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Rhetoric and reality in the Iranian arms trade

Published by Forbes on 1987-10-19

ON A CRISP January morning in 1986, Sweden's late Prime Minister Olof Palme walked through a heavily guarded garden in New Delhi with his friend and political soul mate, Indian Prime Minister Rajiv Gandhi. Palme was no friend of the U.S.: He once likened the U.S. bombing of Hanoi to Hitler's efforts to exterminate the Jews. Palme fairly oozed sentiments of peace and friendship for the Third World.

Some friend. Some peace-lover. Armaments, not disarmament, were on Palme's mind in that Delhi garden. Gandhi listened carefully as Palme spelled out how Sweden would sweeten a deal under which India would buy, for $ 1.3 billion, 400 howitzers from AB Bofors, a failing Swedish weapons manufacturer. To undercut an attractive offer from a French competitor, Palme was prepared to offer India unprecedented state export credits. Sweden had previously prohibited such credits for arms deals.

Gandhi was interested. The Bofors 155mm gun would enable India to shell Lahore, a large city in neighboring Pakistan, from within Indian territory. And it would be cheaper to do so with Swedish howitzers than with French guns.

Within a few weeks India and Sweden signed the deal, and Sweden started shipping Bofors Howitzers at the rate of 14 a month. The order guaranteed employment for the company's 5,000 workers for at least another four years. Bofors' chairman threw a champagne dinner for all employees and their families.

The celebration was, however, premature. It turned out that more than cheap credits were involved in the deal. Bofors officials have paid recently admitted that Bofors paid "commissions" totaling more than $ 40 million to Indian middlemen. Swedish law prohibits bribes for arms deals, but business is business. Peaceful sentiments are cheap, hard cash is not.

Did Rajiv Gandhi or people close to him receive the commissions? Gandhi says no. Bofors will only say that money was transferred into the Swiss bank accounts of three foreign companies. (Critics in India have put the number at ten.)

An investigation is gathering steam in New Delhi. While the Gandhi government is not tottering as a result, it is at least as embarrassed by the revelations as the Reagan government ahs been by the Iran/contra affair.

What did Olof Palme know about Bofors' Indian payments and when did he know it? A month after his meeting with Gandhi, Palme was assassinated as he left a Stockholm movie theater. His assassin has yet to be apprehended.

Another official who might have shed light on the mystery is also dead. Carl-Fredrik Algernon, director of Sweden's arms agency, had emerged as a key figure in various investigations of Bofors. In January of this year Algernon fell -- or was pushed to his death before an incoming subway train at Stockholm's Central Station. His death has been officially termed an accident, possibly a suicide. Almost nobody believes it.

A picture is beginning to emerge in which Olof Palme, the man who was posthumously awarded India's Jawaharlal Nehru Prize for promoting world peace and nonviolence, was in fact one of the world's leading arms salesmen.

Politics made him so. Sweden's arms industries suffered from declining domestic demand. Arms exports not only helped areas like Karlskoga -- where Bofors employs 80% of the work force -- but also paid for technological research in defense.

Was Palme simply bending his principle to accommodate friend Rajiv Gandhi? Not at all. While mouthing peaceful sentiments, Palme and the Swedes were energetically pushing arms onto Third World countries that could ill afford them.

For example, Sweden has been a supplier of arms to the Ayatollah in Tehran. Sweden is neutral in the war between Iran and Iraq -- officially. But its trade account certainly favors the Iranians. In the three years after Palme took office (for the second time) in 1982, Sweden concluded oil deals with Iran amounting to nearly $ 200 million, while buying almost no oil from Iraq.

What did Iran get in return? Consumer goods -- more than $ 500 million worth in 1984 alone -- and arms. Swedish arms producers -- mainly Bofors -- were providing Iran with nearly 1,000 RBS-70 antiaircraft missiles, among other items.

Legally, Swedish companies are forbidden to export arms to areas enmeshed in armed conflict or human rights violations. But such laws are for public relations. The Bofors RBS-70 missiles, for example, were routed to the Middle East through two Singapore companies, Allied Ordinance of Singapore (AOS) and Unicorn International. AOS is partly owned by Sheng Li Holding Co., the Singapore Defense Ministry's investment company, and by Bofors.

Here's a twist: According to Sweden's Bureau of Statistics, Singapore, whose defense requirements are modest, was Sweden's biggest weapons customer between 1977 and 1986. It bought $ 1.4 billion worth of armaments, or almost 11% of all Swedish arms exports during the period.

