Dr. Habobi

Return to an Address of the Honourable the House of Commons
dated 18 July 1996 for the Appendices to the Report of the Inquiry into the Export of Defence Equipment and Dual-Use Goods to Iraq and Related Prosecutions laid before The House on 15 February 1996*

Volume Two
Section D Arms and Defence-Related Exports to Iraq
Chapter 5 Iraqi Arms and Defence Equipment Procurement
after the Cease-Fire

D5.5 The reports had suggested that TDG had a central role in an Iraqi arms procurement network in the United Kingdom and that Dr Habobi, an Iraqi, had a pivotal role in controlling the network companies. In the summer of 1988 Dr Habobi applied for a multi-entry visa to enter the United Kingdom and for a work permit. A telegram dated 9 May 1988 from the British Embassy, Baghdad, to the MOD said that Dr Habobi “worked for special security at the Presidential Palace and Nassr Establishment” and that his continuing employment by Nassr “would tie in with earlier observations about the possibility of the Iraqis importing machinery for an armaments factory”. *7 Mr Cowell, FCO/MED, in a letter to the Home Office dated 13 May 1988 indicated FCO opposition to the grant of a visa to Dr Habobi. The letter said that “there is sufficient evidence to suggest that the purpose of Dr Habobi’s visit to the UK is to assist in the procurement of equipment for the Iraqi munitions industry” and that “given HMG’s strict stance on the sale of defence-related equipment to either side in the conflict, we feel Dr Habobi’s visa to enter the UK should not be granted.” *8

D5.6 Mr Cowell, at the time he wrote the letter of 13 May 1988, was relatively new in the FCO. He had joined in September 1987 and been assigned to the MED as Assistant Desk Officer at the Iran/Iraq Desk, a post he held until September 1988. The Desk Officer at the Iran/Iraq desk to whom Mr Cowell worked was, first, Mr William Patey and then, from March 1988, Mr Tim Simmons. Mr Blackley was Assistant Head of MED with responsibility for the Iran/Iraq Desk and Mr Rob Young was the Head of MED. Mr O, an SIS officer still in his probationary period, *9 was a frequent and regular visitor to the MED room where, with others, Mr Cowell and the Desk Officer, first Mr Patey and then Mr Simmons, worked. In conversations with Mr Simmons and with Mr Cowell Mr O on occasions expressed a personal view, taken by his listeners to be the SIS view, of the state of current intelligence on various Iraqi related matters, including Dr Habobi and his likely activities in Britain. Mr Cowell has no recollection of any contact with SIS personnel other than Mr O.

D5.7 At the time in question in 1988 Mr O was responsible, inter alia, for the co-ordination of all Iraqi intelligence targeting. This responsibility included work on Iraqi procurement. Mr O estimated that in 1988 under 10 per cent of his time was spent working on Iraqi procurement but that the proportion rose to 50 per cent in 1989. *10 He told the Inquiry that he “used to visit MED every two or three weeks in order to keep up to date on events” and that “the problems of export controls and Iraqi procurement were often discussed, but only in general terms.” *11 The visits were brief, usually no more than five to ten minutes in duration. He said also, however, that he was not involved in the discussions about Dr Habobi’s visa application, and that it was not part of his job to brief MED on intelligence matters or to issue intelligence reports. If MED wanted an intelligence briefing on a particular subject the channels through which the briefing should be sought and given did not include himself. This circumstance should, he said, have been known to the FCO/MED officials, although “the younger ones, who had not been on a course, may not have known...” *12 Mr Cowell was one of the younger ones. He had not been on the course Mr O had in mind. He treated Mr O as the appropriate source from which the SIS opinion on current intelligence could be obtained. So, too, later did a successor of his at the Iraq desk, Mr Sherrington.

