Machine Tools - ELAs Nov. 1989

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 6 Specific Export Licence Applications after the Cease-Fire

D6.107 By letter to the DTI dated 24 January 1989, Matrix Churchill sought permanent export licences for the machining centre which had been the subject of a temporary licence, granted under ELA 0440 *207, and for a CNC 2 Series Lathe which had been the subject of a temporary licence granted under ELA 52039. *208 The letter referred to 0440 and 52039 and informed the DTI that a firm offer of purchase had been received for the two machines from “Nassr State Project 1728, Taji, Baghdad”. *209

D6.108 By letter dated 8 June 1989 to Mr Barrett, DESS 2, Mr Mayne, of the ELU, asked whether the MOD would have any objection to the conversion of the temporary licences into permanent ones. The letter referred to the offer Matrix Churchill had received from Nassr State Project 1728 *210. A similar letter went to the FCO/MED and was referred to FCO/SEND. Mr Martin Lamport of SEND responded by letter to Mr Mayne dated 15 June 1989. He said that as the machines had originally been exported on a temporary basis for exhibition purposes, SEND had not sought answers to the pro forma questions as to the nature of the ultimate user’s business and the precise purpose for which the goods were to be used. He asked DTI to “find out from Matrix Churchill what business the Nassr State Project 1728 is engaged in and what these machines are to be used to manufacture...” *211. Mr Mayne telephoned the company and asked for the information that had been requested. An internal Matrix Churchill note dated 13 July 1989 was supplied by the company to the DTI in response to Mr Mayne’s query. The Note said that Nassr State Project 1728 was “one of a number that Nassr are embarking on in order to use their suitable machine capacities that they now have for non-military applications... in this case research into the possibility of manufacturing instrumentation and measuring equipment”. *212 The ELU also wrote on 25 July 1989, apparently unaware of Mr Mayne’s telephone call, and asked the same questions. The company responded by sending a copy of the same note. Mr Martin Lamport was evidently not satisfied with the response for, on 2 August 1989, he telephoned Mr Mayne, informed him that SEND was going to object to the grant of the permanent licences and asked for an assurance that DTI would not be granting the permanent licences. *213

D6.109 In view of the available intelligence, Mr Martin Lamport’s concern was understandable. An SIS Report dated 12 January 1989 had identified Nassr’s Project 395 as a ballistic missile project *214, an SIS Report dated 10 April 1989 had identified Project 1728 as being part of Project 395 and at the WGIP meeting held on 23 June 1989, it had been noted that the end-user for the machine tools for which the permanent licences were being sought “was known to be the Iraqi missile programme” and that “SEND want to refuse the request...”. Mr Barrett was present at that meeting. So were Mr Lillie of FCO/MED, Mr Beston and representatives of Customs. A copy of the Minutes had gone to Mr Martin Lamport at SEND and to Mr Steadman at the DTI. 215 If Mr Steadman had had in mind the contents of the minutes when he read the Matrix Churchill Note of 13 July 1989 he would have known that the information that Project 1728 was “one of a number [of projects].... for non-military applications” was, at best, highly suspect and, probably, untrue.

D6.110 An intelligence officer who regularily attended the REU and WGIP meetings was asked by the Inquiry about the discussion at the WGIP meeting on 23 June 1989. His evidence was as follows:

Mr C3 in oral evidence to the Inquiry said that he did not accept that the officer’s opinion, cited above, was accurate. He (Mr C3) said “Preserving the access was undoubtedly a positive result deriving from [approval] but it was never pre-eminent in the consideration.” *217

D6.111 The intelligence which had led to the views expressed at the 23 June WGIP meeting was further substantiated by two Intelligence Reports, both issued on 5 September 1989, which referred to “Project 1728, a large missile project headed by Dr Modher S Sabaa of the Nassr State Establishment” and described some of the factories and Iraqi personnel associated with Project 1728. *218 Copies of the Reports were distributed, inter alia, to FCO/MED, FCO/SEND, and a number of MOD/DIS desks. A copy was not distributed to the DTI nor to MOD/DESS nor, surprisingly, to the DIS Defence Sales desk. In addition an Intelligence Report dated 6 September 1989 reported, inter alia, that Project 1728 was a sub-project of Project 395, “a research and development programme for producing probable ballistic missiles.” 219 This Report received much the same distribution as the two 5 September Reports. Copies did not go to the DTI, nor to DESS nor to DIS’s Defence Sales desk. Taken as a whole the intelligence as to the nature of Project 1728 for which the 0440 and 52039 machine tools were destined was firm and unambiguous.

D6.112 On 3 March 1989 Matrix Churchill made an ELA relating to four “Star RNC10 CNC Automatic Lathes with Fanuc OT and Equipment” and to seven “Star VNC 12B CNC Automatic Lathes with Fanuc OT and Equipment”. This was ELA 3G/22351/89. *220 On 24 March 1989 Matrix Churchill made an ELA relating to twenty four “Matrix Type Mac V2E Vertical Machining Centres with Fanuc Controls”. This was ELA 3G/23006/89. *221 In the case of each of these ELAs the consignee was, originally, stated to be Nassr. Later the name “Nassr” was crossed out and replaced with a West German consignee, CIFCO. Matrix Churchill’s explanation was that although the machines were destined for Iraq, they were being “grouped” in Germany. There was, however, never any doubt but that the machines were destined for Nassr. The consignee’s business was described in each ELA as “General Metalworking”. The “precise purpose for which the goods are to be used” was stated to be “General Metalworking”. Copies of ELA 22351 were sent to FCO/SEND, to FCO/Defence Department and to MOD/DESS2a. On receiving ELA 22351 Mr Steadman instituted inquiries as to the specifications of the machines in order to ascertain whether the machines were licensable. A ruling was obtained that the seven VNC 12B Lathes were not licensable, so they were removed from the application. Copies of ELA 23006 were sent to FCO/MED, FCO/SEND and MOD/DESS2a. The two ELAs were thereafter considered in tandem. Copies of the ELAs were sent to Customs ID on 22 April 1989.

D6.113 At a fairly early stage it became known to the DTI that the orders for the machine tools for which the export licences were being sought had been placed by a Chilean agent, the Cardoen company. The company was a known arms dealer although the DTI, and in particular Mr Beston and Mr Steadman, were unaware of this. A manuscript note from Mr Gall of the ELU to Mr Steadman dated 31 March 1989 referred to the “agent in Chile” and the proposed overland route to Iraq as having “all the hallmarks of a suspect transaction”. Customs ID branch were alerted and a manuscript note (undated but probably made between 21 and 24 April) on the DTI file reads “Spoke to Pat Blackshaw. He has checked with his ID officers that there is no information on the Chilean connection...” A manuscript note dated 25 April from Mr Steadman to Mr Gall reads “Customs have no present concerns about the involvement of a Chilean agent. Would you please ask the company for an explanation of the involvement of the agent, we also need an undertaking from the actual end user....” As a result of Mr Steadman’s Note, Mr Gall telephoned Matrix-Churchill. On 27 April 1989, Matrix-Churchill replied to Mr Gall’s question as follows:

D6.114 Mr Gall was highly suspicious of these two ELAs. He recorded his concerns in manuscript Notes on the DTI files and in evidence to the Inquiry said that he was so concerned that he minuted the case papers with the instruction that the two cases “must be referred to myself or Mr Steadman before issue even if they are cleared by our advisory departments (FCO and MOD)”. The Minute said also that “Customs ID must be informed if the licences were issued.”*223

D6.115 On 11 September 1989 Matrix Churchill made 2 ELAs, ELA 3G/27311/89 and ELA 3G/27315/89. These ELAs related to eighteen 4 Series 4-Axis CNC Lathes with associated spares and tooling. *224 The Consignee named in the ELAs was Nassr. The address was given as “CTRP CNC Lathe Project, PO Box 526, Taji, Baghdad”. This address constituted notice, therefore, that the machine tools were intended for the Central Tool Room Project.*225 The “nature of consignee’s business” was given as “Mechanical Engineering” and the “Precise Purpose for which the goods are to be used” was stated to be “Metal turning of engineering components”. Copies of the ELAs were sent by the DTI to FCO Defence Department and MOD/DESS2a.

D6.116 By the end of September 1989, therefore, Matrix Churchill had outstanding the following ELAs:

D6.117 ELAs 23006 and 22351 were before the IDC at its meeting on 18 May 1989. Mr Barrett’s Note dated 14 June to the Minister (DP) said that “In view of the MODWG’s continued concern about the use to which the equipment would be put, and DTI uncertainty on the licensability of the equipment, the IDC agreed to submit these cases separately once DTI have ascertained the exact export licensing status of the equipment.” *226

D6.118 On 14 July 1989 Lieut-Colonel Glazebrook circulated to all MODWG members a Note expressing concern about, inter alia, ELAs 22351, 23006, 52039 and 0440. He recommended that these ELAs together with a number of others, “must be marked `Pending’ until we have Ministerial guidance on this subject.” *227

D6.119 On 24 August 1989, Mr Stephen Lillie, Assistant Desk officer at the Iran/Iraq Desk at FCO/MED, put up a submission to Mr Waldegrave on the subject of the four Matrix Churchill ELAs then outstanding, namely 23006, 22351, 52039 and 0440. *228 The submission informed the Minister that “The MOD Working Group (which acts as technical advisers to the IDC) has recommended refusal of all four licence applications” and then rehearsed some of the relevant background to the ELAs. The background included the following passage. “We know from secret sources that Matrix Churchill has supplied equipment to Iraq’s munitions factories. Assuming the equipment has been used specifically for arms production, this is in contravention of our policy on defence sales to Iran and Iraq. In addition, the lathes could be used to produce components for a nuclear explosive device. However, the company has given assurances that its equipment is intended for legitimate industrial end-users only. IDC has in the past agreed that it would not be possible to dispute Matrix Churchill’s assurances convincingly without endangering our secret sources, and has therefore recommended approval of licence applications. Our friends have now agreed, however, that it would be possible to draw selectively on their information, should it become necessary in order to justify a refusal.” The submission concluded that “...approval of these licences would be inconsistent with our current policy towards the procurement network” and, after commenting on the economic consequences to Matrix Churchill of a refusal of the ELAs, recommended that the licences be refused. It was suggested that the company be told that the Government had “conclusive evidence that previous shipments of equipment have gone to the Iraqi munitions factories.” In a manuscript Note endorsed on the submission, Mr Rob Young said that he had “no doubt that we should refuse these applications.” Mr Gore-Booth commented: “I was against granting the licences in February and am even more so now.”

D6.120 It was surprising that Mr Lillie, who had been present at the WGIP meeting on 23 June 1989, did not support the refusal recommendation by drawing Mr Waldegrave’s attention to the intended end use of the 0440 and 52039 machine tools. Mr Lillie, in his evidence to the Inquiry, suggested that the passage from his submission that I have cited sufficiently drew attention to the intended use of the machine tools in the Nassr missile project. *229 I do not agree. The passage in question was describing the use to which previous consignments of machine tools had been put. The WGIP meeting had provided intelligence as to the intended use for the very machines under consideration. Mr Waldegrave should, in my opinion, have been told about it. Mr Rob Young, in his oral evidence agreed that unless between June and August, doubt had been cast on the accuracy of the intelligence about the intended end use of the machines, reference to that intended end use should have been made in the submission. No such doubt had been cast. *230 Mr Lillie, in his comments made to the Inquiry on 23 May 1995, has emphasised that “considerable care and effort went into all my work in MED,” and has drawn attention to the demanding workload on MED at the time.

