By Carola Hoyos, Financial Times

Senior executives of pan-European defence group EADS were alerted five years ago about questionable payments made by one of its subsidiaries in Saudi Arabia to an account in the Cayman Islands that is now the subject of a criminal probe by the UK’s Serious Fraud Office.

Mike Paterson, then financial controller of GPT Special Project Management, an EADS subsidiary that supplies communications and surveillance equipment, alerted his superiors about the payments as early as 2007, according to emails seen by the Financial Times. He initially contacted GPT’s managing director and the chief executive of Paradigm, GPT’s parent and part of EADS’s Astrium space division.

He repeatedly voiced his fears between 2007 and 2010. They centred on unexplained payments to the Cayman Island bank accounts of Simec International and Duranton International, which totalled £11.5m between 2007 and 2009. Mr Paterson also queried the gift of four cars valued at £201,000 to members of the Saudi royal family and military – as well as a £278,000 payment for the rental of a villa owned by a Saudi National Guard general. The payments were part of a government-to-government programme in which GPT’s payments were processed by the UK’s Ministry of Defence, GPT’s sole customer.

The MOD declined to comment, while the Saudi National Guard, Simec International and Duranton International could not be reached for comment.

When Mr Paterson first raised his concerns in 2007, the Saudi activities of defence contractors had already sparked a contentious public debate in the UK. In 2006, then prime minister Tony Blair cited national security interests when he halted an SFO investigation into another government-to-government contract in Saudi Arabia involving BAE, the UK’s largest defence contractor.

The US Department of Justice later fined BAE $400m and found it guilty of lying to the US government about its payments to contractors.

By 2010 Mr Paterson had alerted Pedro Montoya, EADS’s chief compliance officer, but felt he was still being ignored. In an email dated October 2010, Mr Paterson wrote: “I think Pedro Montoya now ignoring me is sufficient indication we are wasting our time internally. Our concern for EADS future seems to be greater than [EADS’s] first line managers … I need to make a decision whether I persevere internally, whilst suffering mind numbing boredom, or whether I take the statutory directors actions to the authorities.”

After initially threatening to take the case to the SFO, in late 2010 Mr Paterson instead transferred to another role within GPT. But in December 2010 a senior GPT official, Ian Foxley, fled Saudi Arabia with evidence of his and Mr Paterson’s concerns, which he presented to both Mr Montoya and the SFO.

EADS and its executives declined to comment on the emails, while the company said it was co-operating with the SFO. EADS launched an internal investigation in the middle of 2011, which is continuing.

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