, a Southwark Crown Court jury found Charles Forsyth and David Mabey guilty of making illegal payments to Iraq during 2001/02 in breach of United Nations sanctions. Mabey & Johnson Ltd had entered into a contract under the UN Oil-for-Food Programme which was introduced to alleviate hardship for the Iraqi people.
At the time of the offence, Charles Forsyth was the Managing Director of Mabey & Johnson Ltd and David Mabey the Sales Director. Another defendant, Richard Gledhill who was Sales Manager for contracts in Iraq, pleaded guilty to sanctions offences at an earlier hearing and gave evidence for the Prosecution. The payments, which amounted to over €420,000, were made in order to secure a contract to supply 13 steel modular bridges.
Background
Mabey & Johnson Ltd design and manufacture steel modular bridges, most of which are exported. Iraq had been one of its markets until economic sanctions were imposed following the invasion of Kuwait in 1990. Though Kuwait was liberated the following year, sanctions on trade with Iraq remained in force. The introduction of the Oil-for-Food Programme permitted Iraq to resume its export of crude oil in order to acquire humanitarian goods. The proceeds of the sale of crude oil were deposited into a UN-controlled escrow bank account. These monies were then utilised to meet the humanitarian needs of the Iraqi population by the importation of necessary, authorised products. This extended to certain infrastructure contracts e.g. as required to export the oil or alleviate humanitarian suffering. For Mabey & Johnson Ltd, the UN Oil-For-Food Programme reopened the potentially lucrative Iraqi market.
To win the business, Mabey &Johnson Ltd agreed with the Iraqi Government to pay a kickback amounting to 10% of the contract value for the supply of 13 bridges. This kickback was required to be paid prior to the goods crossing the Iraqi border points. If the kickback payment had not been received by the Iraqi regime, the goods would not be permitted to enter the country and Mabey & Johnson Ltd, would not receive payment. The kickback was disguised as "commission" payable to Mabey & Johnson Ltd's local representative, Upper Gulf Agencies ("UGA") and was factored into the contract price by increasing the price. Consequently, Mabey & Johnson Ltd suffered no financial loss in making this kickback payment.
Richard Gledhill, as Sales Manager, negotiated the contract with the Iraqi Government and obtained approval from Charles Forsyth and David Mabey to make the kickback payments via the agent UGA. The kickback payments were made in two instalments in advance of two shipments, deposited in cash into two separate Jordanian bank accounts at The Housing Bank for Trade and Finance. These deposits were made into accounts held in the names of Al Idrisi Engineering Consultants (for one shipment) and Sami Thiyab Abdul Razzaq Al Ghareeri & Sajedah Ibrahim Ali (for the second shipment).
At the time, it was an offence to make funds available to the Government of Iraq without the authority of a licence granted by HM Treasury. No such licence had been applied for by Mabey & Johnson Ltd.
The contract
The contract was with the Iraqi Ministry of Housing and Construction. Richard Gledhill visited Iraq in December 2000 to open contract discussions for the supply of bridges to Iraq and ultimately a contract for €4,222,643 was signed in Baghdad on 30 May 2001 for the supply of 13 Bridges. Richard Gledhill had been faxed multiple sets of proforma invoices from Mabey & Johnson Ltd in the UK, also dated 30 May 2001. Each proforma invoice was identical in every particular other than the price; e.g. the first profroma showed the sales price of the goods, the second proforma showed the inflated price incorporating the 10% kickback payment.
Arrangements were put in hand to obtain an export licence from the UK's Department of Trade & Industry, have it registered for approval with the UN Office of the Iraqi Programme and for the Central Bank of Iraq to open a Letter of Credit through BNP Paribas and Barclays Bank. With all of these legal and financial requirements completed, Mabey & Johnson Ltd was able to proceed with the supply of the bridges; the first consignment entering Iraq at the port of Umm Qasr in May 2002 and the second entering at Trebil via Aqaba in September of that year. Both shipments were cleared at entry by Iraq following the illegal kickback payments being made into the Jordanian bank accounts. Confirmation of receipt into Iraq by UN Inspectors enabled Mabey & Johnson Ltd then to claim payment from the UN's escrow bank account held in New York.
Investigation and Proceedings
The Iraq Government's demands for kickbacks on humanitarian contracts came under UN scrutiny following the international action against Iraq in 2003. The UN Independent Inquiry Committee was established and published its final report on the manipulation of the Oil-for-Food Programme in October 2005 and made a referral to the UK authorities in December 2005. Following the provision of additional funding from HM Treasury (with the support of the Attorney General), the SFO commenced an investigation in 2007. (See also note 1)
Mabey & Johnson Ltd was charged in July 2009 with breaching UN sanctions to which the company pleaded guilty. (In the same action, the company also admitted corruption offences in relation to separate contracts in Jamaica and Ghana.) The company was fined £2 million in connection with Iraq and has paid £618,000 to the Iraq Reconstruction Fund.
The SFO investigation into the roles of individuals continued and summonses were issued against the three above named defendants on 31 December 2009 with breaching UN sanctions. The trial opened at Southwark Crown Court on 17 January 2011. They are to be sentenced on 23 February.