D5.8 Mr Cowell’s letter of 13 May 1988, in referring to the state of the evidence regarding the purpose of Dr Habobi’s visit to the United Kingdom, expressed the MED’s current understanding. Mr Blackley, in his oral evidence agreed that this was so. *13 Mr Cowell told the Inquiry that his own understanding would have been obtained from discussions with Mr O, with Mr Blackley and with Mr Simmons. At a meeting of intelligence officers on 8 June 1988 it was reported that the Security Service had advised the Immigration and Nationality Department (IND) against the grant of Dr Habobi’s applications and that the IND had indicated that the applications would be refused. *14

D5.9 The FCO view that Dr Habobi should be refused a visa was confirmed in a letter dated 14 June 1988 from the Home Secretary’s Private Secretary to the Foreign Secretary’s Private Secretary. The letter recorded that FCO officials had recommended that “Dr Al Habobi should not be allowed to enter the United Kingdom because of the risk of compromising our neutral stance over the Iran/Iraq war” and then said that “The Home Secretary would not need to justify a decision to exclude a visa applicant, but we would need a line for public consumption. Having consulted your officials we suggest that this should be that Habobi’s exclusion is conducive to the public good because his admission would jeopardise the United Kingdom’s international relations, and in particular the policy of refusing to allow the supply of defence equipment to either side in the Gulf conflict which would enhance their ability to prolong that conflict”. The letter sought confirmation that the Foreign Secretary was content for Dr Habobi to be excluded on that basis. *15

D5.10 On 21 June 1988 Mr C3 issued a Report, based on information provided by Mr Gutteridge *16 regarding the arrangements made by Iraq for the procurement of machinery for armaments production and the part to be played by Dr Habobi and other London based personnel. The Report said that “The London Office would not function without Habobi” and referred to the possible consequences if Dr Habobi were refused a visa: “The Iraqis have already spoken about moving their operation from London to Switzerland. If Habobi is not granted a visa then three options are seen. Either he will be replaced or the office is closed down and Meed *17 would be invited to act as middlemen in the UK or TDG would move out of the UK. .... Habobi has spoken about his visa problem to contacts in London and suspects there might be difficulties .... It would not be difficult for Habobi to switch his business and temporary home out of the UK .... If Habobi is not granted a visa, it is most likely he would move his centre of operations out of the UK .... It is to be expected that UK companies would become less favoured .... The effect on UK companies would much depend on the balance and level of their order books. In some cases, the Iraqi orders make up the majority of future contracts; these companies may eventually fail.” Copies of the Report were distributed, inter alia, to FCO/MED, MOD/DESO, MOD/DESS, the Home Office and the DTI.

D5.11 A meeting was then called by the FCO/MED on 22 June 1988 to discuss the Habobi visa application. The meeting, according to an SIS Minute made by Mr C2 and dated 8 July 1988, “was attended by representatives of FCO Middle East and Defence Departments, Home Office, MOD and [Mr C2]; a representative from the DTI had been due to attend, but failed to appear”. This was an important meeting but, mysteriously, no written record of the meeting was made by the FCO and the SIS minute was written over two weeks after the event. Several of the departmental witnesses who might be expected to know about the meeting appear to have no recollection of it. Mr Blackley could not recall it *18 notwithstanding the fact that it had been called by MED. Mr Cowell has no recollection of it. The minute of the meeting, in which Dr Habobi was described as “the central figure in the Iraqi procurement organisation”, recorded that “the consensus of opinion [i.e. at the meeting] was that a submission to Ministers should recommend the refusal” of Dr Habobi’s application and that although “concern was expressed by all present about problems of source protection [i.e. Mr Gutteridge] .... it was believed that there was sufficient evidence from overt sources... and that the submission could be drafted in a manner so as to adequately conceal the input of our [i.e. SIS’s] reporting.” *19 The “input” referred to was the material obtained from Mr Gutteridge.

D5.12 On the same day, 22 June, but whether before or after the meeting is not clear, a telephone conversation regarding source protection took place between Mr O, Mr P (Mr Gutteridge’s Case Officer) and Mr A2 (a Security Service Officer). Mr A2 made a Note of the conversation the following day.

It seems clear enough, therefore, that, at the foot of the 22 June meeting, the consensus was that the FCO would recommend refusal but, if called upon publicly to justify the decision, would not pray in aid the information that had been obtained from Mr Gutteridge. The intelligence officers were content with this.

