142. Memorandum of Conversation1
SUBJECT
- Northrop Commission Payments in Saudi Arabia
PARTICIPANTS
- Thomas Barger, Director, Northrop
- Howard Willens, Northrop Legal Advisor, of Wilmer, Cutler, and Pickering
- Sidney Sober, Deputy Assistant Secretary, NEA
- Mark Feldman, L
- William Lewis, T
- Francois M. Dickman, Director, NEA/ARP
Mr. Willens explained that Mr. Barger would be travelling to Saudi Arabia to help Northrop on the issue of disclosing information contained in the Ernst and Ernst audit report of the company’s operations in Saudi Arabia which the Church Subcommittee has and which is likely to become public soon.
Mr. Barger said he had volunteered “reluctantly” for this job. He was going to Saudi Arabia as a representative of the outside Board of Directors of Northrop. He would not be reporting to Northrop’s management but only to its Board of Directors. Since portions of the audit report made last year may become public very soon, he felt the Saudis should be apprised of this as soon as possible to let them ponder about what they might want to do. He also felt the Saudis should be aware that Northrop’s outside directors had been conducting their own investigation and they had a commitment to make a report before the courts and Securities and Exchange Commission by the end of July. But the result of this investigation was likely to leak before then, in particular when the Church Subcommittee begins to hear public testimony June 9.
Referring to the earlier meeting with the Acting Secretary, Mr. Willens said Northrop had made two payments at the request of Khashoggi’s TRIAD Corporation: $250,000 for former RSAF Commander General Hashim and $200,000 for its present commander, General Zuhair. Mr. Barger said Northrop’s files were replete with remarks concerning these payments. Early when the subject was mentioned, there were comments questioning whether Khashoggi was telling the truth that these payments had in fact been demanded by the Saudi officers. Later, however, the tone of the memos appeared to change and the company seemed convinced that these were genuine demands. The files indicated that the first payment (to General Hashim) had been made but there was no similar reference in the files about the second payment (to General Zuhair). Despite these references, there was no hard evidence that either payment had been received by the generals. Barger assumed that when he described what the investigation had uncovered and what was in the auditors report, he would be closely questioned by the Saudis on this for proof of payment, since under Sharia law, circumstantial evidence is not acceptable.
In response to Mr. Feldman’s question whether Northrop planned to pursue its request that its testimony before the Church Committee remain confidential to protect the company’s interests in Saudi Arabia, Mr. Willens said Northrop was considering what to do. It had already been advised informally by Mr. Levinson that this request would be turned down. The company would ask that the names of the generals not be disclosed but, in all likelihood, their names would come out in public.
[Page 481]Mr. Barger said there were several other ancillary problems. First of all, he understood that Prince Sultan had sent a letter to Mr. Ellsworth about Northrop commission payments to TRIAD but he did not know what it said. He would like to have a copy. Mr. Sober said he would look into the question of Northrop’s receiving a copy of the letter but in the meantime had no objection to his knowing its content. Mr. Sober then read Prince Sultan’s letter to Mr. Barger.
Mr. Barger then asked what the Department’s position should be. He planned to go first to Jidda to consult with Ambassador Akins and he hoped that the Ambassador would be able to accompany him on some calls. He also hoped the Ambassador would arrange appointments for him so that he would not have to go through Khashoggi to obtain them. Mr. Sober remarked that indeed we wanted Barger to meet first with Ambassador Akins to review the present situation and get the benefit of his views. Akins was already informed of Barger’s proposed visit and had recommended that he first see Prince Sultan. While the Embassy might be helpful in arranging an appointment for Barger with Prince Sultan, Mr. Sober did not believe it would be appropriate for the Ambassador to accompany him on the call.
Mr. Barger said another issue was that the company’s notes (not the auditors’ reports) contained numerous references relative to Lockheed which explained why certain things were done. There were references for example that General Hashim had removed Northrop and GE representatives from meetings related to the original F–5 sales contract discussions because Northrop had not paid anything as Lockheed had done.
Finally, Mr. Barger said, there was the question of what happens if the Saudi government decides that TRIAD is no longer a bona fide agent. What happens to the various American companies that use TRIAD as their agent. This becomes even more complicated by the fact that Northrop is now in the midst of two major negotiations, the last half of Peace Hawk IV which relate to add-ons for the F–5Es and Fs (radars, ECM, laser guided bombs, etc), and Peace Hawk V which involve the design and construction of the infrastructure facilities for the RSAF.
Mr. Feldman said he believed Ambassador Akins would want to talk about the reach of the Northrop disclosures. Were only the two generals mentioned? It was our understanding that at least one Saudi prince (Prince Khalid bin Abdullah bin Abdul Rahman) had been mentioned. Mr. Barger replied that both generals names are mentioned as is Prince Khalid, but the latter is a recognized businessman.
