Sleeping With The Devil (26 page)

    The U.S. Arms Export Control Act requires that the executive branch
inform Congress of all proposed government-negotiated foreign military sales agreements and
direct commercial sales in excess of $14 million. Among the goodies approved for the kingdom in
the six years beginning in 1994:

    

    • Upgrades of 1,500 Raytheon AIM-9L missiles and 300 AIM-7M
air-to-air missiles. (Ex-CIA director John Deutch sits on the board of Raytheon.)

    • Upgrades of 700 GBU-10 Paveway II Laser Guided Bombs.

    • A hundred and thirty 90-mm turret weapon systems for integration
into light-armored vehicles, 130 M240 machine guns and M2.50-caliber machine guns, and nearly
170,000 rounds of 90-mm ammunition.

    • Maintenance and support of airborne warning and control systems
(AWACS), KE-3 aerial refueling tankers, and HAWK and Patriot air-defense systems.

    • Upgrades of Raytheon Hawk surface-to-air missiles.

    • Five hundred and fifty-six guided-bomb units for the Rockwell
GBU-15, and on and on.

    

    But those are just the small-ticket items. In all, ever since then
Secretary of State Henry Kissinger set up the arms-for-oil mechanism in the early 1970s, the
Saudis have bought upward of $100 billion in U.S.-manufactured fighting machinery and related
construction and support, everything from AWACs to Abrams M-1 tanks, fighting vessels, and
more. For years upon years, the Saudis have been the world’s number-one consumer of American
armament and weapon systems.

    For every deal, there’s a commission; and for every commission, there’s
a Saudi royal waiting behind the door to take his cut. But there are other ways to get into the
till than making a grab. The protocols that govern American foreign military sales to the
Saudis call for funds to be taken from the Saudi treasury and placed in a trust fund
administered by the U.S. Department of Defense. Specific payments to vendors are then disbursed
from the trust fund. All of which might work fine if the Saudis paid their bills on time, but
since they habitually don’t, an end-run system called reverse collection was set so that money
could be paid to the Royal Saudi Air Force and, in theory, simply held there until needed.
(Reverse collection is deeply complicated. Imagine a father who decrees that his children can
have their allowances only if they meet certain strict criteria, then - because he’s rarely
around to hand out the money - sets up an allowance account the kids can dip into whenever they
declare themselves eligible.)

    Because reverse collection essentially takes military purchases off the
books, it proved a godsend. Using it, the Saudis have been able to purchase advanced weapons
systems, including the electronic reconnaissance Rivet Joint Aircraft, without the knowledge of
the U.S. Congress, a clear violation of the intent of the legislation authorizing foreign
military sales.

    Reverse collection has also sparked individual entrepreneurs. When a
shipment of new Saudi uniform pants arrived without belt loops, the Saudis went ahead and
reverse-collected $2.1 million to pay the local vendor. One Saudi lieutenant was sufficiently
upset by the corrupt disbursement that he tracked the money down. A million dollars actually
made it to the vendor. The other $1.1 million simply disappeared into someone’s pocket, a
little better than par for the course. The American who knew the story about reverse
collecting, by the way, worked for the Royal Saudi Air Force under contract with BDM, back when
it was a subsidiary of the protean Carlyle Group.

    Prince Bandar once estimated to a PBS interviewer that of the roughly
$400 billion the Saudis have spent since the early 1970s to create a modern state, maybe $50
billion has been lost to corruption. (“So what?” Bandar memorably told the interviewer. “We did
not invent corruption.”) Using that ratio as a guide, perhaps $12.5 billion of the $100 billion
in armaments purchased from the U.S. has been kicked back to the Saudi royal family in bribes,
about $800 million a year. On both sides of the equation, there has been plenty of opportunity
to get filthy rich.

    IN THE SUMMER of 1992, George H. W. Bush approved the sale of up to
seventy-two F-15s to Saudi Arabia, at a total cost of $9 billion, including weapons and ground
support. Developed by McDonnell Douglas (now part of Boeing), the multirole fighters could
carry over twelve tons of air-to-air and air-to-ground weapons, including Sidewinder and
Sparrow missiles and more than 160 bombs on a single run. Although they were barely operational
a year earlier, the F-15s had played a role in the first Gulf War, a prime demo run for
potential Arab purchasers with a front-row seat to the action.