D5.13 However, the FCO submission to the Secretary of State, which was dated 29 June, prepared by Mr Cowell and approved by Mr Blackley and Sir David Miers, recommended that “in the light of further information about Al Habobi and recent problems in our relations with Iraq” Dr Habobi “should not now be excluded”. *22 DTI, MOD, SIS and the Home Office were said to concur in the recommendation. The previous view, concurred in by all of the Departments, had been reversed. The submission said that “... we now know that Dr Al Habobi is engaged by the Iraqi Government to organise the procurement of equipment for a major armaments and munitions factory at the Nassr and Hutteen State Establishments ...” and referred to the purchase of Matrix Churchill “a machine tool manufacturing company, which is now effectively under complete Iraqi control.” It said that “although Al Habobi’s plans do not directly breach the letter of the guidelines they are clearly contrary to its spirit. Our efforts to prevent manufactured munitions and other finished product armaments from reaching either belligerent would be seriously undermined if at the same time we allowed Iraq to circumvent the guidelines and procure equipment which would provide Iraq with the capability to produce herself those same products we have denied. Moreover, a munitions factory comprising products in large part of British manufactured machinery would clearly cause presentational difficulties. Thus, if we are to maintain the integrity of the Ministerial guidelines, Al Habobi’s plans must be frustrated”. The submission then identified two possible means by which Dr Habobi’s “plans” might be frustrated. The first was by his exclusion from the United Kingdom. The main drawback of this option was that “Iraq may decide to place their orders elsewhere and to withdraw their stake in the various UK companies they control. This may lead to loss of trade amounting to over £20m. In the case of Matrix Churchill at least, this may lead to the company’s collapse .... The DTI are very concerned about the prospect of his exclusion for the reasons outlined above”. A further point against the exclusion referred to in the submission was the “source protection point”. According to the submission “... our friends and Box 500 are seriously concerned about source protection. They have stressed that although they had no objection to our initial inclination to exclude Al Habobi, they are now not prepared to allow the information we possess to be alluded to.” The alternative course, according to the submission, was “to allow Al Habobi to enter the UK but ensure that no licensable equipment could be exported which could be used in munitions manufacturing.” One of the main perceived advantages of this option was that it “may secure not only current contacts but also the future of at least one company in the UK”. The submission summed-up the position thus: “... although Al Habobi’s exclusion would be the only certain means of ensuring that our guidelines are not circumvented, the disadvantages with this course of action now suggest we may have to settle for the compromise solution suggested in Option (b)” i.e. allowing Dr Habobi into the United Kingdom but then carefully monitoring his activities. In a manuscript note dated 30 June, commenting on the submission, Mr Blackley said this:

Sir David Miers signified his agreement with the content of the submission and of Mr Blackley’s manuscript comments thereon. So did the Minister, Mr Mellor. *24

D5.14 Apart from the question of why the FCO opinion regarding the grant of Dr Habobi’s visa application had changed over the month of June 1988, an odd feature of the FCO submission is the manner in which SIS’s views on source protection were portrayed. The original fears about source protection, while remaining a reason for no overt use being made of the information supplied by Mr Gutteridge, had been allayed by the subsequent obtaining of collateral information from overt sources. At the REU meeting on 5 February 1988 it had been agreed that “in light of recent developments from a different, overt, source” the decision not to revoke the export licences that had been taken “so as not to prejudice the information source” could be altered. *25 Source protection had, thus, apparently ceased to be a reason for not taking action against the Iraqi procurement efforts. According to the SIS minute of 8 July 1988, at the meeting on 22 June 1988, a week before the date of the FCO submission of 29 June, it had been agreed “that there was sufficient evidence from overt sources” to enable a submission recommending rejection of Dr Habobi’s application to be prepared without disclosing “the input of [SIS] reporting.” *26 The SIS minute stated the “overt sources” to be “a letter from an employee of Matrix Churchill”, “an article in the Daily Telegraph” and “a DTI investigation of Matrix Churchill”. *27 The 22 June meeting had been attended by FCO/MED representatives as well as by representatives from SIS and from other departments. Mr A2’s note of the telephone conversation on 22 June with Mr O showed general agreement that fears about source protection were not a reason why Dr Habobi’s application should be granted.

