Harper Woods, Mich., has filed a lawsuit against a massive defense contractor, BAE Systems, over allegations that the company funneled payments to a member of the Saudi royal family.[more]
In the process, this small city has become a central player in an investigation that spans continents, involves accusations of corruption on an unimaginable scale, and has players ranging from former British Prime Minister Tony Blair to a substitute teacher.
Harper Woods is an almost archetypal American suburb. The streets are lined with trees, the houses are small, the yards big, and just about everyone has a dog. Its residents are big into Little League, and there's an annual parade featuring the mayor driving by in one of his classic cars. One of the finalists for national teacher of the year teaches seventh grade here. And rocker Bob Seger played at the now-closed Hideout dance club before he made it big.
"One of the funny things about Harper Woods is there nothing terribly special about it," says Kim Silarski, who has lived there since 1996. "And so in its normalness, in its normality, I think that is its beauty and its charm."
The Arms Deal
While it's technically a city, the place has only about 14,000 residents living in an area of 2.6 square miles.
This little corner of America is intimately involved in a $100 billion international arms deal between Saudi Arabia and BAE Systems, a giant British defense contractor that makes aircraft carriers, armored vehicles and a superadvanced cannon. BAE also manufactures fighter jets — and those jets have gotten the British defense contractor into trouble.
"In the mid-'80s, the Brits were negotiating a large defense contract with Saudi Arabia, nearly $100 billion. Obviously a huge, huge contract and very important to the U.K. and to BAE certainly," says Patrick Coughlin, a lawyer representing the Harper Woods public employees retirement fund.
"As part of the contract there was a side agreement that basically allowed for payments to be funneled to Prince Bandar," Coughlin alleges. "Bank examiners and people looking at this have estimated it was nearly $100 million a year or a total of $2 billion that was funneled through various U.S. banks."
Prince Bandar bin Sultan bin Abdul-Aziz Al-Saud was Saudi Arabia's ambassador to the United States for decades. Coughlin is alleging that to get that defense contract for a bunch of fighter planes, known as the "Al Yamamah" or the Dove deal, BAE paid Bandar $2 billion over a period of about 20 years.
'David vs. Goliath'
"The Saudi princes sometimes feel that the rules don't apply to them," says Cheryl Constantino, Harper Woods mayor pro tem and a full-time substitute teacher. "This is like David vs. Goliath, only instead of using a rock we're using attorneys."
Harper Woods got involved because its $40 million employee pension fund includes about $135,000 invested in BAE Systems. That's not a lot, but this is not a big town.
Now the Harper Woods fund has taken BAE and Prince Bandar to court. But Constantino says what local officials care most about is not the politics but the money.
"We don't look at this as sort of an international incident," Constantino says. "We just look at it as, 'Hey, here's our retirees' pension money and we just want to make sure that everything is right with it.' And then the next thing we know is that, this whole Prince Bandar thing comes up and we're like 'whoa.' "
Coughlin, the fund's lawyer, says the city wants BAE to recover as much money as possible and put it back into the company. The city also wants to reform the governance of the company so that this kind of thing doesn't happen again, he says.
"Corruption just inflates contracts, destroys competition and is not good for anybody," Coughlin says. "And corruption with a defense contractor, of course, is the most dangerous, because where are the arms going? Where are they ultimately [going]? You have to have real accountability in this area because of the world that we live in today."