    Early in 1994, before delivery could begin, the Clinton administration
approved the sale of up to twenty-five F-15s to the Israelis. (The Saudis’ fighters are
designated F-15S; the Israelis’, F-15I, in case you’re keeping score.) For Boeing McDonnell
Douglas, this is the sort of drive toward regional arms parity that fuels the bottom line and
keeps the factories humming, but the Israelis have more reason than most states to worry about
the massive sales of sophisticated weaponry to a government that sits atop a powder keg of
Wahhabi-inspired Islamic extremism. As history has proved time and again, arms sales to
unstable nations have a way of circling back and biting the seller in the ass. (The same, of
course, could be said of CIA help provided to the Taliban when they were Afghan freedom
fighters.)

    Strangely, though, it was a civilian aircraft sale to the Saudis that
might have done the most harm to the stability of the kingdom. The contract was inked on
October 26, 1995, at the kind of White House Oval Office signing ceremony that usually marks a
major piece of legislation or a military or diplomatic pact. With President Clinton looking on
along with the chairman of Boeing and the president of McDonnell Douglas, Prince Sultan, the
Saudis’ second deputy prime minister and minister of defense and aviation (as well as Prince
Bandar’s father), pledged that Saudia Airlines, whose board he also chairs, would purchase
sixty-one jetliners manufactured by Boeing McDonnell Douglas. Included in the purchase were
twenty-three long-range 777-200s, five 747-400 passenger jets, four MD-11F cargo planes, and
twenty-nine MD-90s, as well as engines from General Electric and International Aero Engines, a
joint venture of Pratt & Whitney and Rolls-Royce PLC. At a total price tag that topped $7
billion, the order was the largest single purchase of commercial airliners ever by a Middle
East carrier. To celebrate the deal, Defense Secretary William Perry hosted an official dinner
for Prince Sultan at Blair House, the official guest residence, a short walk from 1600
Pennsylvania Avenue.

    For Bill Clinton, the Saudia contract was the best sort of broadly
distributed political windfall. The aircraft would be constructed at Boeing’s main facility in
Washington State and at McDonnell Douglas in California. The General Electric engines would
come from Ohio, the Pratt & Whitney engines from Connecticut. Missouri, Kansas, Arkansas,
and Utah also got pieces of the pie. In all, the states represented in the deal stood to cast
122 electoral votes in 1996, out of 538 total votes. In a press release that accompanied the
signing, the White House calculated that the Saudi order would provide work for a hundred
thousand Americans - this right as the U.S. economy was starting to regain steam after the
economic collapse in the final years of the Bush I administration.

    Always the campaigner, Clinton had lobbied hard for this one. In
February 1993, barely a month in office, he sent Secretary of State Warren Christopher to Saudi
Arabia to pressure King Fahd into buying Boeing. Commerce Secretary Ron Brown followed in May,
spending two hours lobbying the king. Clinton got into the act directly in July, asking Prince
Bandar to stop by the White House for a tête-à-tête. A month later, Bandar returned from Riyadh
with news that the king was inclined to place the entire order with Boeing, rather than
splitting it, as previously contemplated, with Europe’s Airbus. On October 28, 1994, Clinton
met with King Fahd at King Khalid Military City, near the Saudi borders with Kuwait and Iraq,
to push the Saudis toward finalizing the arrangement.

    Clinton wasn’t the only head of state interested in landing the Saudia
contract. By the early 1990s, the world market for commercial aircraft was in decline. Jobs and
votes were at stake, as were whole industry sectors. Whom the Saudis would buy from, how much
they would buy, and what they would pay had become a matter of international significance and
intrigue, as well as electoral survival.

