152. Minutes of the Secretary of State’s Staff Meeting1
[Omitted here is discussion unrelated Saudi Arabia.]
MR. ATHERTON: We have been negotiating for some months the agreement to regularize the status of the Mid-East forces in Bahrain. You remember during the ‘73 war they invoked the termination clause. There were three issues. Two of them have been resolved. The third issue is one we are going to have to reach a decision on quickly. They want to specify a date for the final termination of the presence of the Mid-East forces in Bahrain, as of mid-1977. And we have up to now managed to keep that from becoming part of the agreement and negotiation itself. Where it now stands is that they plan simply to send us a unilateral notice, saying that this is their intention. We have got a memorandum coming to you which examines several options that we might look at other than just acquiescing. I don’t think there is any chance of turning them around on this short of getting the Shah and King Khalid publicly to say that they welcome—and neither one of them I think is willing to do this. The Bahrainians feel they are vulnerable—
[Page 503]SECRETARY KISSINGER: Why do we need them if we get Diego Garcia?
MR. ATHERTON: I don’t think we do. My recommendation in this memo is going to be we make a joint statement by them and us that we have amicably agreed—
SECRETARY KISSINGER: Why do we have to do that? Why not let them make a unilateral statement?
MR. ATHERTON: I think we gain something from doing it.
SECRETARY KISSINGER: What do we gain?
MR. ATHERTON: I think we gain some political credit.
SECRETARY KISSINGER: With whom?
MR. ATHERTON: With the Arabs in the Gulf.
SECRETARY KISSINGER: With what Arabs?
MR. ATHERTON: I think basically with all of the Emirates, with the Saudis. The alternative is simply—
SECRETARY KISSINGER: I have never known an Arab whom you gain anything with from withdrawing.
MR. ATHERTON: We are going to be withdrawing anyway. The other way it looks as though we have been kicked out.
SECRETARY KISSINGER: But we are also getting it extended. Anybody knowing an Arab statement of intention knows that between now and 1977 that may mean we will go out in 1977 or in 2063. A unilateral declaration by the Bahrain government doesn’t mean anything. I don’t see what we gain by agreeing to it.
MR. ATHERTON: Well, we have got the memo which looks at this in more detail. I think it is worth looking at as one of the options.
SECRETARY KISSINGER: I am very pre-disposed against announcing now that we are going to get out in 1977. I am not fighting for staying in there. Once we have Diego Garcia, we can announce in ’77. I see absolutely nothing we gain by announcing it today. Let them make a unilateral statement that they won’t renew it in ’77.
Anything else?
Carl?
MR. MAW: We have several upcoming problems with these high commissions that are being paid on military sales in the Persian Gulf area. And as of the moment, Northrop’s contract with Kashoggi is in trouble.
SECRETARY KISSINGER: With whom?
MR. MAW: A chap named Kashoggi, who owns the Triad Financial Corporation, who is the commission agent or the sales agent for Lockheed, Raytheon, Northrop and several others. His fees run from 4 to 17 percent on sales to the Saudi Arabian government. Prince Sultan has refused to permit further fees on the Peace Hawk program. Unfortunately, the next phase of the program is about a billion dollars. And Mr. Kashoggi has refused to release Northrop from their contractual obligation to pay four percent on that the moment the contract is signed with the Saudi Arabian government. So we are now at an impasse.
SECRETARY KISSINGER: What is that program?
MR. MAW: That is the whole program of their air force, building an air force.
We also have a little disagreement with the Department of Defense as to our position on payment of fees. I have taken the position that fees should not be paid to these intermediaries unless disclosed to and approved by the paying government—it is added on to the price and it is paid by the purchasing government. We are in a little disagreement with the DOD on that point at the moment.
SECRETARY KISSINGER: What do they want to do?
[Page 504]MR. MAW: They are on the spot a little bit, because they have approved a good many of these fees. I can find nothing good that comes out of them.
SECRETARY KISSINGER: Except that that is the way business is done in the Middle East. While Protestantism is a great religion, it is not the one in the Middle East.
MR. HABIB: And the Far East, too.
MR. MAW: In military sales, we go out and sell a program to a country, and then we cut somebody else in on it. I think we have some responsibility to make sure that the purchasing government at least knows what we are doing and what they are paying for. And when it was disclosed to Sultan that—
SECRETARY KISSINGER: He was outraged, right—that he wasn’t getting the four percent. Never had heard of a thing like this.
MR. MAW: He wasn’t getting any of this particular one.
