Leak hints at corruption in arms deal between Israeli company and Ugandan Air Force
27 May 2023 ( Times of Israel )
A German manufacturer of defense equipment suspects that an Israeli company known as BIRD Aerosystems paid a bribe as part of an arms deal in Africa.
The German company, Hensoldt, was looking into the issue since it supplied some of the components of the systems that BIRD sold. The management of Hensoldt ordered an investigation into the deal, but, in the end, it supplied the components in question before even completing its probe.
The arms deal in Uganda has been exposed as part of an international investigation based on documents leaked from Hensoldt, which were obtained by the German news outlet Der Spiegel. The information was analyzed by European Investigative Collaborations and other media outlets. Shomrim’s Daniel Dolev and Uri Blau were the Israeli participants in the project.
One of the most significant revelations to come from the project – that Hensoldt, which is partly owned by the German government, sold defense equipment to Saudi Arabia despite an explicit regulatory ban – was published several months ago. The deal was done through Hensoldt subsidiaries in the United Kingdom and South Africa.
The Israeli go-between: Boaz Badihi
The leaked documents indicate constant tension between the sales team at Hensoldt and the compliance division, which ensures that the company does not violate any laws. One of the deals that was the subject of heated internal debate was the sale of surface-to-air missile defense systems to the Ugandan Air Force in 2021.
The documents provide startling details regarding the structure of the deal (see attached flow chart). The system was manufactured by BIRD Aerosystems, a Herzliya-based company that specializes in manufacturing aircraft defense systems and is partly owned by FIMI Opportunity Funds, a Tel Aviv-based private equity firm.
BIRD was founded in 2001 by three former Israeli Air Force officers – Ronen Factor, David Dragucki and Zahi Ben Ari. In 2018, FIMI Opportunity Funds purchased a 50% stake in the company for $40 million. Hensoldt was one of BIRD’s suppliers, providing some of the system’s components.
According to the leaked documents, the next part of the Uganda deal was a “local partner” – a company known as Preservice Group, which is registered in the United Kingdom.
In internal documents, Hensoldt executives expressed concern that the company might be a shell (or letterbox) company controlled in practice by an Israeli arms dealer called Boaz Badihi. They qualified this, however, by adding that they could not verify this information. An examination of the register of records in the UK confirmed that Badihi was the company’s controlling owner, holding at least 75% of the shares.
Badihi has been operating for decades in Africa, primarily in Uganda and Equatorial Guinea. According to a report in Globes in 2002, his father – a former Air Force pilot with connections in Uganda – opened the door for him to start making defense deals in the country. His dealings in Equatorial Guinea were exposed because of a dispute with a former business partner, which ended up in court. According to a suit filed in 2018, the two were involved in defense deals valued at hundreds of millions of dollars in Equatorial Guinea.
On more than one occasion, according to the suit, the deals were finalized directly with the country’s president, Teodoro Obiang Nguema Mbasogo, who has ruled the country with an iron fist since 1979, or with his defense minister. Badihi withdrew his suit before a ruling was delivered.
Badihi was also apprehended in 2016 when passing through Ben Gurion International Airport with 77,000 euros in cash – a sum he should have declared by law.
Under questioning by the tax authorities, he claimed he needed that much cash because of his work in West Africa. “I regularly carry sums of 50,000 euros in cash with me so that if there is an attempted coup, I’ll have the money to evacuate the Israeli company — the instructors and employees who work for my company,” he told officials. In the end, some of the money was confiscated, but no further action was taken against Badihi.
To make matters even more complicated, technical maintenance of the systems was to be entrusted to two additional companies that were also connected to Badihi: The first, according to tourist websites, is a company that offers safaris in Uganda, and the second is a company called Preservice SA, which is registered in Equatorial Guinea.
In the leaked documents, Hensoldt executives claimed that information about the structure of the deal was furnished to them by representatives of BIRD Aerosystems. Because of the complex chain of companies involved in the deal, Hensoldt’s compliance division raised a warning flag with regard to the agreement.
In an internal presentation, the compliance division wrote that the structure of the deal “could be used to create buffer funds that would be utilized, and may already have been utilized, to illicitly influence decision-makers in the end customer (Uganda) or civil servants who might be involved in granting business opportunities to the main contractor — BIRD.”
Elsewhere in the presentation, it stated that “there is an increased danger that the local partner (Preservice UK) used illicit or even illegal/corrupt means to influence decision-makers to its and BIRD’s advantage, and, indirectly, to Hensoldt’s advantage.”
Another possibility mentioned in the presentation was that the structure of the deal was deliberately complex to avoid paying taxes in Uganda. Hensoldt’s compliance division said there was a legal danger that the agreement between the company and BIRD “will be interpreted as cooperating with or conspiring to profit from BIRD’s marketing activities.”
The compliance division concluded that it could not recommend that the company finalize the deal without a more extensive investigation, which would take weeks. In the end, however, as the leaked documents revealed, the deal was completed before that secondary investigation took place.
Of the 11 optic sensors the German company was supposed to supply to its Israeli counterpart, five were sent in late February 2021, and six more were sent two months later.
In a telephone conversation with Shomrim, Badihi declined to discuss the details of the deal.
“Whether I did or did not, you obviously don’t expect me to tell you, do you? … Write whatever you want,” he said.
Following that conversation, Shomrim sent Badihi a list of written questions, to which he did not respond.
BIRD Aerosystems also declined to respond to questions about the deal, submitting instead a boilerplate response stating that the company “operates in accordance with Israeli regulations and the strictest international standards. The company does not discuss the existence or otherwise of any deals.”
Hensoldt said, “All of Hensoldt’s projects must meet the demands of local regulators, and Hensoldt always operates in accordance with the law.”
“Regulations dealing with compliance, as well as the processes that have been established and implemented in Hensoldt, both as part of the work process and the decision-making level, are designed to serve that goal and were implemented in this case as well,” the company said. “The final decisions are based, as in the current case, on the necessary judgment that takes into account various aspects, including the risk assessment from the compliance division. Therefore, there is no basis for the assumptions and allegations that are implied by the questions we were sent.”
Asked about Preservice, the company controlled by Badihi, Hensoldt responded, “The only contractual partnership that Hensoldt had in this particular deal was with the Israeli company BIRD Aerosystems, which has its own compliance division that investigates the contractual partners it chooses.”
“The export to Uganda was approved by BAFA (the German Federal Office for Economic Affairs and Export Control), which also requested and received information about Preservice. In addition, as part of the approval process for the deal, BAFA was explicitly told that Hensoldt would not be supplying any goods or technology to the Preservice group of companies. There is no basis for allegations of corruption or illicit activity by Hensoldt.”
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