151. Telegram From the Embassy in Saudi Arabia to the Department of State1
5039. Subject: Agent’s Fees. Department please pass USMTM Dhahran for information. Ref: State 164743.
SUMMARY: In meeting with MinDef Prince Sultan July 14 Ambassador pointed out that under terms of Kashoggi’s contract with Northrop Corporation, company could be forced to pay up to one hundred million in agent’s fees. This could either sink Northrop, or force it to withdraw from all Saudi operations—in either case, it would seriously harm the development of the Saudi air force. Sultan agreed to get in touch with Kashoggi to advise him not to pressure Northrop nor to demand his legal fees from it. Sultan was certain Northrop could go ahead and sign Peace Hawk III extension with no concern about any legal action Kashoggi might take at not receiving agent’s fee. END SUMMARY.
1. During meeting with MinDef Prince Sultan July 14, Ambassador Akins said the main purpose for his brief return to the Kingdom was to raise with Prince the important and delicate matter of Northrop’s operations in Saudi Arabia. He said first that as a result of Prince Sultan’s disapproval of agent’s fees in connection with foreign military sales, the Defense Department had decided—with regard to all its FMS programs about the world—to prohibit agent’s fees unless (a) they were specifically identified and (b) a clear and proper identification was made of the agent’s services to justify any commission fee. The Prince listened with approval, and asked if this meant that there would henceforth be no room in FMS contracts for the straight middleman—the influence peddler—the Ambassador said that was so.
2. The Ambassador then said to Sultan that with regard to Northrop’s activities in Saudi Arabia, it appeared clear from Sultan’s statement no agent’s fees or commissions could be paid for any of the company’s projects in Saudi Arabia. Prince Sultan affirmed this was exactly the case. If a company were to do so, he said, it would quickly find itself out of Saudi Arabia. The Ambassador then explained to [Page 501] Sultan that although Northrop could not charge for agent’s fees for several large projects now underway or in negotiation in Saudi Arabia, Adnan Kashoggi enjoyed a binding contract with Northrop that entitled him to a 5% commission on all sales of Northrop products or services to Saudi Arabia—even if such commissions are not included in the costs of such sales that are being paid by the SAG. If Northrop continues with its projects in Saudi Arabia, therefore, it could be held liable to pay a total in agent’s fees of a sum that could approach 100 million dollars. The total profits of Northrop last year were only about a quarter of this; and if Kashoggi pressed his advantage under American law, it could result either in Northrop’s collapse, or in its withdrawal from all Saudi projects. Either way, the Ministry’s of Defense highly successful air force development would be seriously disrupted.
3. The Ambassador said that lawyers from the Department of State and the Department of Defense had considered the situation very carefully, and had only one possible remedy to suggest: that the Saudi Government, and His Royal Highness Prince Sultan should appeal to Kashoggi’s sense of patriotism and public service, and ask that he annul the portions of his contract with Northrop that provided for payment of a fixed fee for all sales to Saudi Arabia or at least for payment of all sales dealing with FMS cases.
4. Sultan asked if our lawyers believed it would be proper for him to speak up on such a matter involving a Saudi citizen and an American corporation? When the Ambassador replied that they did, Sultan said firmly that nothing could be allowed to impede rapid, smooth and successful development of the Royal Saudi Air Force. Since Kashoggi was not a government official but a private Saudi citizen, Sultan would instruct him by way of a “personal suggestion” that he waive his rights to agent’s fees, and under no circumstances press the company for them. The Ambassador asked if on the basis of the Prince’s assurance it would be safe to tell the Northrop Corporation that it could proceed to sign the extension of Peace Hawk III without having to fear any adverse financial repercussions because of its contract with Kashoggi. Sultan said there would be no rpt no trouble from Kashoggi and that the company could proceed with the required extension.
5. In closing, Sultan mentioned that he had recently received two letters from Northrop board chairman Tom Jones asking if Sultan’s prohibition did in fact apply to payment of all agent’s fees of any sort. Sultan’s reply was that it most certainly did apply to all agent’s fees and he thought the U.S. Government should be appreciative to him for his stand. Ambassador Akins said the prohibition of agent’s fees might significantly lower the cost of major projects to the Ministry of Defense and Aviation. Sultan said he very much hoped this would be so.
Summary: Akins met with Prince Sultan, who agreed to speak with Khashoggi on Northrop’s behalf.
Source: National Archives, RG 84, Jidda Embassy Files: Lot 79F80, POL Northrop & Lockheed. Secret; Niact Immediate; Exdis. Drafted and approved by Horan. The Department authorized Akins’ meeting with Prince Sultan and provided guidance regarding Northrop’s contractual obligation to Khashoggi in telegram 164743 to Jidda, July 12. (Ibid., RG 59, Central Foreign Policy File, D750241–0349).
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