146. Telegram From the Embassy in Saudi Arabia to the Department of State1
4138. Dept please pass to DOD and CHUSMTM Dhahran as Specat Exclusive. Subject: Northrop’s Problems and Agents’ Fees in Saudi Arabia. Ref: State 133649 and Previous.
Summary: On June 9 Ambassador met with Prince Sultan, Saudi Minister of Defense, to discuss problems of Northrop Corporation and agents’ fees with Saudi Arabia. He said congressional investigations of U.S. military sales had caused SAG to appear in a predominantly favorable light. Northrop books showed payments of $450,000 to Adnan Khoshoggi, but no proof this money actually paid (as has been alleged) to Saudi officials. Re agents’ fees, Ambassador noted that issue of fees for Peace Hawk V clarified by Prince’s letter of May 17; issue remained of fees under Peace Hawk IV, and unless this resolved satisfactorily Northrop Corporation could be liable to expensive litigation. Sultan replied that he had not known of Commissions in connection with FMS sales prior to receiving Ellsworth letter; he would not approve Commissions for Peace Hawk IV and V nor for any future FMS case. He urged a statement be issued ASAP by USG affirming that neither it nor SAG had engaged in improper conduct re FMS cases. End summary.
1. On June 9 Ambassador called upon MODA Prince Sultan bin Abdul Aziz to discuss problems of Northrop Corporation, and payment of agents’ fees in Saudi Arabia.
2. Ambassador began by reviewing for Prince background to current investigations and hearings in the Senate and the House. He noted that revelations and reports of impropriety involved several U.S. firms in various countries, and that—according to Senator Percy—Saudi Arabia record of dealings with U.S. companies was creditable. Ambassador said that with regard to Saudi Arabia, Northrop records indicated a payment to Adnan Khoshoggi of $450,000 ostensibly for benefit of two [Page 488] Saudi generals. Ambassador emphasized that payment of these monies to Khoshoggi the only sure fact: We had no indication any payments made to Saudi officials or that such officials had behaved improperly.
3. Ambassador said Prince’s reply of May 17 to Assistant Secretary Ellsworth’s letter of March 7 about Peace Hawk V program was clear. He noted though that USG lawyers believed some ambiguity still existed regarding agents’ fees for the Peace Hawk IV program. For this reason he wished to present Sultan with a letter from General Fish which we hoped would lead to the clarification of this latter point. Unless such clarification could be obtained, Ambassador explained, Northrop could be liable to heavy financial losses via lawsuits. (The letter was read in Arabic to the Prince.)
4. The Ambassador urged that in dealing with these difficult and sensitive matters, Sultan consider that the FMS procedure was still probably the most desirable from the standpoint of the SAG’s interests. There would be no more confidentiality accorded to SAG’s arms purchases if it went the contractor-to-government route; commissions would be unavoidable and would certainly be much larger. He hoped that Sultan would deal with this problem with the same coolness and judgment he had showed at other times when our relations were under strain. He urged that no action be taken that might give heart to those hostile to U.S.-Saudi friendship, or harm a military supply relationship that has been of value to both sides for many years.
5. Sultan thanked the Ambassador for his thoughtful presentation, and asked if he might call upon the expert advice of his legal advisor, Dr. Ghezi Nuseibeh. In Nuseibeh’s presence Sultan said the issue of agents’ fees and commissions would have to be dealt with in a way that took into consideration the joint interests of the U.S. and Saudi Arabia. The problem of U.S. firms abroad would not as a rule concern him—but with regard to any suspicion or hint of wrong-doing by such a firm in Saudi Arabia, he wanted full and prompt information. He wanted also the fullest information we had about anything that might indicate the possibility of misconduct by officials of the Ministry of Defense. He recalled that three years before he had forced an Oerlikon agent to leave the country, and to repay $400,000 in bribes paid to Ministry officers. The officers had been cashiered and disgraced.
6. Sultan also believed it important—in the present “highly-charged atmosphere”—that the integrity of the negotiating principals not be impugned. He had never known of agents’ fees in regard to FMS sales until he received Mr. Ellsworth’s letter and he was both surprised and hurt by the manner in which it was delivered. It would have been much more appropriate for it to have been sent confidentially through the Ambassador. In any case, the information on agents’ fees did not appear in any document in his files. In commercial (government-to- [Page 489] contractor) sales, agents’ fees could be left to a company and its agent, as a matter apart from the company’s contract with the SAG. But with regard to FMS sales, he had to insist that absolutely no agents’ payments could be made for either Peace Hawk IV (General Fish’s letter).
7. On the general question of FMS sales, Sultan recalled he had spoken critically of them to Mr. Barger (Cairo’s 6516). He believed, however, that the FMS route remained probably the best for large military sales. He reminded the Ambassador he had expressed preference to the USG for FMS be the Raytheon improved Hawk system, the Lockheed ground environment system, and Bendix-Syanco’s role in SAMP. In these cases the USG’s reply had not been to encourage the government-to-government route. Were he to learn that such a commission had in fact been paid, he would terminate the entire Peace Hawk program. He promised a written reply to General Fish’s letter by June 10.
8. Sultan then said he thought the best way for the air to be cleared would be if the USG would make an announcement about the proper conduct of U.S.-Saudi FMS cases. His lawyer suggested the following statement: Quote We have looked into the question of our foreign military sales (FMS) programs to the Kingdom of Saudi Arabia. There is no indication whatever that either the United States Government or the Kingdom of Saudi Arabia has engaged in any improper conduct. The Saudi Government moreover has informed the United States Government that it did not know of any agents’ fees in the past in connection with FMS sales, nor will it permit any such payments in the future. End quote.
Comment: Sultan’s first draft provided for a final statement which read: Quote . . . did not know of any agents’ fees in the past in connection with FMS sales, would not have approved them, and would not permit any such payments in the future. End quote. The intermediate clause the Ambassador pointed out could complicate matters by evoking FMS issues going back many years. He suggested the clause be omitted and that the future handling of such cases be allowed to stand clearly as of now. Sultan agreed.
9. In closing, the Ambassador said congressional investigations by Senator Church and Representative Hamilton would probably also deal with government-to-contractor deals in various parts of the world. Sultan asked for early information on anything that might pertain to Saudi Arabia; he would get to the bottom of all rumors and accusations.
10. Action requested
A) The Department’s views and concurrence ASAP on Sultan’s proposed statement. Perhaps it could be issued—after giving Sultan advance notice—by State or DOD press spokesman.
[Page 490]B) Early receipt of any information that might have further bearing on relations between U.S. firms and officials of Ministry of Defense.
Summary: Akins reported on his discussions with Prince Sultan related to agents’ fees, Northrop, and the Peace Hawk IV and V programs.
Source: Ford Library, National Security Adviser, Presidential Country Files for the Middle East and South Asia, Box 29, Saudi Arabia—State Department Telegrams, To SecState-Exdis (3). Secret; Immediate; Exdis. Telegram 133649 to Jidda, June 7, is Document 145. Telegram 6516 from Cairo was not found. Akins provided the Department with his talking points in telegram 4028 from Jidda, June 7. (National Archives, RG 84, Jidda Embassy Files: Lot 79F80, DEF 12–5.13, Northrop) The Department response is Document 145. Ellsworth’s letter is Document 131. For Prince Sultan’s May 17 response and Fish’s letter regarding Peace Hawk IV, see Document 137.
↩