Protest in 2017 against arms sales to Saudi Arabia. europa press

In August, 2017, Swiss authorities blocked four bank accounts linked to bribes allegedly paid by Spanish-owned company Defex to the Saudi Arabia government in exchange for weapons contracts.

As a publicly held company, Defex obtained the necessary permits to export arms and ammunition

The measure had been requested by Spain’s High Court, the Audiencia Nacional, which is investigating allegations that executives from Defex secured 11 contacts to sell police and defense equipment to Saudi Arabia by paying bribes.

High Court Judge José de la Mata asked for the bank accounts to be frozen after identifying a businessman in the network who had transferred the illegal funds through companies based in Switzerland.

The High Court sent its first letter rogatory – a request for judicial assistance – in October 2016, two years after the investigation began into alleged irregularities in Defex’s contracts.

In the letter rogatory, Judge De la Mata asked Swiss authorities for information about the bank accounts opened by one of the main suspects – who is not identified in the legal documents seen by EL PAÍS – as well as his businesses. The aim was to look at the contracts made with Saudi Arabia and Cameroon from January 1, 2005. After detecting various bank deposits, the High Court asked Swiss authorities to “freeze” the accounts on June 8, 2017, and provide more information on their movements.

Swiss money laundering business Judge De la Mata’s investigation has put a spotlight on the actions of Swiss company Cofinor. In court proceedings, the judge describes the company as a “financial entity that managed the compensation of funds,” in reference to the money laundering system that allowed funds to be transferred from Spain to foreign bank accounts or taken out in cash without being declared to tax agencies. According to investigators, Cofinor worked actively with those involved in the Saudi bribery scheme, charging 5% on all money transfers. Between 2008 and 2012, Cofinor moved around €1.9 million through this system.

Almost a year later, Switzerland’s public prosecutor replied to the request and ordered a Swiss bank to close four accounts linked to the businessman under investigation – one in his name, two linked to businesses where he appears as trustee and a fourth belonging to a second person connected to him. The public prosecutor also asked for detailed documentation on these accounts.

After learning of the decision to freeze his accounts, the businessman began a legal battle on June 6 to lift the embargo and to stop Switzerland from passing on the documents requested by Spain. He argued that the decision violated bank secrecy and claimed Swiss authorities were going to send documentation from before the 2005 to 2014 time period requested by Judge De la Mata. Swiss authorities probed beyond those dates because they detected alleged irregularities going back to the 1990s.

On September 20, Switzerland’s Federal Court rejected the businessman’s claim and authorized the information to be sent to the High Court. All this information will be incorporated into a separate file in the wider investigation into suspect operations by Defex in Angola, Egypt, as well as several South American, Asian and Gulf nations.

Judge José de la Mata is examining five transactions made from 1992 to 2004 between Riyadh and Defex, as well as 11 other contracts signed between 2005 and 2014, according to Spanish and Swiss legal documents that EL PAÍS has seen.

The businessman under investigation appealed to the courts to lift the embargo on his accounts

Defex is 51% owned by the Spanish state through the holding company SEPI, while the other 49% is in the hands of private businesses whose main activity is arms sales. The fact that it was a publicly held company allowed Defex to obtain the necessary permits to export arms and ammunition and manage contracts worth millions of euros which were inflated to reflect the cost of the illegal commissions. These bribes were then paid using “complex constellation” of companies, Swiss authorities explain in the legal documents.

The Swiss investigation located information on a military equipment contract with a Saudi representative worth €19.05 million when the actual value of the material was €14.55 million. Investigators also detected a payment of €7.6 million to a Saudi company for services whose existence there is no evidence of, as well as five other similar transactions in Saudi Arabia, involving payments by Defex worth a total €60.7 million between 1992 and 2004 to a company named Peninsula Inc Ltd, headquartered in the Cayman Islands.

Defex first came under investigation in 2014, when a suspicious transaction emerged involving the sale of police equipment to Angola through heavily padded invoices; the extra money was allegedly shared out among government workers in the African country and Spanish company execs.

In September 2017, Spanish Cabinet approved Defex’s voluntary dissolution. The company nevertheless continued to operate after its dissolution because it had signed earlier commitments. The holding company SEPI has refused to clarify Defex’s current situation.