D5.15 Mr C2’s Minute dated 8 July 1988 commented on the FCO’s 29 June submission. The Minute referred to the 22 June meeting and to the “consensus of opinion ... that a submission should advocate the refusal of a multi-entry visa and work permit to Habobi”, and then continued: “As it transpires the final submission does not reflect the views of the meeting as the action taken by the DTI had been primarily the result of our reporting (and so could not be used in the submission) and also because the Home Office felt on legal grounds a stronger argument perhaps making reference to our reporting would be required”.*28 In a manuscript note on the Minute Mr B, a senior colleague of Mr C2, commented “it may be that if Habobi is given enough rope, he will hang himself. But this does seem a classic case of Whitehall wishing to have it both ways - preserve Matrix Churchill’s trading relationship, and yet deny its military benefits to Iraq.” Mr O, in evidence to the Inquiry, agreed with Mr B’s comments. He said “That I think sums it up in a nutshell, what was going on at the time within Whitehall as we perceived it. Therefore it was easy for people to latch on to source protection as a reason to ... come down and tip the scales and balance in preserving the trading relationship.” *29 Mr C3, in his written evidence, also agreed that Whitehall had “latched on to source protection to support a decision to preserve the trading relationship” and said that he thought “the SIS view on source protection had been exaggerated....” *30

D5.16 Mr C3 said in his written and oral evidence that the 29 June submission and the 8 July letter from the Foreign Secretary’s Private Secretary to the Home Secretary’s Private Secretary did not reflect SIS’s views at the time on source protection. 31 But the submission was expressed to be one with which SIS agreed. And it is clear that SIS saw a copy of the 8 July letter. *32 When Mr C3 was asked, in the course of his oral evidence to the Inquiry, about this incongruity, he was unable to give any adequate explanation of how it was that the “exaggeration”, as Mr C3 had put it, of SIS’s views regarding source protection contained in the 29 June submission had not been corrected. *33 He did, however, say that it could be argued “in the broad interest of SIS, if Whitehall Departments wish to allow Habobi in, then that gave us scope for continuing to get intelligence on him and perhaps making an operation against him”, and he expressed the view that the 29 June submission was “perhaps the beginning of the case by FCO/MED of using source protection as a means to an end, viz. to promote trade with Iraq.” *34 He said that he believed that the concurrence of the Middle East section in SIS, rather than his own section (which would have been the normal section for the purpose), might have been obtained. *35 There is no evidence, written or otherwise, that this was so. Mr O’s later written evidence conflicts with Mr C3’s recollection of events. In response to Mr C3’s evidence to the Inquiry, Mr O said: “I cannot believe that his recollection now on the SIS view of source protection is correct.” *36 Mr O stated that “SIS concurred with the source protection argument in Mr Cowell’s submission of 29 June 1988” although “SIS were not the lead agency in seeking to change the recommendation of the submission.” *37

D5.17 I have endeavoured in the course of the Inquiry to ascertain the reasons why it was that the FCO approach to the entry of Dr Habobi underwent a volte face in June 1988. Mr Cowell, in written evidence, gave five reasons, namely:

But none of the SIS officers who gave evidence to the Inquiry agreed that this was so, apart from Mr O. I have already referred to Mr C3’s evidence. According to Mr O “the DTI and the Home Office lawyers wanted to have a watertight case should Dr Habobi appeal against the refusal of his work permit.” *38 Mr O’s evidence on this point is supported by an internal memorandum of Mr Willson at the Home Office who wrote on 12 July 1988 that “I do not believe we would wish to maintain the decision to exclude in the face of FCO/DTI opposition. Indeed, if we did so, we would not have a legitimate public line in defence of the decision if challenged.” *39 Mr O’s recollection is that “Given that SIS did not officially exist in 1988 and we had no experience of the courts, I believe that a decision was taken by SIS and the Security Service, under pressure from the DTI and Home Office lawyers, to say that [SIS] would not allow [its] intelligence to be alluded to.” *40

Dr Habobi was known to be a very high ranking Iraqi Government official whose presence in this country was for the purpose of supervising Iraq’s arms procurement schemes. Nothing in the intelligence agencies’ files detracted from the threat to British interests that the presence of Dr Habobi would pose. The point regarding retaliation against British businessmen had been made in the FCO letter of 8 July 1988 to the Home Secretary in which the view was expressed that “the exclusion of Habobi without an explanation of why we were doing so would certainly be interpreted by the Government of Iraq as victimisation.”*41