D6.121 The submission was copied to SEND who had also assisted in its preparation. The correspondence between SEND and the DTI regarding the end-use of the machines comprised in 0440 and 52039 had been carried on by Mr Martin Lamport. But Mr Martin Lamport’s particular responsibility in SEND was nuclear proliferation. The official in SEND with responsibility for ballistic missile proliferation was Mr John Duncan. In regard to the intended use of the machine tools in Project 1728, Mr Lamport told the Inquiry that “from the moment missile technology considerations came into play, the lead would have been taken by Mr Duncan and I would have passed the papers to him.” *231 He said, also that Mr Lillie’s 24 August submission would have been seen by all desk officers in SEND as it covered both nuclear and MTCR concerns. Mr Duncan, who was at the WGIP meeting on 23 June told the Inquiry that both he and SIS representatives at the meeting had expressed the view that the permanent licences should not be granted. He was not clear, however, whether he personally had seen Mr Lillie’s submission. But he confirmed that the submission was in line with his views. *232

D6.122 Mr Lillie’s 24 August submission referred to “assurances”, said to have been given by Matrix Churchill, that the machine tools were intended “for legitimate industrial end-users only”. I have already commented on the general terms in which, in each of the two Cardoen ELAs the “precise purpose” question had been answered. “General metalworking” is a patently imprecise purpose. The DTI files reveal no question put to the company with a view to obtaining a more precise answer. Information had been sought from the company by Mr Gall in April 1989 consequent upon Mr Steadman’s request that he should do so. The company’s response, by letter dated 27 April 1989, referred to the project for which the machine tools were required as “one of the first civilian projects for which [Cardoen] have contracted since the ceasefire.” This was not true. The letter also said that the end-user in Iraq would be Nassr. *233 As to the two Central Tool Room Project ELAs, the “precise purpose” was “metal turning of engineering components”. No follow-up questions were asked. As to the 0440 and 52039 machine tools, a query had been directed to the company regarding the nature of Project 1728 and what the machines were to be used for, *234 but the answer given was completely inconsistent with the tenor of the available intelligence about Project 1728. The state of current intelligence was known in general terms to all those who had been present at the WGIP meeting on 23 June or who had received copies of minutes of that meeting. *235 No end-use assurances as such had been either asked for or given in respect of the Central Tool Room Project ELAs. The sentence about “assurances” in Mr Lillie’s submission must, presumably, have derived from information supplied to the FCO by the DTI.

D6.123 Mr Lillie’s submission of 24 August and the comments made by Mr Young and Mr Gore- Booth led to a letter dated 6 September 1989 from Mr Waldegrave to Lord Trefgarne recommending refusal of the four ELAs (23006, 22351, 52039 and 0440). *236 The letter referred to knowledge “originally from secret sources that, contrary to the assurances of the manufacturer, its high technology machine tools have been shipped to the major Iraqi munitions establishments”, said that “we have approved the company’s applications in the past, but only because of the need to protect these sources”, but said that the current understanding was that “we could draw selectively on information from secret sources should that become necessary in order to justify a refusal”, and that “Our concerns can only be reinforced by the activities of the Iraqi procurement network, about which the Prime Minister expressed concern in April”. The letter concluded by suggesting a line the DTI might take to justify a refusal, namely, “that we have firm evidence that equipment has previously been shipped to Iraqi munitions factories...” A copy of the letter was sent to Mr Alan Clark, now the Minister (DP).

D6.124 At about the time of Mr Waldegrave’s letter, three important and pertinent intelligence reports were issued. They were the two reports dated 5 September 1989 *237 regarding Project 1728 and the report dated 6 September 1989 regarding Nassr’s Central Tool Room Project. *238 Copies of these reports had not been distributed to the DTI or to MOD/DESS.

D6.125 Both Lord Trefgarne (the Minister for Trade) and Mr Clark (the Minister (DP)) disagreed with Mr Waldegrave’s recommendation that the Matrix Churchill ELAs should be refused. Lord Trefgarne’s disagreement was expressed in a letter dated 5 October 1989 to Mr Waldegrave. *239 In the letter, drafted by Mr Beston, Lord Trefgarne agreed that the January 1988 decision to allow the 1987 licences to stand had been taken in order to protect the intelligence source but he disagreed that that was so in the case of the licences granted in February 1989. As to those licences, his letter contained this important passage:

This passage shows, clearly to my mind, that, so far as the DTI was concerned, an intention that machine tools would be used for the manufacture of munitions was no longer a sufficient reason for refusing a licence for the export of the machine tools to Iraq. Nonetheless, an overt statement of that intention would have barred DTI support for the licence application. The last sentence of the cited passage had in mind, I think, a covert intention rather than an overt one. In his written evidence to the Inquiry Lord Trefgarne explained that his “view about the weakness of the case for prohibiting exports of general purpose industrial equipment for fear that it might be put to military use was based on the fact that the ceasefire had been in place for 13 to 14 months and [he] believed it was more likely that the exports would be used for civil purposes.” *240 Lord Trefgarne also referred to the assurances given by Mr Henderson at the 26 September meeting that the Matrix Churchill goods would be for civil use. *241 In relation to the last sentence of the cited passage Lord Trefgarne said, in his written evidence, that this sentence may not have been entirely accurate. He added “However, we would have needed evidence that the exports were to be used for military purposes rather than civil purposes and further, if they were to be used for military purposes, that they would be a significant enhancement.” *242

Lord Trefgarne’s letter went on to draw a distinction between the machine tools covered by the ELAs under consideration and “Iraqi efforts to obtain sensitive equipment for their nuclear or ballistic missile programme”, referred to the economic damage that a refusal of the ELAs would do to Matrix Churchill and concluded with the comment that “there is no shortage of foreign competition.”

D6.126 Mr Clark wrote a letter dated 24 October 1989 to Mr Waldegrave. He said he had “much sympathy” with Lord Trefgarne’s views and felt “unable to agree to stop the exports.” *243 He suggested a meeting between the three Ministers in order to try and resolve the issue.

D6.127 Mr Clark’s disinclination to refuse the Matrix Churchill ELAs was contrary to the recommendations of the MODWG. In a Note to the Minister dated 22 September 1989, Mr Barrett enclosed a copy of Mr Lillie’s 24 August submission, said that “The MOD Working Group has consistently recommended against the supply of Matrix Churchill lathes to the Iraqi destinations known to be munitions factories”, and said: “I think we have no option but to recommend that Minister (DP) accepts the refusal of these applications.” *244 He attached to the Note a draft response for Mr Clark to send to Mr Waldegrave. The draft expressed Mr Clark’s agreement “with great reluctance... to support your recommendation that the licences be refused”. Following the receipt by Mr Clark of Mr Barrett’s Note and draft letter, his (Mr Clark’s) Private Secretary spoke to Mr Barrett and indicated that the Minister was not satisfied with the proposed line and was inclined to agree with Lord Trefgarne. Mr Barrett was asked to produce more convincing reasons for agreeing with Mr Waldegrave that the licences should be refused. *245

D6.128 Accordingly, on 18 October 1989 Mr Barrett put up a revised submission to Mr Clark. *246 This submission enlarged upon the MODWG’s opposition to the grant of the licences. The grant was opposed because “the machine tools could enhance Iraq’s capability to rebuild its military capacity, in particular by allowing it to manufacture artillery rockets.” The grant of the February 1989 licences was explained on the basis that “refusal of the applications could have resulted in the closure of Matrix Churchill and the consequent loss of intelligence access”. Paragraph 4 of the submission put the issue in justifiably blunt terms: “If there is no longer concern about protecting intelligence sources, Ministers are left with the question of whether or not to allow the lathes to be exported knowing that they are going to a munitions factory. As the FCO submission (paragraph 5) says, in addition to strengthening Iraq’s indigenous arms industry, approval of these licences would be inconsistent with current policy towards the procurement network.”

The submission went on to detail other relevant points, including the following:

Point (a) was well taken. The lathes were capable of being switched from military production to civil production and vice-versa as the requirements of the factory might from time to time dictate. But point (c) was not, in my opinion, justified. The intelligence that machine tools previously supplied had been used in munitions manufacture was overwhelming. And Mr Barrett had himself been present at the WGIP meeting on 23 June when the missile production end use of the 0440 and 52039 machine tools had been disclosed. There was no warrant for the disparaging description of the intelligence as “only circumstantial evidence”. Mr Barrett, in his oral evidence, accepted that his failure to mention the intelligence imparted at the WGIP meeting was an oversight. But he was, nonetheless, arguing in the submission for a refusal of the ELAs. And he was, as he knew, addressing a Minister more than half inclined to support their grant. I accept Mr Barrett’s evidence that if he had remembered the WGIP meeting he would have referred in the submission to the intelligence. He explained that there was “a failure in the system”, in that there were no means, other than reliance on memory, whereby relevant intelligence previously obtained could be retrieved. *247 A particular failure in the system was that it was not the practice for Mr Barrett’s submissions to the Minister (DP) to be cleared with DIS. No copies were sent to DIS. Mr J was not aware of the terms of the submission of 18 October. If he had been shown a copy he would have corrected or amended a number of passages. He would have given the DIS view that “the evidence pointed to the lathes being used for munitions manufacture”, that “given the fragility of the peace between Iran and Iraq [the machine tools] should not be exported” and that “trying to decide whether [the machines] were being used for the manufacture of conventional ammunition, missiles or in nuclear and CW programmes was essentially irrelevant”. *248 But, since Mr J did not have an opportunity to see the submission, the balance and accuracy that he could have brought to it was absent. I should, perhaps, add that I do not believe that even if the submission had been corrected and improved on the lines mentioned, it would have made any significant difference to Mr Clark’s attitude to the ELAs

D6.129 Mr Barrett’s submission concluded by suggesting that the Minister (DP) meet his colleagues and use the occasion for discussing a review of the Guidelines. A new draft letter was attached. This draft expressed Mr Clark to have “some sympathy” with Lord Trefgarne’s views and said that “it would be with great reluctance if I were to agree to stop the exports.” In the event, Mr Clark’s letter to Mr Waldegrave departed from the draft. He said he felt “unable to agree to stop the exports.” *249

D6.130 I should at this point refer to two important meetings which took place at the end of September 1989. *250 These meetings involved Mr Henderson, chief executive of Matrix Churchill. I have already referred to the meeting on 22 September 1989 between Mr Henderson and members of the intelligence agencies. *251 After that meeting had concluded, Mr Henderson went, by prior arrangement to the FCO to meet Mr Rob Young, head of MED. The purpose of the meeting was, from Mr Henderson’s point of view, to try and secure FCO approval of the grant of the export licences sought under Matrix Churchill’s outstanding ELAs. The company had been led to understand that FCO opposition was standing in the way.