    Not to be outdone by Christopher, Brown, and Clinton, the French
president, François Mitterrand, flew to Saudi Arabia to meet with King Fahd and the royal
family and argue the case for Airbus. John Major, then the British prime minister and soon to
be the Carlyle Group’s man in the Middle East, jumped on the Riyadh shuttle in support of
Airbus’s corporate partner, British Aerospace. Behind the scenes, both the CIA and the National
Security Agency were pressed into service to “sniff out French bribes and generous financing
terms,” according to a
Washington Post
article. Undoubtedly, the British and the French
unleashed their own official snoops and sneaks on the U.S. This was a global stage, and much
was at stake.

    But it was beneath the surface and away from government offices where
the real groundwork was being laid. Every deal with the Saudis involves rake-offs, commissions,
theft, bribes, graft. Call it what you want, that’s the cost of doing business with our
self-styled best friend in the Arab world. Generally, though, the details stay murky, hidden in
complicated transactions, protected by the Middle Eastern equivalent of the code of omerta. Not
so the Boeing deal. Thanks to a prolonged lawsuit that played its way through the Washington
State Superior Court, we have a pretty clear picture of what it takes to land a major contract
with the Saudis, and just how far one of America’s leading corporate lights was willing to
raise its skirts to land a fat chunk of Saudi Arabia’s trade.

    The case,
Tahir Bawazir v. the Boeing Company and Sheikh Khalid bin
Mahfouz
, was filed on June 16, 1998, but its roots go back to the beginning of the decade.
As soon as it became evident that Saudia Airlines was looking to update its aging fleet, Boeing
swung into action. Business was flat; layoffs, imminent. High inflation and recession, in the
U.S. and elsewhere, were causing customers to rethink their needs and, in some cases, cancel or
delay existing orders. Just as bad, the company was about to roll out its wide-body 777 line
without sufficient customers to pay for the launch.

    All Saudi airline purchases, military or commercial, must be approved
by the royal family, and Boeing executives knew from previous experience that meant they would
need a human conduit to the king and his entourage, including Prince Sultan. The search for a
well-positioned consultant led the airplane manufacturer to Khalid bin Mahfouz. At the time
Mahfouz was serving as deputy general manager and chief operating officer for the National
Commercial Bank, one of Saudi Arabia’s largest financial institutions. (The Mahfouz family was
the majority shareholder in NCB.) More important, Khalid bin Mahfouz enjoyed a reputation in
Saudi Arabia as “banker to the king,” an invaluable entree.

    Mahfouz met with Boeing executives about the Saudia deal in 1991. To
allay the Americans’ fear that his global financial holdings would distract him from the work
at hand, Mahfouz agreed to form a partnership with someone who could oversee the day-to-day
work the consulting relationship required. That someone turned out to be Tahir Bawazir, a
Yemeni residing in Saudi Arabia. The Mahfouz clan had multiple business relationships with his
family, going back several decades.

    In March 1992 Boeing approved the team and signed the first of a series
of one-year consulting agreements. Compensation would be on a purely contingent basis: a
percentage commission to be calculated on the price at delivery of the aircraft - at least 5
percent of the total sales price, court documents suggest, more likely in the 10- to 12-percent
range, the benchmark for such deals with the Saudis.

    Not long after that agreement was inked, Khalid bin Mahfouz began to
have troubles, and we’re leaving aside his close links to royal charities whose money may have
ended up with bin Laden, al Qaeda, and other terrorist organizations. Among Mahfouz’s holdings
was a major stake in the Bank of Credit and Commerce International, the soon to be infamous
BCCI. In July 1991 a New York grand jury indicted the bank, four of its affiliates, and two
officers for fraud. A related indictment came down a year later for Mahfouz, and a warrant was
issued for his arrest. Almost simultaneously, the United States Federal Reserve Board filed a
civil complaint against Mahfouz charging that he violated federal banking laws. On July 8,
1992, U.S. District Judge Kimba Wood issued an order prohibiting the sheik from “withdrawing,
transferring, removing, dissipating, or disposing of assets or other property which he owns or
controls… within the jurisdiction of the United States.” Boeing, among others, was informed of
the order and instructed that any proceeds from its consulting agreement with Khalid bin
Mahfouz would be subject to attachment.