SWEDEN'S BOFORS ARMS SCANDAL: A SUMMARY OF THE DIVERSIONS, INVESTIGATIONS, AND IMPLICATIONS

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 06141809
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 8
• Document Creation Date: December 28, 2022
• Document Release Date: September 25, 2017
• Case Number: F-2016-02688
• Publication Date: March 4, 1988

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DIRECTORATE OF INTELLIGENCE
4 March 1988
Sweden's Bofors Arms Scandal:
A Summary of the Diversions, Investigations, and Implications
Summary
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The lingering Bofors AB and Nobel Kemi AB arms scandals, which first
came to light in 1984, owe to the failure of Sweden's private and public sector
leaders to observe their own rules governin(b)(3) axports in an apparent
effort to bolster the domestic arms industry.
Numerous investigations were initiated to examine the complex web of
bribery and arms diversions but, despite an admission from a key industry
executive, only two individuals have been charged with violating Swedish law:
a Nobel Kemi manager and a private arms trader. Stockholm has since called
off the investigation of Bofors' bribery, probably in an effort to prevent future
revelations of bribes to Indian officials that could embarrass Prime Minister
Gandhi. Sidelights to the affair include the mysterious death of a customs
official, a possible Iranian connection to -nurder of Olof Palme, and a surge
in Swedish investigative journalism. (b)(3)-
The scandal is likely to lead to a tightening of Swedish arms export
restrictions in the near term, but little change in practice in the long term
given Sweden's commitment to maintaining its own arms industry. While the
affair will almost certainly benefit the Greens in the September 1988 election,
neither Prime Minister Ingvar Carlsson nor the mainstream socialist and
nonsocialist parties are likely to be seriously harmed by the scandal since all
are cul able and will therefore refrain from making it a partisan political issue.
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This paper was prepared by West European Division, Office of European Analysis.
Information available as of 3 March 1988 was used in its preparation. Comments r. - (b)(3)-
-ueries
are welcome and may be directed to the Chief, West European Division, EURA,
EURM 88-20045
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The Diversions
The Bofors AB and Nobel Kemi AB cases involve a number of business transactions in which
Swedish arms manufacturing executives deliberately violated or circumvented prohibitions on
arms sales to belligerents and on bribes to foreign officials. These include:
-- Bofors AB selling over 300 RBS-70 missile systems to Bahrain and
Dubai via Singapore in 1979. (The RBS-70 contains two US
components: a gyroscope and a thermal battery.).
-- Bofors selling 22 anti-aircraft guns to Thailand via Singapore in
1985.
Bofors selling ammunition to Oman via Italy.
Bofors allegedly selling RBS-70s to Iran via Singapore.
Bofors allegedly bribing Indian middlemen and officials in
connection with New Delhi's $1.5 billion purchase of 155mm
howitzers.
-- Bofors allegedly bribing an official in Singapore in connection with
arms resales to other countries.
Bofors allegedly selling naval ordnance to Taiwan.
Bofors allegedly selling explosives to East Germany via Austria.
Nobel Kemi AB--a subsidiary of Bofors--selling 2139 metric tons of
munitions to Iran, Iraq, Syria, Egypt and Burma via Austria, East
Germany, Italy, and Yugoslavia, with approximately two-thirds of
these munitions going to Tehran.
Private Swedish businessman Karl-Erik Schmitz acting as an
international broker for arms sales to proscribed countries,
including sales involving Swedish-produced weapons. (b)(3)
The Investigations
Since reports of the diversions began to spread in 1984--through a tip from former Bofors
employee Ingvar Bratt to the Swedish Peace and Arbitration Association--a number of official
inquiries have been initiated. Few of these have produced any tangible results. In approximate
order of inception, the investigations are:
County Prosecutor: Stig Age, the Prosecutor from Orebro
County--where Bofors is located--began pulling together a case
against the arms producer in 1984. He has not yet taken his findings
against Bofors to court because new evidence continues to
surface--even though Anders Carlberg, the head of Bofors' parent
company, Nobel Industries, admitted in March 1987 that top Bofors
executives Claes-Erik Winberg and Martin Ardbo deliberately skirted
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Swedish law. Age is also responsible for prosecution in the case of
illegal arms sales by Nobel Kemi--a Bofors subsidiary. In June 1987
he charged Karl-Erik Schmitz--a private arms trader--and former
Nobel Kemi executive Mats Lundborg with illegal arms trafficking. No
further details of court proceedings have been reported.