D6.131 A record of Mr Henderson’s meeting with Mr Young is contained in a Note dated 25 September prepared by Mr Young for Mr Gore-Booth and Mr Waldegrave. In paragraph 2 of the Note Mr Young summarised the main points that had been made by Mr Henderson in support of the ELAs. One of these was that “It would be illogical and inconsistent for HMG to deny export licences for equipment of a type previously approved, and (he claimed) for the same end user as before”. And in paragraph 3 of the Note Mr Young recorded that Mr Henderson “had been frank in admitting that he could not guarantee that the lathes would not be used for military manufacturing purposes.” *252 In his oral evidence Mr Young agreed with the inference that Mr Henderson’s remark had been in response to a question from him (Mr Young) about the use to which the machine tools would be put. The significance of Mr Henderson’s remark is, in the context of the matters the Inquiry has been examining, double edged. On the one hand the remark makes it clear that Mr Henderson did not give Mr Young any assurance that the machine tools were intended for civil industrial production. The remark precludes any such assurance. On the other hand, given that Mr Henderson knew that the machine tools which had been ordered by Cardoen were intended for use in munitions manufacture, as his evidence to the Inquiry has made clear, his remark was not entirely frank. The remark suggests a possibility, but not a probability, of military manufacturing use. A mere possibility may have been Mr Henderson’s belief regarding some of the machine tools but was not his belief regarding the 23006 and 22351 machine tools. These, as he knew, were intended for military manufacture. *253 Mr Henderson has explained to the Inquiry that, as he was meeting Mr Young at Mr T’s suggestion, he “fully expected” that the information he had given at his prior meeting with the SIS “would be reported to appropriate levels within the FCO, probably even to Mr Young himself given the seniority of his position.” He added: “I felt I could not possibly be as open and direct with Mr Young as I had just been with SIS.” In his written evidence to the Inquiry, Mr Henderson described his meeting with Mr Young as “relatively bland and uneventful.” *254

D6.132 A few days later, on 26 September 1989, Mr Henderson met Lord Trefgarne, Minister for Trade, to discuss Matrix Churchill’s outstanding ELAs. In order to set the stage for this meeting it is necessary to refer to the manner in which the DTI had been approaching the ELAs. Mr Steadman had received a copy of the minutes of the WGIP meeting on 23 June but had not seen and was not aware of the contents of the intelligence reports relating to Project 1728 or to Nassr’s Central Tool Room Project. He was, however, aware of the Chilean connection with ELAs 23006 and 22351 and of Mr Gall’s concern about these ELAs. He received a copy of Mr Lillie’s submission of 24 August and saw Mr Waldegrave’s letter of 6 September to Lord Trefgarne.

D6.133 On 8 September 1989 an article appeared in The Financial Times alleging that Matrix Churchill, and other British companies, were involved in the sale of machine tools to Iraq for missile and munitions manufacture. On the same day Mr Steadman put up a submission to the Secretary of State on the issues raised by the article. *255 The “Background” section of the submission, dealing with the export licences granted in 1987, said this: “...intelligence sources reported that the factories in which the machines were to be used had substantial munitions manufacturing programmes as well as general engineering activities. Even so there was no evidence that the British made machine tools would be used other than for the purpose originally stated”. This was a positively misleading summary of the tenor of the intelligence conveyed by the Report of 30 November 1987. It was put to Mr Steadman that the statement that there was “no evidence” was not true. He responded “No it is not, and my recollection at the time was somewhat hazy on events that happened 18 months or so before....” *256 Mr Steadman has explained that, at the time, he was working under very considerable pressure and “did not have the time to obtain a copy of the 1987 intelligence report from the relevant intelligence service.” He said he had seen in draft a copy of the FCO submission of 24 August and the words “...assuming the equipment has been used for arms production....” *257 I accept that Mr Steadman was not, when he prepared his 8 September submission, intending to mislead. The contents of the submission were, however, beyond argument misleading and represent a step in the process whereby it became, by the time of the Matrix Churchill prosecution, part of the DTI credo that Government had had no knowledge of the intended use of Matrix Churchill machine tools for production of military goods.

D6.134 Paragraph 5 of the submission referred to the temporary licences granted under 0440 and 52039 and said that: “The equipment is said to be still held in bonded store in Iraq awaiting approval to allow the exports to be sold for general engineering use”. Mr Steadman had received a copy of the Minutes of the WGIP meeting of 23 June 1989 which recorded the intelligence report that the end-user for the Matrix Churchill lathes “was known to be the Iraqi missile programme.” *258 The reference in the submission to “general engineering” was, therefore, misleading. Mr Steadman’s explanation was that when preparing the submission he had not recollected the intelligence about end-use that had been disclosed at the 23 June meeting. In paragraph 9, the submission said that: “The possibility has always existed that Matrix Churchill’s machine tool exports to Iraq could be used for the production of military equipment which the company has hitherto denied...”. The company had never denied that its machine tools could be used for the production of military equipment. It was, indeed, common ground that they could be so used. Nor had the company, ever in terms denied that some of its machine tools already exported were being so used or that some of its machine tools proposed to be exported were intended for that use. The vague answers to the pro forma ELA questions about “precise purpose” had been followed up by the DTI in one case only, namely, Matrix Churchill’s application for permanent licences for the machines exported under temporary licences 0440 and 52039. *259 The query about the use intended for those machines was only made because FCO/SEND had asked for the information. In no other case did the DTI seek more detail of the “precise purpose” answers. At the time the 8 September submission was being prepared assurances about a civil, non-military, intended end-use had not, save in the case of the 1728 Project machines, been sought nor, save by the Matrix Churchill letters of 27 April 1989 *260 and 13 July 1989, *261 been given. Mr Steadman has referred *262 in this regard also to the Matrix Churchill letter of 11 November 1988. *263 I do not read that letter as containing any such assurance. He has referred also to several telephone calls in which the company complained of delays, the explanation given was of concern about possible military use of the machines and the “typical response from the company” was that “they could not understand how we were so concerned because of the redevelopment of the Iraqi civil industrial infrastructure.” There is no written record of these telephone calls.

D6.135 The submission of 8 September 1989 was, taken as a whole, highly unsatisfactory. Mr Steadman, the author of the submission, must bear primary responsibility for the misrepresentations it contained. But a copy went to Mr Beston. He had been involved in the January 1988 discussions that followed the 30 November 1987 Intelligence Report. He should have noticed the inaccuracy of the assertion that there was no evidence that British machine tools were to be used for the manufacture of munitions. Mr Beston, in his oral evidence, attributed the deficiencies in the submission to the haste with which it had been prepared. *264 It is true that the submission was prepared in haste but, in my opinion, the main reason for the deficiencies was a lack of concern on the part either of Mr Steadman or of Mr Beston about the possible, or even probable, use of the machine tools for the manufacture of munitions or other conventional weapons. The lack of concern had been shared by Mr Clark when he was Minister for Trade. The same lack of concern is evident in the letter of 5 October 1989 sent by Lord Trefgarne to Mr Waldegrave.

D6.136 On 18 August 1989 Mr Henderson had written a letter to Lord Trefgarne complaining about the long delay in decisions being reached on Matrix Churchill’s outstanding ELAs. *265 He (Mr Henderson) followed up the letter by procuring Mr John Nosworthy, the Chairman of the MTTA, to arrange a meeting between Mr Henderson and Lord Trefgarne. In a submission dated 20 September 1989 Mr Beston recommended Lord Trefgarne to agree to the meeting. The submission referred to the outstanding ELAs, said that there were “strong arguments in favour of granting the licences which are for general purpose industrial equipment previously supplied to that country”, noted that there was “no shortage of foreign competition ready to supply this sort of equipment” and said:

D6.137 Lord Trefgarne agreed with Mr Beston’s recommendation and the meeting was duly arranged for 26 September. It was to be attended both by Mr Henderson and by Mr Nosworthy. Prior to the meeting Mr Henderson sent the DTI a brief dated 21 September 1989 giving some background details about Matrix Churchill and its trade with Iraq. *267 This brief specified “the defence industry” as one among the company’s five “key markets”, and said: “CNC machine tools, like many products, can be used for both civil and military applications. Any country seeking to develop its industrial capability must acquire machine tools”. This brief was annexed to a departmental brief for the proposed meeting supplied to Lord Trefgarne on 25 September. The departmental brief advised Lord Trefgarne to ask Mr Henderson about four particular points. One of these was “Iraqi influence on day to day company operations”. Another was “What you know of end-users/uses of previously supplied machines.” *268

D6.138 The five “key markets” specified in the brief sent by Mr Henderson to the DTI were the automotive industry, the oil industry, the aerospace industry, the defence industry and the “general engineering industry.” Both Mr Beston and Mr Steadman have relied on the juxtaposition of the “defence industry” and the “general engineering industry” as showing that references in ELAs to “general engineering” were properly taken to be references to civil engineering and were exclusive of engineering for defence purposes. In some contexts the point might be a good one but it is not, in my opinion, a good point in relation to an answer of “general engineering” given to the request in an ELA to state the “precise purpose for which the goods are to be used.” The answer is, beyond argument, not one that states the “precise purpose”. It would be consistent with the answer for the machine tools to be used in the production of components for the automotive industry, the oil industry, the aerospace industry, the defence industry or any other industry.

D6.139 The meeting on 26 September was attended by Lord Trefgarne, Mr Beston, Mr Gallaher, Mr Henderson and Mr Nosworthy. A Minute was prepared by Mr Williams, Lord Trefgarne’s Private Secretary, who was present throughout. A Note of the meeting was also prepared by Mr Nosworthy. A significant issue of fact arises out of this meeting. Lord Trefgarne, in his written and oral evidence to the Inquiry, reiterated that he had placed great reliance on assurances given to him by Mr Henderson in the course of the meeting that he (Mr Henderson) understood that the machine tools comprised in the ELAs were intended for civil industrial use. *269 He said that Mr Henderson “gave me the plainest assurances that they were going for innocent purposes” (p.46 of the transcript of his oral evidence) and, later, “I do not think I could have done more than look him in the eye... and ask him what the machines were intended for, and he told me” (p.47). Lord Trefgarne added “I now believe he deceived me”. Mr Henderson, on the other hand, in his written evidence to the Inquiry, said: “I can say categorically that there was no discussion, either in general or specific terms, of the end-use to which any of the M.C.L equipment under consideration would be put. I did not say that M.C.L machines would be used in the production of automotive components...” and that “...in the light of Lord Trefgarne’s evidence it nevertheless requires saying that I gave no assurances whatsoever about end-use.” *270 He suggested that Lord Trefgarne had become confused between the 26 September meeting and a later meeting between them on 17 May 1990. *271

D6.140 This conflict of evidence is important in its bearing upon any criticism of Lord Trefgarne’s part in bringing about the grant of the licences sought under these Matrix Churchill ELAs. In resolving it I have found the contemporaneous records made respectively by Mr Williams and Mr Nosworthy of assistance. Mr Williams recorded Mr Henderson as saying that the machines “would be used for general engineering purposes, principally for production of automotive components. He understood they would be used for civil production only.” *272 Mr Nosworthy’s Note recorded as follows: “Lord Trefgarne then asked what was the intended use of these machines. Mr Henderson replied that they were intended for industrial use at two factories which had been previously involved in the war effort. They now had new manufacturing licences from Ford etc and were seeking to build an automotive manufacturing industry.” *273 Mr Henderson, when asked if he could explain these two records, each of which was inconsistent with his own evidence, suggested that the authors were mistaken. *274 It is, of course, possible that each of them was mistaken. But the records were prepared independently of one another and the coincidence that each made a similar mistake is improbable. Passages in Mr Henderson’s proof of evidence supplied to his solicitors for the purposes of the criminal trial, passages in the Instructions to Mr Geoffrey Robertson QC, Mr Henderson’s counsel, and some of the questions put by Mr Robertson to Mr Beston in cross-examination at the trial are consistent with and corroborative of the parts of the Williams and Nosworthy records in question. *275 Each of these items of written evidence is susceptible of an explanation that would reduce its impact on Mr Henderson’s evidence. But, taken cumulatively, their effect is formidable.