SIS Reports of 23 May and 21 June 1988 were prayed in aid. *42 The 23 May Report reported that “Habobi had recently denied that Iraq was buying machines dedicated to arms production and said that after the war, Iraq should become the most industrialised country in the Middle East”. However, the denial was, so far as the machine tools referred to in the 30 November 1987 Report were concerned, known to be false. It is also to be borne in mind that in May and June 1988 Iran had still shown no signs of accepting UN Resolution 598. The war was still being bitterly waged and the notion that Iraq, with its known financial difficulties, was buying machine tools for civil purposes strains credulity to breaking point. I do not believe that the FCO were in truth so credulous.

This is an understandable reason. Mr Cowell commented also that “although Al Habobi would certainly be prevented from exporting licensable equipment in breach of the guidelines, legitimate business which did not breach the guidelines would also be lost” as a consequence of his exclusion from the United Kingdom.

Mr Cowell said also, later in his written statement, that he had been briefed orally by his superiors and, he was fairly certain, by the intelligence agency representative himself, that the agency view had changed and that the agency was not prepared to allow reference to its information. This was consistent with the circumstance that the submission of 29 June was allowed by the intelligence agencies to pass uncorrected. *43 However, the evidence of Mr Cowell is quite contrary to that which was given to the Inquiry by members of the intelligence agency with the exception of, to a degree, Mr O. *44 Mr O was the intelligence agency representative to whom Mr Cowell referred.

D5.18 Mr O explained to the Inquiry in his written statement of 3 January 1995 that his previous written statement of 8 November 1993 had been incorrect. In the earlier statement he had said:

“In June 1988 source protection again becomes an issue over the question of whether Dr Habobi should be granted a visa... SIS thought that a meeting of interested parties in Whitehall had decided to recommend refusing entry. However, without returning to SIS for clarification... it was decided to grant his visa.”

Mr O said in his later statement that he believed “SIS must have been consulted” *45 but disagreed that he was the SIS officer who had informed Mr Cowell of the decision on source protection. *46 Mr O said that he must have discussed Dr Habobi’s visa application with Mr Cowell both before and after the submission but that this was on an informal basis. Formal discussions, he said, were conducted by Mr C2. *47 However Mr C2 told the Inquiry, and I accept, that after attending the meeting on 22 June “responsibility for the matter of the submission concerning Habobi returned to Mr C3.” *48

D5.19 The submission of 29 June, although prepared by Mr Cowell, expressed the views which were not Mr Cowell’s alone but which were the MED departmental views. The thinking underlying the submission would, in the main, have been that of Mr Cowell’s departmental superiors. Mr Cowell told the Inquiry that he recalled Mr O reading the submission without comment on one of his (Mr O’s) visits to the Iraq Desk room. The occasion preceded the dispatch of the submission to the Minister. Mr O could not recall whether he saw the submission before or after it went up to Mr Mellor. *49 Mr O told the Inquiry that if he did see the submission before it went up to Mr Mellor it would have been out of personal interest rather than to provide the SIS imprimatur. *50 I accept Mr Cowell’s evidence about this incident and that Mr Cowell believed, as a result, that the statements in the submission regarding the state of current intelligence and regarding SIS’s views on the use to which the intelligence could be put had received the imprimatur of SIS. But I do not believe that Mr O understood that his perusal of the submission on the occasion in question would be taken by Mr Cowell, or by MED, to indicate SIS endorsement of the contents of the submission. A copy of the submission was, later, sent through PUSD channels to the SIS. In the event, Foreign Office Ministers were permitted to take a decision on the issue of Dr Habobi’s visa on a footing that did not reflect the true position regarding the use that could be made of the intelligence information. .