Police Investigations: Swedish police are conducting separate
investigations into Bofors' and Nobel Kemi's arms sales to support
Age in developing the court cases.
Constitutional Committee: Because the Bofors case raised the
possibility that government officials permitted illegal arms sales, the
"Constitutional Affairs Committee"--made up of prominent Members
of Parliament--began to oversee the Bofors and Nobel Kemi
investigations. This is the same Committee that is overseeing the
Palme murder investigation. Minister of Agriculture Mats Hellstrom
was criticized by the Committee in May 1987 for misrepresenting
facts surrounding Sweden's arms sales to Indonesia during his
tenure (1982-1986) as Minister for Foreign Trade.
Parliamentary Arms Export Commission: In February 1985 a special
commission was established to report on arms export issues to
parliament and provide guidance to the arms industry.
Advisory Committee: The government established a separate
committee of experts to recommend revisions in Swedish arms
export laws that would provide for tighter enforcement. The
recommendations were presented to the Social Democratic Cabinet
in June 1987, but have not yet been formally presented to
parliament.
National Audit: As the police investigations revealed that Bofors
may have bribed Indian middlemen and officials, the Swedish
equivalent of the GAO conducted a national audit of Bofors'
transactions with India. The audit, completed in June 1987, indicated
that as much as $40 million were paid in commissions to middlemen.
Because the information was taken from Central Bank records, the
exact amounts and recipients were not made public by the
government. Bofors rejected the government's request to reveal this
information, claiming such disclosure would jeopardize its credibility
as an arms dealer. Both the government and Bofors have asserted,
however, that the payments were made to close contracts with
middlemen once Indian authorities insisted on excluding
intermediaries, rather than as pay-offs to Indian officials.
Citizens Committee: In order to bolster the credibility of
Stockholm's account of the bribery case, a "citizens committee" was
established to review the classified documents of the Bofors audit
and determine whether the government was presenting an accurate
picture. This committee has not yet submitted its findings.
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Bofors bribery: Following the national audit, Swedish police
launched a separate investigation into Bofors bribery, which would
have been illegal if payments were made to foreign officials. This
investigation was terminated in late January 1988, following a trip by
Indian Prime Minister Gandhi to Stockholm. Sweden claimed inability
to track the payments through Swiss bank accounts after making a
half-hearted request for Swiss assistance.
-- Indian inquiry: The Indian government initiated its own
parliamentary investigation into the possible use of payoffs to
middlemen or government officials.
Singapore inquiry. Singapore--a key transshipment point in the
Bofors saga--also launched a bribery investigation and charged Tan
Kok Cheng, former general manager of Allied Ordnance Singapore,
with accepting over $1 million in bribes from Bofors while working
on behalf of Singapore's armed forces. (Bofors owned 40 percent of
Allied Ordnance at the time of the transactions.)
MFA Demarche: In support of the ongoing police investigations, the
Swedish Foreign Ministry requested its Embassies abroad to ask host
governments for permission to inspect their arms inventories in an
apparent effort to look for Bofors equipment that may have been
delivered in as yet undetected diversions. (b)(3)
Notable Sidelights
Beyond the diversions and investigations themselves, several other incidents may be related
to the Bofors affair.
Algernon's death: War Materiel Inspector Carl Algernon--the
customs official responsible for monitoring arms exports--died when
he was struck by a subway train in January 1987. He had met 30
minutes earlier with Anders Carlberg, head of Bofors' parent
company, Nobel Industries. Algernon was a personal friend of former
Bofors directors Claes-Erik Winberg and Martin Ardbo. Police believe
he committed suicide, but accidental death and murder remain
possibilities.
Did Iranians Murder Palme? US media speculated in March 1987
that Olof Palme was murdered by an. Iranian hitman in retaliation for
Palme's alleged suspension of an arms shipment to Tehran. The
media further contended that Algernon was killed because he
intended to make public the illicit activities of Swedish arms
producers and government officials. Swedish investigators consider
this thesis unlikely, and it received little further notice until revived
by US journalists in December 1987.
-- Press Activism: The US press article on the Iranian
connection--written quickly in Sweden using local
sources--embarrassed the Swedish press, which had failed to turn
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up the story in a year of investigative reporting following Pa!me's
death. Since this episode, Sweden's media have doggedly reported
on every lead and angle in the Bofors case, no matter how
insignificant.