D6.141 Having reviewed the evidence on this issue of fact, I prefer the evidence of Lord Trefgarne to that of Mr Henderson and am satisfied that the two written records provide a fair summary of the discussions at the 26 September meeting. I am satisfied that Lord Trefgarne left the meeting believing that he had received assurances from Mr Henderson that the machines were intended for civil industrial use. Mr Henderson said, in his evidence to the Inquiry: “At that time, at that meeting, the only licence I was aware of that was related to military manufacture was, in fact, the Cardoen licence [ie 22351]. For all the other licences we were not aware as to the particular end use at that point in time”. It follows, in my opinion, in relation at least to the machine tools to be supplied under the Cardoen contract, that Mr Henderson was guilty of deceiving Lord Trefgarne. To put his deception in context, however, he had, only four days earlier, been debriefed at the specially arranged meeting with Intelligence officers and had given them information about the Cardoen fuse contract and about Project 1728 *276 and, at his meeting with Mr Young, had expressly declined to give an assurance that the machine tools would not be put to a military use. *277 And all the machine tools in question were standard tools capable of being easily switched from civil to military use and vice versa. Moreover, the advice that had been given by Mr Clark at the meeting on 20 January 1988 with the MTTA and the inferences to be drawn therefrom *278 may well have continued to influence Mr Henderson’s dealings with the DTI. He had some reason to believe that Government was not overly interested in the export to Iraq of equipment to manufacture conventional weapons and his deception of Lord Trefgarne must be judged in the context of a culture within DTI of unconcern about the military implications of the export of these standard machine tools. Mr Steadman, in his written evidence to the Inquiry, said that he had believed Mr Henderson’s assurances about end-use and that the “DTI was in general content with assurances given by the company to the Minister.” *279 But, save for what Mr Henderson said to Lord Trefgarne at the 26 September meeting and in his letter of 27 September 1989 following the meeting, and perhaps the contents of the letter of 27 April 1989 and the note of 13 July 1989, there was nothing that could reasonably have been taken to constitute an assurance of civil end use.

D6.142 Mr Beston has, in strong terms, rejected the suggestion of a lack of concern within DTI about the use to which the machine tools would be put. He has supported his position by referring to the terms of the briefing supplied to Lord Trefgarne in preparation for his (Lord Trefgarne’s) meeting with Mr Henderson on 26 September and, to the content of the discussion with Mr Henderson at that meeting. It is true that the briefing encouraged Lord Trefgarne to question Mr Henderson about his knowledge of “end users/uses of previously supplied machines” and that at the meeting Lord Trefgarne asked, in terms, what the current batch of machines was intended to be used for. It has been pointed out on behalf of Lord Trefgarne that the reason he sought the assurance from Mr Henderson was because he was concerned about the future use of the machines. *280 Mr Steadman, too, denied that there was within the DTI any such culture as I have referred to. I accept that if the DTI had been told by Mr Henderson that the machine tools were intended for the production of munitions, the DTI would not have argued for the grant of export licences. Nonetheless, a review of the evidence as a whole confirms my opinion about the lack of concern to which I have referred. Short of an avowed intention of use of the machine tools in the production of munitions, the DTI would, in my assessment, have continued to give the machine tool ELAs their support.

D6.143 On 25 September 1989, the day before the meeting between Lord Trefgarne and Mr Henderson, Mr Steadman put up a submission to Lord Trefgarne on the response that should be made to Mr Waldegrave’s letter of 6 September.*281 He recommended that the Minister should seek a meeting with Mr Waldegrave and Mr Clark in order to “explore in greater detail the arguments for and against the [Matrix Churchill] exports.” *282

Taken overall this submission was, in my opinion, unbalanced and, in a number of respects, seriously inaccurate. The inaccuracies all tended to support the case for granting the export licences. I have no hesitation in coming to the conclusion that it was DTI departmental policy to try to get these ELAs approved notwithstanding their potential for conventional munitions and weapon manufacture.

D6.145 Mr Steadman’s submission was seen and approved by Mr Beston and was accompanied by a Note from Mr Beston to Lord Trefgarne dated 26 September 1989. The Note referred to the ELAs approved earlier in 1989 in the following terms:

“The applications considered and approved by Ministers earlier this year were not agreed in order to protect intelligence sources. This had been one consideration (but by no means the only) when licences were reviewed in January 1988. By February 1989, however, the main argument in favour of approval, accepted by all departments, was that the Gulf War had ended many months previously. Even if the machine tools were intended for munitions manufacture there was no longer sufficient reason under the Ministerial Guidelines to prevent export. This argument remains valid.” *287

In addition, Mr Beston prepared a draft reply for Lord Trefgarne to send to Mr Waldegrave. *288 The letter sent followed, in all important respects, the terms of the draft. I have already commented on its contents. *289

D6.146 The Ministerial meeting at which the outstanding Matrix Churchill ELAs were to be discussed and at which a decision, it was no doubt hoped, would be reached, was arranged for 1 November 1989. The terms of Mr Waldegrave’s letter of 6 September and the respective responses from Mr Clark and Lord Trefgarne indicated that, at the meeting, Mr Waldegrave’s FCO opposition to the grant of the licences would be facing the combined weight of Lord Trefgarne’s and Mr Clark’s support for the grant. Each of the Ministers received a briefing for the meeting from his officials.

D6.147 The briefing to Lord Trefgarne, dated 31 October 1989, was prepared by Mr Steadman. *290 The Minister was advised (i) to maintain the position that the ELAs should be granted; (ii) to support a possible proposal from Mr Clark for the “review of the IDC guidelines with a view to their removal or relaxation”; and (iii) to raise with Mr Clark “the hope that [the MOD’s] further investigation into the activities of the Iraqi procurement network in the acquisition of industrial equipment subject to export controls, will not delay applications for licences unless there is evidence that the intended purpose for which the equipment is required is of concern.” This third matter related to the DIS investigation which was needed in order to complete Lieut-Colonel Glazebrook’s Iraqi arms procurement paper. The briefing set out a number of “main points” for Lord Trefgarne to make. The first of these was: “We do not consider FCO’s strategic concerns outweigh the commercial importance of these exports. Iraq is the 3rd best market for machine tools. Refusal would also have wider implications for UK/Iraq trade.” The fifth “main point” dealt with nuclear procurement, and stressed that there was no evidence that Matrix Churchill’s machine tools would be used for nuclear purposes and that “policy in the missile/nuclear control context should be aimed at preventing the export of critical components, not at general industrial equipment unless there was evidence of direct involvement.” These passages in the briefing drive home the point, already made, that the DTI were not concerned about the export of standard machine tools for conventional munitions manufacture.

D6.148 Mr Barrett’s briefing for Mr Clark, the Minister (DP), consisted of his 18 October submission *291 (together with the documents referenced therein) and an aide-memoire dated 27 October 1989. *292 No input from DIS or from Lieut-Colonel Glazebrook was invited. The aide- memoire told the Minister that Matrix Churchill were “not implicated in Iraqi efforts to obtain sensitive equipment for nuclear or ballistic missile programmes”. In the light of the intelligence about Project 1728, that assertion could only be justified by distinguishing between “ballistic missiles” and “missiles”. Mr Barrett drew that distinction in his oral evidence. *293 The aide- memoire suggested to the Minister that “Although [Nassr] makes munitions components, only circumstantial evidence that company’s tools being used”. That disparaging reference to the quality of the evidence was not justified. The evidence that the company’s machine tools were being used for the manufacture of munitions was solid. The aide-memoire referred to “a DIS study of the Iraqi procurement network”, but did not mention Lieut-Colonel Glazebrook’s paper which was awaiting the completion of the study. Taken overall, the aide-memoire was slanted in favour of the granting of the licences. This slant undoubtedly accorded, broadly, with the known views of the Minister. It was not, however, in accordance with the known views of the MODWG or DIS.

D6.149 The most important of the briefings, however, was that which the FCO provided to Mr Waldegrave. The briefing was prepared by Mr Sherrington, who had succeeded Mr Lillie as Assistant Desk Officer at the Iran/Iraq desk in the MED. He had joined the MED on 28 September 1989 having been in the FCO for some nine years. He was not cleared to see relevant intelligence until 6 October 1989. Mr Sherrington’s superior officers in the MED were Mr Simmons, (the Desk Officer), Mr Stephen Lamport (Assistant Head of MED) and Mr Rob Young (Head of MED). He received some briefing from Mr Lillie in the course of the handover from Mr Lillie to himself and discussed his new job “in great depth” with Mr Simmons and with Mr Lamport and Mr Young. *294 Mr Lillie did not, and could not, in the course of the briefing he gave Mr Sherrington, refer to the various items of intelligence relating to the Iraqi procurement network, to Matrix Churchill’s part in that network, to the nature of Nassr and Hutteen or to other related matters. Mr Sherrington was not, at the time of the briefing, cleared to know about this intelligence. He had never heard of Nassr until he set about preparing the briefing for Mr Waldegrave. Nassr had not been mentioned in any of his briefings from Mr Lillie, Mr Simmons, Mr Lamport or Mr Young. Mr Sherrington was not, when he prepared the briefing, aware of the minutes of the 23 June 1989 WGIP meeting at which information about the missile production end- use of the Matrix Churchill machine tools comprised in 0440 and 52039 had been given. Mr Lillie and Mr Clark of FCO/MED had been present at the meeting. No one had drawn Mr Sherrington’s attention to those highly relevant Minutes. The intelligence report of 13 October 1989 *295 had been distributed (inter alia) to FCO/MED. No one had drawn the contents of this to Mr Sherrington’s attention. It is to be remembered, however, that the identification of Matrix Churchill as the “UK firm” had not yet been made. Both the two Intelligence Reports of 5 September 1989 *296 giving information about Project 1728 had been distributed to FCO/MED but had not been drawn to Mr Sherrington’s attention. Mr Sherrington prepared the briefing for Mr Waldegrave in consultation with other members of his department, but in ignorance (not, in my opinion, due to any fault of his own) of virtually all the considerable body of intelligence that had been accumulated regarding the intended end-use of the machine tools comprised in the ELAs.