Barger said that he and other outside directors had discussed this matter with Khashoggi about six weeks ago. Regarding the payment to General Hashim, Khashoggi had said this was a problem Northrop [Page 482] had gotten itself involved in and he had helped the company to extricate itself from going any deeper. With regard to the payment to General Zuhair, Khashoggi had not said anything. As for Prince Khalid, Khashoggi had made the point that he is a well known and recognized businessman.
In response to Mr. Sober’s question whether there might be any other disclosures that will touch on other Saudi personalities, Mr. Barger did not think so, although Minister of Defense Prince Sultan is often mentioned in the company memoranda but not in the audit report. Mr. Barger said that there were basically four groups of documents: the auditors’ report, the oral examination made by Northrop’s group of outside directors, the legal opinions prepared by the Northrop Legal Advisor (Wilmer, Cutler and Pickering), and company documents. He thought he had looked at all of the documents.
Mr. Willens said it was possible that Prince Sultan’s name might come to the forefront because the company’s documents indicate the belief that Khashoggi had close connections with Prince Sultan, though there are no allegations of any payment by Khashoggi to Sultan. Khashoggi had told Barger that of course he knew Sultan and had been his close friend for many years but it was no more than that.
Mr. Feldman asked if we knew of any business relationship between Khashoggi and Prince Sultan. Mr. Barger said he had asked the same question to Khashoggi who had denied any, and had said “Why should Sultan ask me anything, he has much more money than I do.” Mr. Barger pointed out that the Northrop documents also refer to Sultan insisting that sales go via the FMS route rather than commercial sale to avoid problems relating to agents’ fees.
Mr. Feldman noted that while there was concern over the $450,000 payments, questions would inevitably be raised whether any of the $20 million or so Northrop paid Khashoggi under Peace Hawk IV had been passed to others. Barger said that except for a small payment of between $5 and $10,000 to a few individuals, there was nothing he had seen. Asked if the files contained anything to justify that the services provided by Khashoggi were worth what Northrop had paid, Mr. Willens said he was not aware this existed. If the question is raised by the Church Committee whether payments to others had been made from the big commissions received by Khashoggi, Northrop would say that it was unaware of any.
Mr. Sober asked if [name not declassified] might be implicated. Mr. Barger said that [name not declassified] is mentioned and while company documents contain some allegations regarding [name not declassified], there is no indication of any payments. Mr. Barger added that once the story comes out, all kinds of inferences would be drawn.
Mr. Barger noted one other problem which he would raise with Mr. Ellsworth when he meets him in the Pentagon on Friday. This was [Page 483] that when Mr. Ellsworth sent his letter to Prince Sultan in March about the agents’ fee for the next Peace Hawk program, Khashoggi claimed the letter had been instigated by Northrop to reduce its commission to him. Khashoggi could be expected to pursue this line and say that Northrop’s disclosures before the Church Subcommittee were in furtherance of this campaign.
Barger said he would try to explain to the Saudis that Northrop has no way of evading requests to testify before Congressional committees or refusing to respond to subpoenas. Recalling his experience with ARAMCO, Barger remarked that the Saudis still believe US corporations have a great deal of power and influence in the US and do not have to make disclosures unless they have some special motive for doing so. The company was therefore concerned that Saudi reaction would be very strong and the company could lose its position in the Kingdom. Barger was also concerned that events could move very quickly once the Saudis were aware that there would be public disclosures. He hoped that Ambassador Akins could support the point that under US law Northrop has to respond and is being forced by legal action to make these disclosures.
Mr. Sober said he would welcome hearing from Mr. Barger after he meets with DOD officials. We would inform Embassy Jidda regarding his travel plans. While we would not want to instruct the Ambassador to go along on any meetings, we were sympathetic with his problem of needing Embassy help to get appointments with Saudi officials to avoid going through Khashoggi. While the US obviously had a considerable stake in Northrop’s continued business operations in Saudi Arabia, it seemed clear that this essentially was a problem to be dealt with by the company with the Saudi Government and Khashoggi, at least in the first instance. The US Government could not be seen as intervening in any action that could come before the courts. If the Saudis raise questions to us about Northrop’s need to make disclosures, the USG will of course respond in an appropriate way.
Summary: Department of State officials met with Northrop representatives to discuss upcoming meetings between Northrop and the Saudi Government.
Source: National Archives, RG 84, Jidda Embassy Files: Lot 79F80, POL Northrop and Lockheed. Confidential; Nodis. Drafted by Dickman; approved in S/S by Deputy Executive Secretary Frank Ortiz in June. Barger met again with Department officials on May 30. (Telegram 126781 to Jidda, May 30; ibid., DEF 12–5.13 Northrop) The Embassy indicated on May 25 that Akins would meet with Barger upon the latter’s arrival, “before he talks to anyone else.” (Telegram 3714 from Jidda, May 25; Library of Congress, Manuscript Division, Kissinger Papers, Box CL 208, Geopolitical File, Saudi Arabia, March 26–June 1 1975) The Embassy reported on Barger’s arrival and plans in telegram 3940 from Jidda, June 2. (National Archives, RG 84, Jidda Embassy Files: Lot 79F80, POL Northrop and Lockheed)
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