The United Kingdom supported Ba'athist Iraq as early as 1981 during the Iran–Iraq War by covertly providing military equipment and arms. Although officially neutral in the conflict, the United Kingdom made direct sales to both Iraq and Iran. With an embargo in effect various companies also supplied Iraq and Iran by shipping materials through third-party countries and from those countries to the belligerents. While some of this exporting was legal, permitted or tolerated by parliament, Iraqi clandestine procurement operations were especially active in Britain.

Motives for policy towards Iraq In spite of the British embargo, both the Iraqis and Iranians purchased British goods, from BMARC and other countries, using false end user certificates citing the destination as Singapore, Jordan or South Africa.

Economically, Britain wanted to continue an export trade with Iran and Iraq, which accounted for a total of 1 billion pounds per year. These guidelines, according to evidence to the Scott arms-to-Iraq inquiry, were subsequently secretly relaxed. After "The United Nations imposed an embargo, to try to restore stability to the region. Britain imposed its own rules—known as the "Howe guidelines" after the then Foreign Secretary, Sir Geoffrey Howe—restricting exports. While there was a strict ban on "lethal" exports, there was more flexibility if the proposed export, in the Government's view, would not prolong or exacerbate the conflict.

Export guidelines It was later established that guidelines had been established but not followed. The Scott report showed that the "Howe Principles", or the "Government's stated policy on arms sales to Iran and Iraq was set out by Lord Howe in October 1985 when he was Foreign Secretary. He informed the House of the following set of guidelines to all deliveries of defence equipment to Iran and Iraq, implemented in December 1984 ..." had not been followed. The Guidelines were:

We should maintain our consistent refusal to supply any lethal equipment to either side; Subject to that overriding consideration, we should attempt to fulfil existing contracts and obligations; We should not, in future, approve orders for any defence equipment which, in our view, would significantly enhance the capability of either side to prolong or exacerbate the conflict; In the line with this policy, we should continue to scrutinise rigorously all applications for export licences for the supply of defence equipment to Iran and Iraq.

Scott report The "Scott report" on British sales to Iraq, of "non-lethal" military-related goods, as distinct from actual weapons, which took three years to prepare under the direction of senior high court judge Sir Richard Scott, criticized government handling, but also rejected that Members of Parliament tried to bias the court trying the Matrix Churchill defendants. In particular, it singled out Attorney General Sir Nicholas Lyell and Treasury Chief Secretary William Waldegrave, Baron Waldegrave of North Hill for their errors.

One of the main problems highlighted in the report was the decision of the government not to inform Parliament of reforms to arms export laws for fear of public outcry. The report concluded government policy towards the export of non-lethal military goods was changed following the Iran–Iraq ceasefire in 1988, in a way that should have been reported to the Commons.

Scott's report explained the British government's secret decision to supply Saddam with even more weapons-related equipment after the Halabja chemical weapon on Iraqi Kurds by their own government. Former Foreign Secretary Howe had written that the ceasefire ending the Iran–Iraq War could mean "major opportunities for British industry" An official working for Howe, and quoted in the Scott Report, indicated Howe such an initiative kept quiet: "It could look very cynical if so soon after expressing outrage about the treatment of the Kurds, we adopt a more flexible approach to arms sales."

Export controls Member of Parliament Roger Berry, speaking in the House of Commons, said that the only truly important thing about export control is the identity of the true end user, who may not be the country on the end user certificate. "As the arms to Iraq scandal taught us, what matters is who gets the arms and what they do with them. The licence application might have said that the weapons were going to Jordan, but they ended up in Iraq.? He said the end-use information on the export license needs to be verified.

According to Berry, there "is no point [to] the Department of Trade and Industry (DTI) ticking the box and saying, "They say this is going to our friendly neighbour Austria," or, "This is going to our dear old friend Singapore." From some statistics, it seems that Singapore has the largest navy, air force and army in the world.... I simply urge the Minister to give us some information on how the Government go about end-use monitoring.

Especially on the financial side, there was a complex interaction between Iraqi-controlled organizations in the U.K. and U.S. One established British company, Matrix Churchill was bought by Iraq, its British branch an important manufacturer of advanced machine tools, and its American subsidiary used as a conduit for procurement in the U.S. Originally a well-established U.K. manufacturer of machine tools with a U.S. subsidiary, the firm had the U.S. operation greatly enlarged by Iraqis, using U.S. financing for Iraqi purchases that did not necessarily involve the U.K.

According to the Scott report, executives of Matrix-Churchill were charged for attempting to export arms without the required permission of Parliament. Under the changed rules, which had not been disclosed to Parliament, it was determined they had acted legally, and the Government was aware of the planned exports.

One of the criticisms in the Scott report was the government's attempt to obtain Public Interest Immunity (PII) certificate during the trial. Such certificates prevent the disclosure of documents showing a relationship between the defendants and British intelligence services. While the report did not suggest there was any attempt to punish innocent men, Scott's report said that the Crown prosecutors should have been told that Deputy Prime Minister Michael Heseltine was reluctant to use such a certificate.