D6.150 The briefing prepared by Mr Sherrington included a submission dated 31 October 1989. *297 His accompanying letter said that the briefing was one “with which SEND concur”. I will later describe the extent and nature of that concurrence. The submission, first, drew the Minister’s attention to Mr Lillie’s submissions of 1 February and 24 August 1989 and to the Ministerial correspondence that had led to the meeting, second, set out the ELAs in question and their respective value, and, third, said this:

D6.151 The opening sentence of paragraph 2 may have been a result of Mr Sherrington’s unfortunate ignorance of the relevant intelligence. But the key part of paragraph 2 is contained in the sentences which purport to describe the current state of thinking of “our friends” i.e. SIS. All the intelligence to which I have referred was known to SIS. The information about the missile production end-use of the Matrix Churchill machine tools had been given to the WGIP meeting by Mr C2. The two intelligence reports of 5 September 1989 and the intelligence report of 13 October 1989 had been distributed to the SIS section in which Mr C2 and Mr C3 worked. The expressions of opinion attributed in paragraph 2 to SIS would appear to be inconsistent with the tenor of that intelligence and every member of SIS who has been questioned by the Inquiry about these expressions of opinion has repudiated them. These witnesses include Mr O, Mr C3, Mr C2 and Mr T2. The first three were, within SIS, those with the greatest knowledge of the Iraqi procurement network. *298 These witnesses have said that the expressions of opinion attributed to “our friends” were wrong and that no one in SIS with knowledge of Iraqi procurement intentions could have held them. Of the two individuals most closely involved in the monitoring of Iraqi procurement, namely, Mr O and Mr C3, Mr C3 has said that he was in no doubt but that the machine tools comprised in the ELAs in question were destined for military manufacture, and Mr O, too, has disassociated himself from the views attributed by Mr Sherrington to “our friends”. In his oral evidence, Mr O said:

Mr O has, however, stressed that, until the REU meeting on 8 December 1989 at which Matrix Churchill was named as the “UK firm”, he was not aware of any post ceasefire intelligence directly implicating Matrix Churchill’s machine tool exports to Iraq in military production.

D6.152 Mr Sherrington’s evidence to the Inquiry was that the passage in question derived from information given to him by Mr O and, moreover, that he had cleared the text with Mr O before sending the briefing to his line managers for approval. Mr O’s evidence is that he has no recollection of any conversation with Mr Sherrington in which he (Mr O) was asked to comment on or give approval to a passage in an FCO submission to a Minister. He was sure that he had not been shown the text of Mr Sherrington’s submission in advance of its going to the Minister. He made the point also, which I accept, that it was not one of his functions to approve, on behalf of SIS, references relating to SIS in FCO submissions to Ministers. There were other approved channels for that SIS approval to be obtained. Mr O said that had he realised he was being asked to give that approval, he would have referred Mr Sherrington to Mr C3 or Mr C2. That, too, I accept. Mr O and Mr C3 both accept, however, that they saw Mr Sherrington’s submission about a week after the 1 November meeting had taken place *300 and that they noticed that views had been attributed to “our friends” that SIS had never held. According to Mr C3’s and Mr O’s evidence, the inaccuracy in the submission having come to their attention, Mr O (at Mr C3’s request) went over to MED to speak to Mr Sherrington and inform him that SIS disagreed with the views attributed to them in the submission. Mr O’s recollection is that Mr Sherrington told him that “It was too late” to correct the inaccuracy and that he reported accordingly to Mr C3. This recollection is supported by Mr C3.

D6.153 In oral evidence Mr Sherrington said that he did not recall Mr O raising a query about the accuracy of the submission after it had been put up to Mr Waldegrave. *301 In a written statement submitted shortly after his oral evidence Mr Sherrington said “I do recollect that when I discussed the submission with Mr O at one point he did have comments on the way his assessment had been presented. I cannot be sure when this took place, but I believe that it would have been done when I checked the text with him before the submission was put up to Mr Waldegrave.” He added that “If the assessment in the submission...had fundamentally misrepresented the position of SIS on the end-use of the lathes...I would have expected them to have commented on the submission in writing, when they eventually received it, giving the amended assessment. They could have done this even after the Ministerial meeting had taken place. They did not do so.” *302 In a further written statement dated 1 February 1995 Mr Sherrington said that having read the evidence of Mr O and Mr C3 he felt that his previous evidence in this regard, which he said had been given in “guarded terms”, may not have been correct. He said “Like Mr O, I do not clearly remember the circumstances of his reversion to MED...I believe that he did speak to me after the Ministerial meeting, though I still do not recall exactly when he did so or the terms in which he did so. If, as he says, he was told that it was too late to do anything about the views attributed to SIS in the submission put up to Ministers for the 1 November meeting, I can say that it was not because FCO, with or without the knowledge of Ministers, were conniving at the approval of the export licences...”*303

D6.154 In the light of Mr O’s, Mr C3’s and Mr Sherrington’s evidence, I have concluded that Mr O did speak to Mr Sherrington about the submission after the 1 November Ministerial meeting. However, I am satisfied that had Mr Sherrington (who I assessed to be an honest and reliable witness) been told in clear terms that his submission to Mr Waldegrave had misrepresented SIS’s views, then he would have taken steps either to correct the inaccuracy or at least to consult his seniors about what should be done. A written record of the error would, I have no doubt, have been made. But no such steps were taken. The fact that nothing was done by Mr Sherrington as a result of whatever it was he was told by Mr O is, in my opinion, only explicable if Mr O failed to point out in unambiguous terms that the submission contained a misrepresentation about SIS’ views. The likelihood that Mr O did fail to do so is reinforced by Mr O’s comment *304 that “my vague recollection of my meeting with Mr Sherrington in early November was not that I was there to point out the error in unambiguous terms, but rather that I was there to discuss and report back to Mr C3.” Moreover, Mr O and Mr C3, both having become aware of the inaccuracy in the submission, failed to make any record in writing of the fact that the submission did not accurately reflect SIS views or to draw this to the attention of their respective superiors in SIS. Their failure in this respect is, in my opinion, consistent with a failure on Mr O’s part to make the extent of the misrepresentation of SIS views clear to Mr Sherrington. I regard Mr O’s and Mr C3’s failure as a serious error of judgment. The submission was, after all, a submission to a Minister on an important issue. As between Mr O and Mr C3, however, the major share of the blame must, in my view, be borne by Mr C3. There are several reasons for this assessment. First and foremost, it was Mr C3’s section that ought, if the proper channels had been used by Mr Sherrington, to have approved the statement in the submission of the current state of intelligence. An incorrect statement had been made. It was primarily for Mr C3’s section once it had become aware of the error to correct it. Second, Mr C3 was aware, which Mr O was not, of all the relevant intelligence. Third, Mr C3 was senior to and more experienced than Mr O. Fourth Mr C3 had, quite rightly, once the inaccuracy had been noticed, taken the lead in dispatching Mr O to speak to Mr Sherrington about it. Mr O had reported back to Mr C3. I shall return later to consider the likely reason for Mr O’s and Mr C3’s failure to take the necessary steps either to alert the FCO or to alert their superiors in SIS to what had happened. *305

D6.155 Mr Sherrington’s evidence about this submission, and in particular about the provenance of the views attributed to SIS in paragraph 2, reveals a shortcoming in the introductory briefing which he was given on taking up post at MED. As Mr O pointed out in his evidence, it was not one of his (Mr O’s) functions to approve FCO submissions which contained references to SIS material or views. A request for SIS approval should have been directed to SIS via PUSD channels. Mr Sherrington does not seem to have known this. In the absence of clear instructions from his superiors in FCO as to how the approval of SIS to a submission should be sought, it was natural that Mr Sherrington should approach Mr O who attended the MED offices on a regular basis and was the only SIS officer with whom Mr Sherrington was in regular contact. If Mr Sherrington had been told about, and used, the correct channels for obtaining SIS approval of his submission then the inaccuracy is likely to have been corrected before the submission was put up to Mr Waldegrave.

D6.156 The briefing recommended Mr Waldegrave to press for refusal of the ELAs but described the case as a “difficult borderline” one and noted that “we have no clear proof that the lathes are destined for direct military/nuclear application”. *306 There was, in truth, an abundance of evidence available to the FCO that the lathes were destined for military non- nuclear application. In rehearsing the arguments against approval of the licences, the briefing accepted the premise that the lathes “do not contribute directly to nuclear or missile proliferation or to Iraq’s military build up...”. In truth, the intended use of the machine tools would, according to the available intelligence, have made a direct contribution to Iraq’s military build up. These passages in the briefing could not have been made had it not been for the misrepresentation of SIS’s current views. They were contradicted by SIS’s true views and by the volume of available intelligence.

D6.157 Mr Sherrington’s briefing was marked to Mr Lamport and to Mr Gore-Booth. Each of them wrote a Note, to accompany the briefing to the Minister, on the issues raised by the ELAs. Mr Lamport, in his Note, identified the key issue as being “the extent to which we believe the Matrix Churchill equipment will be directly used to further...” the Iraqi arms manufacture, missile and nuclear programmes. *307 As to this, his Note said: “Our best information is that this is unlikely at this stage, although we cannot rule out the possibility later on”. This remark constituted an implicit acceptance of the view that had been attributed to SIS by Mr Sherrington. Mr Lamport, unlike Mr Sherrington, had throughout been cleared to see all the intelligence copied to MED. But when the items of relevant intelligence were put to him in the course of his oral evidence to the Inquiry, he was unable to recollect whether or not he had seen them at the time. *308 He did, however, say that up to the end of October 1989 “....all the evidence was that [munitions manufacture] was going to be [the machine tools’ ] intended destination.” *309 In these circumstances it is difficult to understand how Mr Lamport could have allowed the reference to “our friends” views to stand without questioning Mr Sherrington about its provenance and without suggesting that some balancing reference should be made in the briefing to the volume of intelligence suggesting an intended munitions production use for the machine tools. If he had done the former, it is at least possible that it would have been discovered that the views attributed to SIS were not held by anyone in SIS. If he had done the latter, Mr Waldegrave might himself have queried the allegedly current SIS views. I have carefully read and reread Mr Lamport’s evidence, both written and oral, and I regret to have to say that I have concluded that he did not bring to his responsibility, as Mr Sherrington’s line manager, of approving the content of the submission and briefing, the care and attention that their importance warranted.

D6.158 Mr Lamport concluded his remarks on the ELAs by recommending “that Mr Waldegrave should rehearse at the meeting the arguments against granting licences, but be prepared to give way if, as I expect, these meet with strong resistance.” This recommendation was based, as Mr Lamport made clear in his evidence to the Inquiry, on the opinion, attributed by Mr Sherrington to the SIS, as to the likely use of the machine tools. If the opinion actually held by the SIS had been accurately stated, and if there had been a reference to the intelligence on intended end-use that was available, the recommendation would have been in the opposite sense.