SECRETARY KISSINGER: I can see that would create bad feelings.
MR. MAW: Now, the disclosures that are going to come in Lockheed will show much more—much greater money movement and even to higher officials in the Saudi Arabian government. And hopefully those payments will not be disclosed. But I’m afraid they will be disclosed. And we are going to be in the middle, of course, for having permitted the payments without disclosure to the Saudi Government.
SECRETARY KISSINGER: But what is our problem?
MR. MAW: Our problem now is to keep the program moving while litigation is going to take place between Northrop and Kashoggi. We are just referring it back to the Saudi government.
MR. INGERSOLL: The Lockheed are commercial contracts primarily, so it doesn’t go through the DOD.
MR. MAW: The C–130s, we stepped out of it. That is why they are higher fees. And we have to do something about our whole licensing of those. We grant the licenses here in the State Department with no disclosure about payments. These fees have been used for—
SECRETARY KISSINGER: But is anyone thinking of the impact of all of this on Saudi Arabia, where they have been doing it like this for 2,000 years?
MR. MAW: They want to change now.
SECRETARY KISSINGER: They don’t want to change. They are being forced to change by us, and they are going to go to other suppliers. Don’t tell me the Saudis want to change.
MR. MAW: The Shah issued an order a year ago no more commissions in Iran. And that has been pretty well enforced.
SECRETARY KISSINGER: My point is are we going around on a Protestant missionary exercise or are we—I just want to be sure we [Page 505] maintain our influence in Saudi Arabia. I am not in favor of paying commissions.
MR. EAGLEBURGER: We are sending Billy Graham there next week.
SECRETARY KISSINGER: I just want to make sure we are not harassing these people for doing something which—
MR. MAW: The disclosure is coming out of the Hill.
MR. INGERSOLL: First it comes out of the SEC and then Church picks it up and exposes it all.
MR. MAW: And this Northrop report is not very happy reading for Saudi Arabia.
MR. INGERSOLL: Lockheed is going to be worse.
MR. MAW: Much worse—payments to generals, the chief of the Air Force got extra money.
SECRETARY KISSINGER: Is anybody here who knows Saudi Arabia is surprised?
MR. MAW: No.
SECRETARY KISSINGER: They regularly add five percent to their contracts.
MR. MAW: You wouldn’t mind if they were normal sales and just a few million dollars. But when they run into the hundreds of millions of dollars, they get a little—
SECRETARY KISSINGER: I am not saying that I like it. I am just wondering whether we are not antagonizing the whole royal family there.
MR. INGERSOLL: We are for sure. This is going to be our biggest problem. In Iran, too, we are going to be antagonizing the Shah.
SECRETARY KISSINGER: [1 line not declassified]
MR. MAW: [1 line not declassified]
MR. HYLAND: [2 lines not declassified]
MR. INGERSOLL: And the Shah’s relatives are involved.
SECRETARY KISSINGER: Do we have to pursue this to the bitter end?
MR. MAW: We are going to be called on to say what are we doing about these payments, are we supporting the briberies or aren’t we.
MR. HABIB: It applies to other straight-out aid programs, too. The Church committee is on to commission payments on aid programs to the Far East.
MR. MAW: They are going to legislate on this. I hope we can avoid legislation. We don’t want a criminal offense of paying commissions, because some of these commissions are perfectly legitimate.
[Page 506]MR. HABIB: Some of them are contrary to law, however, on some of the aid programs to Asia.
MR. MAW: That is right.
SECRETARY KISSINGER: What is the issue now?
MR. MAW: Well, the issue now is to let you know that this problem does exist between Sultan and Kashoggi.
SECRETARY KISSINGER: I just hope that somebody keeps in mind that the royal family in Saudi Arabia controls our oil supply, and that moderation in the Middle East depends importantly on what the Saudis do. I just hope that that is being kept in mind.
MR. MAW: Very much.
MR. ATHERTON: The place that argument needs to be made is with Church.
MR. INGERSOLL: The SEC and Church are the ones doing this.
SECRETARY KISSINGER: I will talk to Church at some point.
[Omitted here is the remainder of the minutes.]
Summary: Kissinger and members of his staff discussed MIDEASTFOR and the Northrop defense commissions issue.
Source: National Archives, RG 59, Transcripts of Secretary of State Kissinger’s Staff Meetings, 1973–77, Entry 5177, Box 3, Secretary’s Analytical Staff Meetings. Secret. Kissinger chaired the meeting, attended by all the principal officers of the Department or their designated alternates.
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