Iraqi clandestine procurement techniques There are several ways to use front companies. A company can be created for the purpose, or the nation interested in the products may take over an existing company. On occasion, an expert can be hired to give an existing company a new capability, or a new company can be built around an established expert, such as Gerald Bull.

Iraq's Nasr State Enterprise for Mechanical Industries was the main producer of Iraqi missiles and was heavily involved in clandestine nuclear and chemical weapons technology acquisition. It probably controlled the al-Arabi Trading Company.

Creating companies Anees Mansour Wadi, an Iraqi expatriate, set up front companies all over Europe, which could be listed as end-users for a broad range of technology and items. In Britain, he teamed with the British businessman Roy Ricks, to form Meed International, Ltd, which was renamed to Technology Engineering Group (TEG).

According to Iraq's declaration to the IAEA Action Team, Iraqis went to the United Kingdom and worked with Wadi to procure items for the gaseous diffusion and the Beams-type centrifuge uranium enrichment programs. TEG bought a total of 75 items for these programs at a cost of about 1.25 million British pounds, and shipped the items to the Nassr.

Buying partial or complete control of established companies The Al-Arabi Trading Co. was headquartered in Baghdad, and appears to have been under the control of Iraq's main weapons complex, the Nassr State Enterprise for Mechanical Industries. In 1987, Al-Arabi set up its main procurement front in London, a holding company called Technology Development Group or TDG. In 1987, TDG set up a firm called TMG Engineering [TMG] which was the vehicle used to purchase a well-established British machine tool maker Matrix-Churchill Ltd. and its Cleveland, OH, affiliate Matrix-Churchill Corp.

Al-Arabi has been banned from business with U.S. organizations at least since 1997.

Matrix Churchill In 1987, the British Secret Intelligence Service (SIS or MI6) reported that British machine tool companies were selling equipment to Iraqi arms factories, including Matrix Churchill Ltd. [MCL], the United Kingdom's premier toolmaker and a major supplier of machine tools to arsenals around the world. It has been in existence since 1913 and its two plants in the United Kingdom employed over 700 people. Matrix-Churchill Corp. was the U.S. sales and service affiliate of MCL and it was established in Cleveland, OH, in 1967. The military uses of Matrix-Churchill machines are the prime reason Iraq was interested in purchasing the company.

Acquiring Matrix-Churchill gave Iraq access, not only to the machine tools, but also the computer programming, tooling, and other components needed to make a wide variety of munitions as well as other applications in aerospace and nuclear industries. The purchase could be construed as one big intelligence gathering operation for Iraq.

When Iraq gained control of MCC, it reoriented the firm such that the general market was no longer its priority, but to meet Iraq's needs. MCC's sales and service operations were dropped, but the Iraqis also set up a project management division within Matrix-Churchill in 1988.

That division obtained technology for Iraqi arms complexes like NASSR and Hutteen. The project management division was established to manage the activities of United States companies that won contracts to work in Iraq. The BNL-financed glass fiber factory at Nassr was the project management division's biggest project. Iraqi organizations that wanted products made in the US would send the request to Iraqi managers in Matrix-Churchill's procurement division, established in 1987, which would identify and evaluate sources in the United States, unless the UK division of Matrix-Churchill could make them. In some cases, the US side of Matrix-Churchill would buy the equipment in other cases. In other cases, Matrix-Churchill acted as a broker for the Iraqi end user, and Matrix-Churchill demanded and often received a kickback from the United States firm of between 5 and 10 percent of the total value of the contract. These kickbacks were intended to cover the cost of operating the procurement department.

The project management division, was under Sam Naman and Abdul Qaddum, who were believed to be an Iraqi intelligence operatives, having worked in the United Kingdom for the known Iraqi intelligence operative Safa Al Habobi, the front man who helped set up and operate the Al Arabi procurement network. Al Habobi was the owner of record of Matrix-Churchill Corp., and several other Iraqi front companies in the United States.

According to Gonzales, Qaddumi and Naman had previously worked together, "contrary to what they told the American employees working at Matrix-Churchill. The Iraqis working at Matrix-Churchill often talked about sensitive topics in Arabic rather than English. In addition, much of the correspondence related to sensitive matters such as discussions with Safa Al Habobi about money were written in Arabic to conceal the contents from the Americans working at MCC...In a July 10, 1989, memo, Al Habobi instructed employees of Matrix-Churchill to retain certain expense reports in Baghdad because they indicated that the Baghdad branch of Matrix-Churchill was paying various expenses of Iraqi military establishments. The memo stated:

There is some doubt here about the bills being presented in full (to Matrix-Churchill) as they are from Military companies that we feel, if they are translated by your accountants, cause you a few problems.

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