D6.159 Mr Gore-Booth’s Note on the submission and briefing agreed with Mr Lamport’s recommendation and added: “If Mr Waldegrave does concede I hope he will extract as his price agreement that the DTI/MOD should take any resulting questions whether from the press or in the House.” *310 Mr Gore-Booth’s continuing reluctance to agree to the granting of the export licences sought by the Matrix Churchill ELAs is apparent. He had commented on Mr Lillie’s 24 August submission: “I was against granting the licences in February and am even more so now.” *311 In his oral evidence to the Inquiry, he was emphatic in his insistence that, in view of the statement in Mr Sherrington’s submission of the up to date intelligence assessment, the FCO could not have expected to succeed in maintaining, against a concerted front from the MOD and the DTI, its opposition to the ELAs. *312 Mr Gore-Booth made clear also that he had not personally been made aware of the relevant intelligence to which I have earlier referred regarding the connection between the ELAs, Project 1728 and the Iraqi missile programme or regarding Nassr’s Central Tool Room Project or regarding the priority being accorded by Iraq to its indigenous munitions and missile production programmes. When asked whether it would have been helpful to him, in assessing the recommendation that should be made to Mr Waldegrave, to have known about this specific intelligence, he consistently declined to offer an opinion. The evidence that had been disclosed to the Inquiry and that was put to Mr Gore-Booth for his consideration was that a volume of relevant intelligence with which the intelligence assessment contained in Mr Sherrington’s submission was inconsistent had been copied to FCO/MED. Mr Sherrington was a very recent appointment to the Iraq desk at MED at the time of the submission. Yet no attempt had been made by his MED superiors to question the assessment. Mr Gore-Booth, as the Assistant Under Secretary responsible for MED at the time, ought, in my opinion, when the relevant evidence was brought to his attention by the Inquiry, to have been concerned that the misleading nature of a submission prepared by a junior official should have gone undetected and been placed before a Minister. If Mr Gore-Booth was concerned about this, his written and oral evidence to the Inquiry managed to conceal it. I found it a matter of regret that the impatience with the Inquiry evinced by Mr Gore-Booth throughout his oral evidence seemed to prevent him from facing up to the possibility that deficiencies in MED procedures or errors by MED personnel might have contributed to the lamentable fact that a misleading submission had been placed before Mr Waldegrave. Mr Gore-Booth’s evidence left me in no doubt but that if he had been aware of the available intelligence on the intended end-use of the machine tools comprised in the ELAs, he would have opposed Mr Lamport’s recommendation that Mr Waldegrave should be prepared to give way and allow the licences to be granted. But his evidence did not assist me in the least, as I am sure it could have done, to identify what had gone wrong in the operation of a system for which, as Assistant Under Secretary, he was responsible.

D6.160 Mr Sherrington’s submission was the third FCO/MED submission to Ministers whose contents included misleading statements regarding current intelligence or the use that could be made of it. The other two were Mr Cowell’s submission of 29 June 1988 (on Habobi) and Mr Lillie’s submission of 1 February 1989 (also on Matrix Churchill ELAs). *313

D6.161 Mr Lillie’s submission of 24 August 1989 recommending refusal of the Matrix Churchill ELAs had said that “SEND concur.” *314 Mr Sherrington’s letter of 31 October 1989 which accompanied his submission of the same date also told the Minister that “SEND concur.” *315 The approach of SEND to these ELAs is, therefore, relevant.

D6.162 Mr John Duncan was the desk officer responsible for the MTCR at SEND from 1988 to 1990. Mr Duncan’s approach to ELAs for Iraq that had some relevance to missile proliferation was explained in his first written statement to the Inquiry as follows:

D6.163 SEND were sent a copy of the Minutes of the WGIP meeting on 23 June 1989. The Minutes recorded that “SEND want to refuse...” the Matrix Churchill application for the machine tools comprised in 0440 and 52039 to be accorded permanent licences. Mr Duncan’s evidence to the Inquiry was that at that meeting he had expressed the view that the licences should be refused in view of the use to which the Iraqis might put the machine tools. He said that Mr Lillie and Mr Clark, who were the FCO/MED representatives at the meeting, would have been aware of the SEND position. He said also that the recommendation in Mr Lillie’s 24 August submission accorded with his views. *317

D6.164 In a Note dated 28 September 1989 to Mr Rob Young, prompted by Mr Young’s Minute of 25 September on his meeting with Mr Henderson, Mr Wetton (of SEND) warned that the Matrix Churchill lathes were not listed “in the MTCR equipment and technology annex” and that the ELAs could not be refused on the ground that supply would be a breach of the MTCR. *318 The Note went on to say that SEND’s concern about the ELAs was more general and related “(a) to the fact that Matrix Churchill is part of the Iraqi procurement network and (b) to the possibility that the acquisition of advanced technology lathes could aid either a missile or nuclear weapons programme” and that “The lathes are not listed in the Nuclear Suppliers Guidelines, (NSG) but they do appear in the Sensitive Nuclear Explosives Technology (SNET) list”. *319 The Note concluded by expressing the SEND view that “....the chief reason for refusing the export licences remains our national guidelines on the sales of military equipment to Iraq.”

D6.165 Mr Duncan could not recollect whether Mr Sherrington’s 31 October briefing for Mr Waldegrave had come to his (Mr Duncan’s) personal attention, but said that he concurred in the general thrust of the submission. *320 Mr Martin Lamport agreed that he had seen a copy of the briefing and agreed with its wording. Both Mr Duncan and Mr Lamport regarded the briefing as being consistent with the SEND view that the machine tools for which the export licences were being sought were not directly relevant to nuclear weapon or ballistic missile production but that the licences should be refused because of their use in general munitions production. Neither, however, had seen Mr Stephen Lamport’s Note with its recommendation to Mr Waldegrave to be prepared to “give way”. Mr Duncan said, in terms, that he would not have agreed with that recommendation. *321

D6.166 The meeting between the three Ministers took place on 1 November 1989. Minutes of the meeting were prepared by Mr Williams (DTI). *322 Copies were sent to the FCO and MOD. An informal note was prepared by an MED official who had accompanied Mr Waldegrave. *323 Copies of the informal note were not sent to the other departments. Mr Steadman and Mr Gallaher accompanied Lord Trefgarne. Mr Stephen Lamport accompanied Mr Waldegrave. Mr Clark was, presumably, accompanied by his Private Secretary but was otherwise unsupported.

D6.167 The DTI minute recorded that the Ministers had agreed that export licences would be issued to Matrix Churchill and then provided a summary of the points each Minister had made. Lord Trefgarne, arguing for the grant of the licences, had referred to the strong representations that had been received from Matrix Churchill. Mr Waldegrave, maintaining his opposition to the grant of the licences, had said that “Iraq was rebuilding its military capability, including CW and ballistic missile operations”, that “Matrix Churchill’s exports probably went into the Iraqi armaments industry”, that “Matrix Churchill was part of the Iraqi Procurement Network” and that “it was right that DIS surveillance should be maintained”. Mr Clark had then, according to the DTI Minute, opened a discussion on the guidelines and questioned their utility. Mr Waldegrave resisted their removal. The discussion then returned to the subject of the Matrix Churchill ELAs and is recorded (in the DTI Minute) as follows:-

D6.168 The informal FCO Note is, in many ways, more instructive. Paragraph 2 recorded the discussion about the grant of the licences as follows:-

Paragraph 3 of the Note recorded the discussion about the future of the Guidelines and concluded as follows:-

Finally, paragraph 4 recorded that “The meeting ended with all present agreeing to Mr Waldegrave’s conditions.”

D6.169 The FCO Note, in particular, underlines the importance that the available current intelligence would have had, had it been known to Mr Waldegrave. He would not have given way had he known the true state of intelligence on the intended end-use of the machine tools. If he had refused to give way, and if, as is likely, the other two Ministers had stood their ground, the issue of the Matrix Churchill licences would have had to be referred to senior Ministers for resolution. What would have happened at that stage is a matter of speculation. I think it probable, however, that an important debate would have taken place as to whether exports to Iraq of standard machine tools intended for the manufacture of conventional munitions should be allowed. On the one side would have been put the commercial and economic factors, the unilateral nature of the restrictions and the importance of maintaining an intelligence window into the Iraqi procurement network. On the other side, the presentational problems inherent in facilitating the development by Iraq of an indigenous munitions and arms producing facility and the integrity of the Guidelines would have had to be taken into account. The DTI and the FCO would have been on opposite sides on this argument. Where the MOD would have stood would have depended on whether or not the Secretary of State shared Mr Clark’s views. The opinion of the Prime Minister might have been the deciding factor. This debate, sad to say, never took place. The junior Ministers decided the issue at the 1 November 1989 meeting and did so on a false footing brought about by their failure to take into account the abundance of current and previous intelligence indicating that the use for which the machine tools were destined was the manufacture of munitions and missiles. This was not, in my opinion, the fault of the Ministers. It was the fault of the officials on whom the Ministers relied.

D6.170 The intelligence Report dated 13 October 1989 had referred to a number of machine tools that were to be supplied by the Chilean arms company, Cardoen, to an Iraqi factory, “the Nahrawan Plant, for the manufacture of bomb and rocket fuses and cluster bombs”. *324 The Report specified 11 machining centres, types UNC-12B and RNC-10, to be supplied between May 1989 and November 1989, 24 machining centre for various types of fuses to be supplied between May and September 1989 and 18 CNC lathes to be supplied between May and March 1990. It seems clear from the details in the Matrix Churchill ELAs, and Mr Waldegrave and other witnesses agreed, that Matrix Churchill’s ELA 23006 was intended to cover the order for the 24 machining centres, ELA 22351 was intended to cover the order for the 11 machining centres and ELA 27315 was intended to cover the order for the 18 CNC lathes. Each of these ELAs was approved by Ministers at their meeting on 1 November 1989.

D6.171 The Report was circulated to FCO/MED, to MOD/DIS Defence Sales, to DTI and to Customs ID, among others. MOD/DESS was not on the distribution list. It was apparent on the face of the Report that the machine tools referred to were to be supplied by a UK firm. It is, in my opinion, a matter of surprise that immediate steps to identify the firm were not taken. All that was necessary for that purpose was a request to the agency responsible for distribution of the Report asking for identification of the firm. That request could have been made at the REU meeting on 27 October or at the meeting on 10 November. That request was eventually made by Mr Steadman at the REU meeting on 24 November 1989. *325 The answer, given at the REU meeting on 8 December 1989, was that the company was Matrix Churchill. *326 There is, in my opinion, no doubt at all but that if this information had been available to Mr Waldegrave on 1 November 1989, he would have declined to agree to the grant of licences to allow the export of these machines tools. If Mr Clark and Lord Trefgarne had maintained their advocacy for the grant of the licences contained in their respective letters to Mr Waldegrave, the issue would have had to be referred to senior Ministers.

D6.172 DIS Defence Sales had been on the distribution list of the 13 October 1989 Intelligence Report. The Report had, therefore, come to the attention of Mr J. He did not, however, alert DESS to the contents of the Report. His explanation for this was that another of the MOD recipients on the distribution list, MOD(PE)Sy 3b, acted as “the conduit for this type of material to HDES’ area, which included DESS”. He said that he “assumed that DESS already had a copy of the document and were aware of its contents.” *327 Admiral Sir John Kerr stated in his written evidence to the Inquiry that “it was regrettable that the DESS were not alerted by DIS Defence Sales” and noted that “they [DESS] should have been informed.” *328 However, Sir John supported Mr J by confirming that MOD(PE)Sy 3b was the distribution point for all intelligence Reports “entering Head of Defence Sales (HDS) area.” *329 He added that if the report did not reach Mr McDonald, the head of DESS, there “may have been a distribution problem in HDS area” and that there were “several other routes other than the DIS” by which intelligence in the report could have reached members of the IDC. *330

D6.173 MOD(PE)Sy 3b was, at the time, Miss Katherine Barr . She has told the Inquiry that, contrary to Mr J’s understanding, her office was not responsible for the distribution of intelligence reports to DESS. In her evidence, she said that her “office was a distribution point for reports going to DESO Directorate Marketing Services in Stuart House.... If DESO Directorate Marketing Services sighted any reports that DESS or HDES should see, and they were not shown on the distribution list annexed to the report, the onus was on DESO, Directorate Marketing Services to instruct [her] to order a further report to be forwarded to them. It was not [her] job to decide on any additional addressees”. *331

D6.174 The Director of Marketing Services was Mr Primrose. It was one of the functions of Marketing Services 1, a branch of the Directorate for which he was responsible, to evaluate documents received by them and to distribute them to “cleared recipients within DESO as needed”. *332 In his evidence to the Inquiry Mr Primrose said that he would have seen each batch of reports either before the branch (Marketing Services 1) began working on it or after circulation throughout the regional directorates of DESO. *333 Mr Primrose said that “provided that DESS had correctly spelled out their requirements” to the intelligence agency the “management responsibility” for the failure to distribute the intelligence report to DESS should be shared between himself as Director of Marketing Services and the division of the intelligence agency responsible for the compilation of the distribution list for the 13 October 1989 Report. *334 Mr Primrose accepts that “Because [Marketing Services] were part of DESO they should have noticed that DESS were not on the distribution [list] and asked [the intelligence agency] to send another [copy of the report to DESS.]” *335 He was also of the view, however, that “the DIS response to this licence application seems not to have met MOD needs”. *336 That comment concurs with the view expressed by Sir John Kerr. I agree with it.