Missiles are only a part of the story. In 1983, when Palme was prime minister, Sweden's shipbuilding firm of Boghammer Marin delivered some 40 speedboats to the Iranian coast guard, an order reportedly worth around $ 9.5 billion. The boats, capable of speeds up to 50 knots, have been used by the Iranian Pasdaran, or Revolutionary Guards, to attack oil tankers and other shipping in the Gulf (including Swedish-owned supertankers). These boats are now a threat to U.S. Navy ships patrolling the Persian Gulf. Sweden's War Materials Inspectorate is currently investigating charges that these speedboats were modified for military use by Boghammer Marin before deliveries to Iran.

More than 400 tons of explosives were sold to Iran by Sweden's Nobel Kemi company in the last three years through Austria, Italy, Yugoslavia and Bulgaria, according to Swedish Customs, who say that the company made $ 67 million on this deal.

Nobel Kemi, like Bofors, is a subsidiary of Nobel Industries, founded by Alfred Nobel. According to Stig Age, a public prosecutor in Orebro, up to 35% of Nobel Kemi's production during this period may have been diverted to illegal operations, including Iran. Earlier this year the managing director of Bofors, Martin Ardbo, resigned in the wake of suspicions over exports to the Middle East via Singapore.

Evil capitalists defying the law in the interests of profits? Hardly. Avowed socialist Olof Palme was involved in the deals up to his armpits.

Not that Sweden is alone among European countries in condemning the Iranians in public while privately helping to arm them. According to the Stockholm International Peach Research Institute (SIPRI) and the London-based International Institute for Strategic Studies, 53 countries supplied weapons or military equipment to Iran or Iraq between 1980 and 1986, and 27 of these countries have sold arms to both sides. Chris Smith, of Britain's University of Sussex, says that at least half of Western Europe's total annual production of 100,000 tons of ammunition is bought by Iran, mostly through middlemen in London, Geneva, Vienna, Paris, Hamburg and Amsterdam.

The trade is very lucrative. Sam Cummings, a leading global arms merchant, says he was offered $ 10,000 per TOW missile by Iran, versus the standard price of $ 3,000. He declined, says Cummings, because it is illegal to export arms to Iran.

French arms merchants, on the other hand, have been doing a brisk trade in the Middle East. Since 1980 France has sold Iraq almost $ 10 billion in weapons and ammunition. The Iraqi air force, although largely equipped with Soviet planes, also has French Mirages that fire Exocet missiles.

To cover their bets, French arms companies also have been supplying Iran. French government investigators are studying reports that a French explosives company, SNPE, collaborated with Italian firms and Nobel Industries in channeling 250,000 anti-shipping mines to Iran. SNPE, technically under Defense Ministry jurisdiction, has also been accused by a French magazine of providing explosives for Iranian antiaircraft shells.

Austria's export regulations, like Sweden's prohibit arms sales to countries at war. The Austrian media have reported that as late as last year an Austrian company sold military equipment to Libya. Libya is generally believed to reroute many of its arms imports to Iran.

In Britain officials are investigating up to 50 companies suspected of transferring arms or ammunition to Iran. Among these companies is Nobel Explosives Ltd., an independent company also created by Alfred Nobel. Similar investigations are under way in Norway, Italy and Belgium.

Officially, Spain does not export arms to Iran. But the socialist government of Felipe Gonzalez was recently embarrassed by disclosures that, between 1983 and May 1986, Spanish-made grenades, mortars and shells for 105mm and 155mm cannons were shipped to Iran via Libya and Syria. According to investigative reports in El Pais, one of the country's most respected newspapers, four of Spain's biggest arms manufacturers were involved in the sales to Iran: Gamesa, Santa Barbara, Explosivos Rio Tinto and Explosivos Alavesas. Gamesa and Santa Barbara area owned by Spain's state holding company, INI.

Professing shock at the Bofors scandal, Swedish Prime Minister Ingvar Carlsson swore late last month that stricter rules would be drafted governing weapons exports. In London in late September authorities shut down the Iranians' arms procurement office and warned private arms dealers about still penalties for supplying weapons to Iran.

But it is unlikely that any of this will seriously change the reality of the flow of arms to the Middle East or other Third World trouble spots. Where money and jobs are concerned, principle and ideology don't seem to matter.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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