The arms for Iraq scandal: Firm claims pounds 4m from taxpayer to cover Saddam bill

MATRIX CHURCHILL, the company at the centre of the arms for Iraq scandal, is claiming pounds 4m from the Government to pay for equipment supplied to Iraq in breach of a British arms embargo after Saddam Hussein defaulted on payment.

The Government's Export Credits Guarantee Department (ECGD) approved insurance cover for pounds 4m worth of exports from the company in March 1989. Under the policy, the ECGD agrees to pay the company, from taxpayers' money, if the customer defaults.

Cardoen Industries, a Chilean company that acted as an agent in purchasing the machine tools from Matrix Churchill on behalf of Iraq, refused to pay after the Iraqis stopped payment for arms and equipment, after Saddam invaded Kuwait in August 1990.

However, the ECGD has so far refused to reimburse Matrix Churchill for its losses. The ECGD approved cover but then issued a notice of withdrawal of cover after Iraq invaded Kuwait.

Matrix Churchill went into receivership in July 1992 owing between pounds 7m and pounds 8m to creditors. The receivers, Price Waterhouse, are pursuing the claim for pounds 4m made by the company before the receivers were appointed.

Stephen Hancock, the receiver, said: 'The claim is under consideration. It has not been settled.'

Asked if he would sue if the ECGD refused to pay, Mr Hancock said: 'We will consider that when a final decision is taken. We would have to consider the reason as to why the claim was denied.'

A spokesman for the ECGD said: 'We can confirm we are considering a claim made upon us but details of any individual claims are commercially confidential. Before we admit liability there would be a number of outstanding issues which need to be settled.'

Charges against Matrix Churchill, of illegally exporting goods to Iraq, were dropped by Customs and Excise last month after secret government documents and Alan Clark, the former trade minister, disclosed that the Government encouraged and advised the company on how to get round the embargo.

Documents released during the trial revealed that the pounds 4m worth of machine tools and lathes that the company exported to Iraq via Chile were known from intelligence sources to be for military purposes.

Suspecting this, officials from the ECGD, which is part of the Department of Trade and Industry, checked with the DTI and Foreign Office whether an export licence would be needed, and if so whether credit was allowed, but they were advised the goods would not need an export licence.

David Bryars, chief underwriter for the ECGD Insurance Services Department in Cardiff, gave evidence in the Matrix Churchill trial that, despite their reservations, pounds 4m of cover was approved.

A transcript of Mr Bryars' evidence from the trial, together with the classified documents, show that unknown to Mr Bryars, a secret agreement was drawn up between the DTI and the Ministry of Defence in November 1987, to allow export credits for defence sales, a possible breach of guidelines banning such exports to Iraq for military purposes, announced by Sir Geoffrey (now Lord) Howe, when Foreign Secretary in 1985.

During the trial, Mr Bryars said he did not know that a new policy had been agreed in 1987 that 20 per cent of export credits available could be allocated for military sales.

The secret new policy was detailed in a letter in November 1987 from Ian Foster, a senior civil servant at the ECGD headquarters in London, to Roger Keeling, the assistant regional marketing director of the Defence Export Services Organisation, which is part of the MoD.

Asked why Mr Bryars was not informed of the new policy, an ECGD spokesman told the Independent: 'Mr Bryars was an employee in our insurance services group in Cardiff. Mr Foster was writing from the London office.

'There was no professional reason why he should have known about the kind of business that was being referred to in that letter.'

Asked how a policy allowing export credits for military purposes could be approved in the light of the Howe guidelines, the spokesman said: 'Any equipment, the export of which we would support, would have to be in compliance with the guidelines.

'The defence-related equipment we supported did not include armaments of any kind.'