D5.20 The evidence of Mr Blackley, Sir David Miers and Mr Mellor on the reasons for the change in the FCO view regarding the admission to the United Kingdom of Dr Habobi did not add to or differ materially from that of Mr Cowell. Intelligence agencies’ expressed objections to the use of their information, coupled with the adverse economic and trade consequences of Dr Habobi’s exclusion were the reasons relied on. The main reasons were, I conclude, a fear of the diplomatic fuss that Iraq might make if Dr Habobi were excluded, a fear of the possible consequences to British visitors to Iraq against whom retaliatory action might be taken and a reluctance to forgo the trading opportunities that might be lost if the Iraqis took umbrage at the decision.

D5.21 In the event, the Foreign Secretary, Lord Howe, supported the grant of Dr Habobi’s applications. This support was, in view of the contents of the FCO’s 29 June submission, not surprising. In the letter dated 8 July 1988 from the Foreign Secretary’s Private Secretary to the Home Secretary’s Private Secretary, the recommendation in Mr Cowell’s submission against the exclusion of Dr Habobi was accepted. The letter said that “Although the Foreign Secretary is still concerned that Al Habobi’s operations in the UK are designed to evade the Ministerial guidelines on the supply of military equipment to either belligerent in the Iran/Iraq conflict, he now feels that we should seek to frustrate his plans by other means than exclusion from the UK.” The letter then commented on the “damaging effects on British exports to Iraq” that would be caused by Dr Habobi’s exclusion, warned that “not only would we lose valuable contracts in Iraq, but it is probable that at least one British company (Matrix Churchill) would collapse”, but noted that “this was felt to be acceptable if it preserved the integrity of the Guidelines.” The letter said, unexceptionally, that “... we need to consider carefully whether exclusion is really the best option for overall British interests”, and referred to the source protection point by saying: “An important point in this is that Box 500 and 850 have now decided that their information must not be used in justifying an exclusion order, since this would jeopardise an extremely delicate source.”

D5.22 The recommendation for the grant of Dr Habobi’s visa application received strong support from the DTI. In a letter dated 4 July 1988 to the Home Secretary’s Private Secretary, the Private Secretary to the Secretary of State for Trade and Industry, Lord Young, said that “... we control the exportation of sensitive goods by our export licensing regime. This we believe is the proper mechanism for control of the supply of goods to Iraq, not the exclusion of an Iraqi of considerable influence who could readily switch his sourcing intentions for innocuous goods elsewhere within Europe or the USA. Consequently, we feel we should resist the proposal to exclude Dr Habobi from the UK unless there is evidence that he or his organisation have attempted to breach UK regulations over the exportation of controlled goods.” *51

D5.23 In the event Dr Habobi was allowed to enter and work in the United Kingdom. An SIS Source Report dated 1 August 1988, based on further information from Mr Gutteridge, reported that in May 1988 Dr Habobi had been congratulated by President Saddam Hussein on his work for the Nassr Establishment and his trading in Europe and promoted to the rank of Brigadier in the Al Amn Al Khas. *52

D5.24 It had been contemplated by the FCO/MED and specifically referred to in the letter of 8 July 1988 from the Foreign Secretary’s Private Secretary *53 that Dr Habobi’s activities and the activities of the procurement network would be carefully monitored in order to ensure that attempts to export defence related equipment in breach of the Howe Guidelines would be frustrated. The letter said: “we should... ensure that no licensable equipment could be exported which could be used in munitions manufacturing, by means of close monitoring of his activities by the agencies and careful scrutiny of all licensable equipment... at the [IDC].” In the event this good intention was, in the optimism for trade that followed the August 1988 ceasefire, lost sight of and not pursued. The basis on which the FCO had decided to allow Dr Habobi’s entry into the United Kingdom was thereby invalidated.

*12 - Closed Session transcript of Mr O’s oral evidence, 9 November 1993, p.19

*29 - Closed Session transcript of Mr O’s oral evidence, 9 November 1993, p. 100

*31 - Written statement Ibid., paragraph C.3.3; Mr C3 added: “It remained fundamental that Gutteridge should not be exposed, but there was adequate scope to use his evidence while avoiding this.”

*37 - see covering letter dated 3 January 1995, paragraph 1a and 1c to Mr O’s written evidence

*43 - see Mr Cowell’s written statement submitted on 4 June 1993, paragraph 8.3.2 and 8.5.2(b)

* The Full report is available from The Stationery Office Ltd., PO Box 276, London, SW8 5DT.