D6.175 The compilation of the distribution list annexed to an intelligence report would be based on detailed breakdowns of ‘customer requirements’ provided to the intelligence agency by the customer. The requirements would then be assessed by the agency in order to decide who to include on the distribution list. DESS was a customer, separate from the DESO branches at Stuart House, and had its own customer requirements which stated, in broad terms, the areas of intelligence information in which it was interested. DESS was therefore distinguished from DESO in distribution lists. *337 In addition, desk officers at the intelligence agency would use their understanding of the customer’s use of intelligence, guidance given during liaison meetings with customers and feedback received on the value of reports previously sent to customers, when deciding upon the distribution of intelligence reports.

D6.176 DESO’s requirement stated that reports for distribution to DESO should be addressed to MOD(PE)Sy 3b, Miss Barr’s office. The customer requirement for DESS stated that reports for DESS (located in the main MOD building) were to be marked for “MOD PS/HDES”. This marking, unlike MOD(PE)Sy 3b, was not on the distribution list of the 13 October 1989 Report. The fact that DESS and DESO had separate requirements in relation to the distribution of intelligence is consistent with Miss Barr’s evidence that her office was not responsible for the distribution of intelligence reports to DESS.

D6.177 Mr K was the intelligence officer with the main responsibility for the compilation of the distribution list annexed to the 13 October 1989 Report. In his evidence, Mr K said that he took a particular interest in the subject of Iraqi procurement and described his responsibilities in that regard. Inter alia, he said “Iraqi procurement activity was centred on the UK and posed a direct threat to UK export controls. It was therefore one of the top priorities of [Whitehall] customers for [my branch’s] reporting and it was my responsibility to ensure that the branch responded to the customer requirement and that the intelligence agency supported its ..... reporting by attending meetings with customers...”. *338

D6.178 In response to questions from the Inquiry, the Intelligence Agency’s Scott Inquiry Unit commented that the DESS customer requirement, “issued in September 1986, [made] no mention of their licensing function and [laid] down no requirement for information on exports of dual-use items”. They added that “[DESS’s] interest [appeared] to be in more strategic intelligence on supplier countries rather than recipients”. *339

D6.179 Examination of the DESS and DESO customer requirements shows that both adopted the same requirement in relation to potential ‘customer’ countries for UK defence exports. The requirement they both adopted included:

The potential ‘customer’ countries included Iraq. However, despite the requirement for ‘customer’ countries for DESS and DESO being identical, only DESO received a copy of the 13 October 1989 Report. In view of the details given by the Report of the construction of a large munitions factory by the Chilean arms company, Industrias Cardoen Ltda, in Iraq and its reference to “a UK firm” supplying 24 machining centres for the manufacture of various types of rocket fuses, *341 the contents of the 13 October 1989 Report fell clearly within the scope of the part of the requirement to which I have referred. The fact that the customer requirement made no mention of DESS’s licensing function and did not mention information on exports of dual-use items seems to me irrelevant. Mr K recollects that DESO’s requirement was understood to be in support of UK exports of defence equipment, and that export of munitions and munitions manufacturing equipment was below DESO’s threshold of interest. He believes that the absence of DESS’s export licensing function in their formal statement of requirements was a key factor in DESS’s export licensing role not being well understood at the intelligence agency. Notwithstanding this, he believes that the 13 October 1989 Report was intended for DESS but was mis-addressed to DESO in error. In any event, the error was, I conclude, an oversight rather than a studied decision.

D6.180 Mr McDonald of DESS explained to the Inquiry that he was not aware of the distribution procedure described by Mr J whereby intelligence reports distributed to the desk occupied by Miss Barr were ordinarily copied to DESS. Mr McDonald’s understanding was of a much more informal ad hoc system. He stated in his written evidence that “from time to time - but not on an automatic basis - [Miss Barr’s office] would forward copies of intelligence reports to the office of HDES. That office on occasion asked Mr Barrett [of DESS] if he was interested in a specific report which had arrived with them”. *342

D6.181 In his written evidence Mr Barrett confirmed that he “did not see the Intelligence Report of 13 October 1989”. *343 In his oral evidence to the Inquiry Mr Barrett said that, judging from the distribution list attached to the report, he would have expected DIS Defence Sales, “probably Mr J”, to have distributed the report to him. 344 Mr J has told me, and I accept, that he mistakenly thought the Report would have come to the attention of DESS and that if he had known the Report had not come to DESS’s attention he would have briefed DESS officials accordingly.

D6.182 It is an unfortunate fact that the 13 October 1989 Report did not come to the attention of Mr Barrett or Mr McDonald in DESS, a failure that accompanied the distribution of a number of other important intelligence Reports. The evidence given to the Inquiry demonstrates a divergence of views about responsibility within MOD for distribution of intelligence reports to DESS in cases where DESS was not on the original distribution list. The Intelligence Agency’s customer requirement for DESS stipulated that intelligence required by DESS should be distributed to HDES. Uncertainty as to where this important responsibility lies is clearly an unacceptable state of affairs and indicates shortcomings in the system operating within the MOD, and in particular within DIS, for ensuring that intelligence Reports came to the attention of the desks that needed to see them. I shall return to this point later. The DIS system of distribution has been reformed with a view to the prevention of any recurrence. *345

D6.183 Mr J said also that as the 13 October 1989 Report had not mentioned Matrix Churchill or any other machine tool supplier by name, and had not referred either to Hutteen or to Nassr, there had been nothing to alert him to the connection with Matrix Churchill. But the Report referred on its face to a “UK firm” as the supplier of some 53 machine tools intended for use in Iraq in the manufacture of munitions. Mr J was a member of the MODWG which had to consider machine tool ELAs that related to Iraq. The Matrix Churchill ELAs had been the subject of debate and controversy for many months. When Mr J first saw the Report the issue of export licences for the Matrix Churchill machine tools was still unsettled. Mr J’s third point was that “The role of DIS in the REU was supportive rather than proactive. Unlike some other members, I had no responsibility for taking action against persons or organisations which came to the notice of the REU.” But DIS were responsible for the provision of relevant intelligence information to members of the MODWG. The identity of the “UK firm” referred to in the 13 October Report was, in my opinion, information which was crucial to Mr J to discharge this responsibility.

D6.184 In these circumstances it is, in my opinion, reasonable to have expected Mr J to have asked to be told the name of the “UK firm” and to have asked promptly. His failure to have done so is, in my opinion, a matter of legitimate criticism. It has to be said, however, that Mr J’s failure in this respect does not indicate any complacency on his part towards the Matrix Churchill ELAs which throughout he consistently and strongly opposed. I should add that Mr J, in mitigation of his failure to inquire as to the identity of the “UK firm”, has submitted that “it was DESS’s responsibility to ascertain the names of UK companies whose activities came to note and to take action on the report.” I do not accept the validity of this point. Mr J was a member of DIS. The identification of the “UK firm” required a request for supplemental intelligence to be made of the Intelligence Agency that had supplied the Report. Whether or not DESS officials ought, if they had known of the Report, to have made the request, the incumbent of the DIS Defence Sales desk certainly, in my opinion, ought to have made it. Mr J has submitted, also, that the identification of Matrix Churchill as the “UK firm” and the provision of that information to Mr Clark prior to the 1 November 1989 meeting would have made no difference to the conclusions reached at that meeting about the Matrix Churchill ELAs. Whether that is so would depend on whether or not the information was known also to Mr Waldegrave.

D6.185 The 13 October 1989 Report was distributed, also, to FCO/MED. But there were no MED representatives at any of the REU meetings between 13 October and 8 December 1989. Mr Stephen Lamport, Assistant Head of MED from October 1988 to September 1990, was unable to recall whether or not he had seen the Report at the time. *346 He agreed, however, that someone in MED must have seen the document, and should have promptly asked for the “UK firm” to be identified. *347 But no one in MED did so.

D6.186 Mr Young, head of MED from January 1987 to August 1990, was also unable to recall whether he had seen the Report at the time. *348 He said that he might not have seen it because “it appears, according to PUSD records, to have remained in MED for only one day”. *349 It is unfortunate that neither the Head or the Assistant Head of MED appear to have seen this important intelligence Report. It is also very surprising that the Report remained in MED (the FCO department responsible for consideration of ELAs for Iraq) for just one day. Under the standard rules applicable to this type of Report, MED were entitled to retain it for 14 days. It clearly should have been retained for a sufficient period to be read by all those involved in the consideration of ELAs.

D6.187 Mr Steadman, in his written statement to the Inquiry submitted on 25 November 1993, said that he read the 13 October 1989 Report. It was received in the SDU on 17 October 1989 and marked out to him. He did not think he had read it until after the 1 November Ministerial meeting. When he read the Report he realised the possible connection with Matrix Churchill. At the REU meeting on 24 November, he asked for identification of the “UK firm”. His request was referred to Mr K, of the agency that had issued the Report. Mr K told the Inquiry that it would have taken up to a week to obtain the name of the company from the source in question. I do not attach any criticism to Mr Steadman for the delay in requesting the name. MOD and FCO officials were in as good a position as he was to make the connection with Matrix Churchill. If they wanted to use the intelligence to re-open the question of the Matrix Churchill machine tools they could have done so. The DTI, after all, had always supported the grant of the licences. *350

D6.188 The “UK firm” was identified as Matrix Churchill at the 8 December 1989 REU meeting. It was just over a month since the grant of the licences had, at the 1 November 1989 meeting, been agreed upon. But no one from any of the three relevant departments took any step to enquire whether the machine tools had yet been exported and, if some had not, to re-open the question of their export. In none of the three departments was any step taken to inform the Minister that he had approved the export of machine tools intended for use in the manufacture of munitions. In view of Mr Waldegrave’s known opposition and eventual reluctant agreement to the export, he would, I infer, have regarded the intelligence as important. He might well have wished to re-open the question of the export. Lord Trefgarne and Mr Clark might not have been prepared to do so, but Lord Trefgarne would, I am sure, have wanted to be informed that the assurances given to him by Mr Henderson on 26 September had proved worthless. In my opinion, the Ministers should have been told that the belief in a likely civil end-use, on the basis of which they had come to their decision on 1 November, had turned out to be unfounded.

