EUR 28 million paid into Zug letter-box company in German-Qatari arms deal

Thanks to revelations disclosed in a court case and a team of investigative journalists, it has come to light that a EUR 28-million fee for mediating a deal between a German arms-manufacturing company and the state of Qatar found its way to a letter-box company the canton.

The details became known during a court case relating to a EUR 1.9 billion-deal between the German Krauss-Maffei Wegmann (KMW) tank-manufacturing company of Munich and the state of Qatar, the dispute (which has since been settled) arising over the precise amount of commission to be paid by the German company to an unnamed elderly German couple resident in the Aegeri Valley who acted as mediators in the deal. After their address was divulged during the court case, a journalist of the Zuger Zeitung duly went to speak to the couple. While it was not usual for them to speak to reporters, on this occasion the woman was quite forthcoming and, over the course of a hour, opened up about the naivety of some German politicians, the practices of Arab billionaires and the difficulties of Germany securing arms deals in the Middle East.

Germany is the world’s fourth largest exporter of arms in the world and it is widely known corruption is often involved in such deals, as documents involving the Ferrostaal, Airbus and Thyssen Krupp have shown, bribes being paid when it comes to the sale of submarines and rockets. When new export orders for arms come in, lengthy negotiations take place, the final deal having to be sanctioned by the German government itself.

In the case of export of tanks, howitzers and military transporters ordered by the state of Qatar in 2013, the German government was quick to approve the deal, with one expert in this field saying how there was no hesitation on the part of the (German) government to give its approval in this case, unlike with its dealings with other countries in the Middle East.

In this particular deal, senior German politicians were involved, as was Frank Haun, the managing director of KMW. What was unusual is that another company, Kingdom Projects, not known by insiders in this sort of business, became involved, with EUR 28 million being paid to the Doha-based company, information disclosed during the course of the afore-mentioned court hearing here in the canton of Zug. When the German company involved was asked about this, it responded only hesitatingly, one company representative saying the payment had been for “local support”.

As to this “local support”, what is often meant is fees for drivers and interpreters and suchlike, not services for which millions are expected in remuneration. What is even more significant as the journalists pointed out, is the fee paid to Kingdom Project on the outcome of a successful deal, this company giving the German manufacturers the assurance that the Qataris would definitely pay, though KMW declined to comment on what it said was a confidential part of the deal.

If KMW, the German government and the authorities in Qatar were already in agreement over the deal, what was the point of a third-party company the Kingdom Projects being involved? Very little is known about this company, with details of its turnover and how many it employs not disclosed, its internet site showing merely typical advisory-style content. The sole address given is that of a letter-box company. Surely it was not necessary for such a company to ensure the bill would not be paid, claimed the journalists. When asked about this, KMW was not able to provide an answer, thought it became known that KMW subsequently became involved in a joint venture with Kingdom Projects, a subsidiary company, Kingdom Logistic Services (KLS), providing construction work and maintenance and suchlike.

It is just this lack of openness which causes suspicion, the late entrepreneur Eginhard Vietz admitting to the Handelsblatt specialist journal in 2010 that he had often paid bribes to ensure business. “In some countries it just does not work in any other way,” he had said. “You get these bills headed “mediation fee” and an address in Switzerland is given, and this is where the money is transferred to. Of course, these additional fees are taken into account in the initial offer,” he had added. Nevertheless, KMW denied anything illegal had been done in the case of this Qatari deal, adding how Kindgom Projects had not been involved in any decision-making processes. What is more, all business partners involved had been thoroughly checked, though transparency, as it is regarded in Germany or the United States, was not possible to be checked when it came to Kingdom Projects.

When KMW was asked why its partner Kingdom Projects should pay fees to a Swiss company, it declined to comment, though according to others involved the names of the afore-mentioned couple resident in the Aegeri Valley came up quite often. As already stated, in the afore- mentioned court case it came about that they were expecting to receive millions as a result of the German-Qatari deal, 50 per cent of a then not yet paid fee due to them from KMW to be paid through Switzerland. The journalists involved in writing this article, namely Christopher Gilb, Sönke Iwersen, Martin Murphy, Lars-Marten Nagel and others employed by the German Handelsblatt journal, wanted to know what happened with all this money. Did it end up with other beneficiaries in Qatar, without KMW’s knowledge?  No-one is providing answers and it is thought any payments through third-party states would be carefully monitored by German lawyers. When questioned directly about the activities of Kingdom Projects, a Mr Omar, the company’s managing director, denied the firm worked directly with KMW, adding how he did not know any of the other names mentioned to him in this context. Bringing the conversation to an end, he had said, “Write me a mail,” but he never replied. Returning to the living room of the elderly couple with its views over Lake Aegeri, one of the journalists towards the end of this article published last Wednesday mentioned that the husband of the couple once worked for the German Heckler & Koch gun-manufacturing company in Baden-Württemberg, prior to setting up his own business in this field. It was on a subsequent trip to the Middle East that he had noticed how old-fashioned cannons had been used to celebrate the end of Ramadan, subsequently selling more modern and safer cannons to them. It also became known the dealer had sold arms manufactured by the Swiss Ruag company quite legally to Qatar, yet some had subsequently ended up in the hands of Libyan rebels.

He went on to admit his mediation role involvement in the sale of 62 KMW Leopard tanks to Qatar a few years ago but declined to go into detail. However, court documents appear to show he claimed half of the mediation fee KMW paid to Kingdom Projects, EUR 28 million being only the minimum sum, a possible EUR 50 million sum mentioned, i.e. 2.5 per cent of the value of the whole deal. Without giving a reason, the couple withdrew from the legal case in February of this year, though it is thought a sum was agreed on.

It was not unexpected that the disclosure of all these details led to consternation, with Tobias Lindner of the Bündnis-90 (German) Green party saying there could be no tolerance whatsoever when it came to corruption in this area and that total disclosure in this matter was essential.  Furthermore, the spokeswoman of the (German) FDP parliamentary party, Marie-Agnes Strack-Zimmermann, called for the German government to explain exactly what role Kingdom Projects had played in this matter. “We cannot have dubious funds sent to letter-box companies in matters such as this,” she insisted.