Sleaze Scandal Allegation Hits Defense Industry Britain's Future Arms Sales to the Gulf States and Other Countries May Be Jeopardized by Claims of Dubious Payments and Deal-Brokers

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BRITISH Prime Minister John Major's Conservative government is going into damage-control mode, trying to weather an embarassing weapons kickback scandal, which could cost British armsmakers future foreign sales.

At the heart of the so-called "sleaze" scandal are allegations that Mark Thatcher, son of the former Conservative prime minister, earned 12 million ($18.9 million) in commission fees by helping to facilitate a 20 billion deal with Saudi Arabia when his mother, Margaret Thatcher, held office.

The controversy is likely to have an adverse effect on the government, which is trailing badly in opinion polls and is under political attack from the Labour Party opposition. But Labour is only part of the government's concern.

Future arms sales to the Gulf states and such countries as India, Malaysia, and Indonesia could be jeopardized by claims that negotiations often turn on dubious payments to deal-brokers and local officials, a London defense industry source says.

Mark Thatcher is a millionare businessman now living in Texas. He was named in the London Sunday Times on Oct. 9 as one of several middlemen who together earned a 240 million commission for their part in the sales of British-built Tornado fighter-bombers and Hawk trainers to Saudi Arabia in the mid-1980s.

The newspaper said the main source of the allegation, which Lady Thatcher and her son both deny, was Mohammed Khilewi, a former Saudi diplomat who defected last May and was granted asylum in the United States.

British officials and defense contractors are alarmed because the 20 billion Al Yamamah (the Arabic term for dove) contract with Saudi Arabia still has about three years years to run. So far, Britain has received about 13 billion.

British Aerospace, one of the main contractors, is reportedly worried that the Saudis could cancel the deal if bad publicity surrounding it continues to mushroom.

Other arms sales in the Gulf and in South and Southeast Asia could also be affected, a British Aerospace source said, "if the idea became firmly entrenched that sleaze is commonly part of arms-sales transactions."

The government has reason to worry that the publicity could sour the Saudi contract and cost British jobs. Earlier this year, Malaysia ordered a ban on all trade with Britain after the Sunday Times alleged that high government officials in Kuala Lumpur had demanded bribes in return for their support for a deal in which aid funds for a large dam at Pergau and British-built aircraft for the Malaysian air force were intertwined. …