D6.189 In the MOD, Mr Barrett had been present at the REU meeting on 8 December 1989. But he had not seen the Report and did not enquire about the nature or contents of the “Intelligence Report” with which Matrix Churchill was being associated. In the FCO, no one from MED had been present at the meeting on 8 December. *351 The FCO representatives at that meeting were from SEND and COMED. Mr Stephen Lamport suggested that it was the SEND representative, Mr Martin Lamport, who might have alerted MED to disclosures at the meeting of interest to MED. *352 While it is a fair point that SEND, like MED, had a departmental interest in Matrix Churchill and its machine tool exports to Iraq, and that FCO departments work co-operatively, relying on one another, no specific responsibility had been placed on Mr Martin Lamport to keep an eye open for matters of MED interest. MED reliance on him, or on any other FCO representatives at REU meetings, to take responsibility for passing on to MED items of interest to MED seems to me, in the absence of any specific instructions to that effect given to those representatives, to indicate a deficient system.

D6.190 Mr Martin Lamport’s evidence about the 13 October 1989 Report was interesting. He thought it likely that he had read the Report but was uncertain whether he had done so before or after the 1 November Ministerial meeting. He said that “The report appears to relate to conventional weapons which were not SEND’s concern. The rocket fuses referred to sound as if they were for short range rockets, not the ballistic missiles with which we were concerned.” *353 He denied emphatically that he had had any responsibility to represent other FCO departments on the REU. He said “I was not aware of their policy considerations on issues raised by conventional weapons exports and could not have been expected to pick up details which would have been of significance to them.” I accept his point which serves to underline the absence of any proper system designed to bring to MED’s attention information imparted at REU meetings not attended by any MED representative.

D6.191 Mr Duncan, it will be recalled, was the SEND officer with responsibility for missiles. He, too, was not interested in conventional weapons. He was particularly dependent on co- operation from the DIS desks responsible for gathering information about and producing assessments of the types of missile that particular proliferators were attempting to manufacture. In his statement to the Inquiry he said “From their reports I could obtain a fair idea of what proliferators were doing and bring pressure to bear on MTCR partners to improve coordination. Their work also gave me the essential background knowledge to allow me to guess what types of equipment proliferators were looking for. It also allowed me to judge with some degree of accuracy what key components would be most important to withhold.” *354 The relevance of this to the 1 November Ministerial meeting was explained by Mr Duncan in this way:

D6.192 SEND’s lack of interest in Iraq’s conventional weapon procurement activities is apparent also from a letter dated 15 December 1989 written by Mr Martin Lamport to a colleague in Tokyo commenting on the Ministerial meeting on 1 November. The letter said that “following a Ministerial meeting with DTI and MOD, it has been decided to allow Matrix Churchill to continue to export machine tools... to Iraq”, and went on “Although we have serious concerns about Iraqi activities in both nuclear, ballistic missile and CBW fields, the Matrix Churchill machine tools in question have a wide variety of industrial applications and we concluded that in this case we would not have been justified in refusing to export them on proliferation grounds.... We will continue to deny Iraq any licensable equipment designed to contribute directly to her nuclear, missile or CBW programmes.” *355

D6.193 The decision at the Ministerial meeting on 1 November to grant the export licences sought by Matrix Churchill was not well received by the MODWG or by Lieut-Colonel Glazebrook in particular. At the MODWG meeting on 8 November, Mr Hextall (who chaired the meeting in Mr Barrett’s absence) informed the members of the decision taken at the 1 November meeting. Lieut-Colonel Glazebrook was sufficiently incensed to send a memorandum dated 10 November to General Sir Jeremy Blacker, the ACDS and Lieut-Colonel Glazebrook’s MOD line manager. The memorandum expressed concern “that Min(DP) may have made his decision on the basis of inadequate information on the overall situation.” Copies of the memorandum were sent to the MODWG members and to DESS2. On the DESS2 copy Mr Hextall marked with an ‘X’ the passage I have cited and wrote a note to Mr Barrett: “As you can see, Col G [Lieut- Colonel Glazebrook] gave us a rough ride on Matrix & other P(AM) cases at the MODWG... X was levelled at me at MODWG. I countered that Min(DP) was fully briefed. May we discuss?” *356 I have already expressed the opinion that Mr Barrett’s briefing to the Minister had been inadequate. Lieut-Colonel Glazebrook had not seen the briefing but his apprehension was, in my opinion, well founded.

*212 - DTI/100.2.6894 at 6902 and DTI/100.3.7107 at 7113 and DTI/100.3.7107 at 7114

*217 - Closed Session transcript of Mr C3’s oral evidence, 29 September 1994, p. 14. Mr C3 in fact said “...deriving from refusal” (emphasis added). Since the sense of his comment was “...deriving from approval”, I have amended the quotation accordingly.

*223 - Mr Gall’s written statement dated October 1994 p.2; DTI/102.2.7653 at 7654 and DTI/102.2.7653 at 7661

*225 - The Central Tool Room Project had been identified in an Intelligence Report dated 12 September 1989. The Report had been copied to, inter alia, FCO/MED, FCO/SEND and a number of DIS desks.

*229 - Mr Lillie repeated this point strongly in comments to the Inquiry made in his letter dated 23 May 1995.

*230 - the transcript of Mr Young’s oral evidence Day 23, 15 September 1993, p.167

*231 - Mr Martin Lamport’s written statement submitted on 26 July 1994, paragraph C2.7.2

*232 - Mr Duncan’s written statement submitted on 14 September 1994 paragraph B.3.1

*240 - Lord Trefgarne’s written evidence submitted on 18 March 1994, paragraph 86, and see paragraph D6.145 infra

*242 - Lord Trefgarne’s written evidence submitted on 18 March 1994, paragraph 87

*245 - the transcript of Mr Barrett’s oral evidence Day 38, 3 November 1993, p.166

*247 - the transcript of Mr Barrett’s oral evidence Day 38, 3 November 1993, pp.172-175

*250 - The DTI were unaware that either meeting was taking place or of their outcome. See Mr Beston’s comments dated 14 June 1995

*252 - FCO/13.2.393. The Note was not copied to the DTI or to the MOD. A copy did, however, go to SIS via PUSD.

*253 - the transcript of Mr Henderson’s oral evidence Day 88, 7 July 1994, pp.51 to 58

*256 - transcript of Mr Steadman’s oral evidence Day 47, 1 December 1993, p.43

*269 - Lord Trefgarne’s written statement submitted on 18 March 1994 paragraph 167 (p.81) and oral evidence, Day 82, 30 March 1994, pp.39 to 47.

*274 - the transcript of Mr Henderson’s oral evidence Day 88, 7 July 1994, p.39

*275 - generally the transcript of Mr Henderson’s oral evidence Day 88, pp.14 to 40

*279 - Mr Steadman’s written statement, submitted on 25 November 1993, paragraphs K.8.1 and K.9.2

*281 - In his written evidence, Lord Trefgarne stated that he did not believe he had read the submission (or the covering note from Mr Beston dated 26 September 1989) before his meeting with Mr Henderson - written evidence of 18 March 1994, paragraph 81

*283 - transcript of Mr Steadman’s oral evidence Day 47, 1 December 1993, p.65

*285 - transcript of Mr Steadman’s oral evidence Day 47, 1 December 1993 p.67/68 286 Mr Rob Young’s comments on Mr Lillie’s submission of 1 February, see FCO/13.2.438

*287 - DTI/44.2.2708 - In his written evidence Lord Trefgarne said that he did not agree with Mr Beston “that even if machine tools were intended for munitions manufacture there was no longer a sufficient reason under the Ministerial Guidelines to prevent export.” In his oral evidence he explained that it “depended on whether or not [there would be a] significant enhancement.” He did not inform Mr Beston at the time that he did not agree with him on this point - written statement submitted on 18 March 1994, paragraph 83, transcript of oral evidence of 30 March 1994, Day 82, pp. 63 and 64, and see paragraph D6.125 supra

*293 - transcript of Mr Barrett’s oral evidence Day 38, 3 November 1993, pp.180/181

*294 - transcript of Mr Sherrington’s oral evidence Day 40, 8 November 1993, p.6

*298 - Mr C3’s and Mr C2’s knowledge related to technical matters. Mr O’s knowledge related mainly to individuals. He had not seen the minutes of the WGIP meeting of 23 June 1989 nor the intelligence report of 13 October 1989.

*300 - A copy of Mr Sherrington’s submission was received in the SIS building on 7 November. It then came to Mr C3’s attention. He drew the inaccuracy to Mr O’s attention.

*301 - transcript of Mr Sherrington’s oral evidence Day 40, 8 November 1993, p. 63

*308 - transcript of Mr Lamport’s oral evidence Day 32, 20 October 1993, pp.8 to 38

*312 - transcript of Mr Gore-Booth’s oral evidence Day 22, 14 September 1993, pp.105 to 114

*320 - Mr Duncan’s first written statement submitted on 14 September 1994, p.13

*321 - Mr Duncan’s first written statement submitted on 14 September 1994, p.13

*327 - Mr J’s written statement in response to the Inquiry’s request for evidence dated 6 November 1993, paragraph 5a

*328 - Admiral Sir John Kerr’s written statement dated 16 December 1993, paragraph 36

*333 - Letter from Mr Primrose to the Inquiry dated 22 May 1995: CC/414/MOD/1332. Mr Primrose told the Inquiry in his written statement of 20 September 1994 that he could not “recall having seen [the Report of 13 October 1989]” and that the MOD had told him that it had found “no trace” of the Report having “reached [his] area”. On 10 May 1995, however, the MOD sent the Inquiry a document record sheet (MOD/1309) which showed that in fact the Report of 13 October 1989 had been received by Directorate Marketing Services and distributed to RMD1 and RMD2 in DESO on 18 October 1989. The record sheet had been initialled by the Principal Research Officer in Marketing Services 1. It was also initialled by Mr Primrose’s secretary at that time, although she was merely carrying out the clerical task of accounting for the receipt of documents in the branch from Miss Barr, as well as for their subsequent movement within Stuart House, where the regional marketing desks were situated (nb DESS was located elsewhere). Her initials do not, per se, establish that Mr Primrose saw the 13 October Report. But on the strength of the evidence which I have summarised above, Mr Primrose would have seen the batch of reports in which it was included.

*334 - Mr Primrose’s written comments dated 15 July 1995 - Annex A, paragraph 5 - MOD/1466

*342 - Mr McDonald’s further supplementary statement dated 6 July 1994 paragraph Y2.2.2

*343 - Mr Barrett’s written statement dated 11 March 1994 paragraph 25. See also D6.189 infra

*344 - Transcript of Mr Barrett’s oral evidence, Day 38, 3 November 1993, p. 152 to 153

*345 - Sir Robin Butler’s written statement dated 4 February 1994, paragraph B.7.1(f) and Appendix B

*346 - the transcript of Mr Stephen Lamport’s oral evidence Day 32, 20 October 1993, pp.37 to 39

*349 - This is confirmed by the PUSD cover sheet to the Report (FCO/1026 and IR/159)

*350 - Mr Steadman’s statement, paragraph K19.2, and Mr K’s letter to the Inquiry dated 30 November 1993

*351 - Mr Sherrington who was new in post with the MED attended as an observer. The Minutes do not record his presence and a copy of them was not sent to him

*352 - the transcript of Mr Stephen Lamport’s oral evidence Day 32, 20 October 1993, pp.48/49

*353 - Mr Martin Lamport’s written statement dated 26 July 1994, paragraph C.8.3

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