-- Export Ban: Swedish arms sales to Singapore--the number-one
importer of Swedish weapons from 1977-1986--were banned for a
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Filling in the Gaps
There is little evidence on which to construct an accurate picture of what actually occured
in the Bofors scandal. We believe the following scenario is the most plausible, but we must
emphasize that it is only speculation and that other scenarios are quite possible.
Sell them anyway: Swedish arms manufacturers, experiencing
financial difficulties in the late 1970s and early 1980s, determined
they needed to sell arms to proscribed countries in order to remain
financially viable. Government officials acquiesced, concerned that
Swedish military reliance on foreign arms suppliers--instead of
domestic producers--would undermine Sweden's policy of neutrality.
Moveover, officials feared that low export levels would lead to
lay-offs in the already ailing region of central Sweden where most
arms manufacturers are located.
Damage control: When former Bofors employee Ingvar Bratt
provided information to the Peace and Arbitration Society,
government officials attempted to preempt criticism of their past
acceptance of questionable arms deals by claiming they had just
learned of Bofors' activities and were beginning an investigation.
Bofors was intended to serve as a scapegoat company that had
circumvented--but not broken--Swedish law, and no one would be
arrested.
Breakdown: As the Bofors investigation plodded along at a pace
designed to dampen public interest in the case, new information
continued to surface about potentially illegal transactions conducted
by Bofors and its subsidiary, Nobel Kemi. The Peace and Arbitration
Society kept the case in the public eye. Hoping to defuse the public
outcry over the case, Bofors Chairman Winberg--and, later, his
successor, Ardbo--resigned. Nobel Industries' takeover of Bofors in
1985 also failed to put the perception of scandal to rest. The
government began to lose control of the case.
Resurrection: Anders Carlberg, head of Nobel Industries, insisted on
a new approach. Bofors would still be blamed for using third
countries to reexport weapons. Nobel Kemi executive Mats Lundborg
and private trader Karl-Erik Schmitz, moreover, would be put on trial
in an effort to avoid a public outcry if no one was prosecuted.
Winberg and Ardbo might also go to trial, but would be acquitted for
having stayed within the letter, if not the spirit, of the law. The
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government would introduce legislation that would give the
appearance of tremendous tightening in arms export laws, but would
in fact continue to leave much to the discretion of the Cabinet. Over
time, the government would reduce the number of proscribed
recipients of Swedish arms exports. With Carlberg holding
information on official involvement in the illegal dealings, the
government acquiesced in Car!berg's expanded strategy.
Suicide: In January 1987, Carlberg presented his strategy to
Algernon--who had condoned the Bofors and Nobel Kemi
transactions. Despite possible promises by Carlberg to protect him,
Algernon believed the new strategy would eventually expose his
failure to stop the deals arranged by Schmitz and Nobel Kemi. He
probably committed suicide.
Bribery: Bofors almost certainly made payments--either straight to
Indian officials, or to middlemen who in turn paid off officials--to
secure the $1.2 billion sale of howitzers. Word of the pay-offs
leaked, sparking domestic difficulties for Indian Prime Minister Rajiv
Gandhi. Stockholm wanted to save Gandhi the troubles caused him
by the Swedish leak, and Nobel Industries wanted to avoid a bribery
indictment. The two sides cooperated, therefore, on a scheme to
keep details of the payments secr74 ctockholm eventually called off
the entire bribery investigation. (b)(3)
Outlook
The Bofors affair is likely to have a significant short-term impact on Swedish politics and
arms export practices, but little effect in the long term.
Export policy: The Advisory Committee's recommendations for
revised legislation will almost certainly reach the floor of Parliament.
A key variable, however, is how much discretion will be given the
government in determining whether particular countries are suitable'
recipients of Swedish arms. Because the opposition Conservatives
are probably even more concerned about the viability of Sweden's
defense industries than the ruling Social Democrats are, we suspect
that the legislation finally approved in Parliament will continue to
give the government great leeway in managing arms export
restrictions. The government may also propose some bureaucratic
reorganization of the export enforcement apparatus to bolster its
credibility in managing export policy. In the first few years under
new legislation, controls will probably be tight. Over time, however,
the government will probably begin to approve exports to a broader
range of recipients in order to keep the arms industry afloat.
1988 Election: Having governed from 1976 to 1982--when a number
of the reported arms diversions took place--the opposition parties
are nearly as vulnerable as the Social Democrats to charges they
condoned Bofors' and Nobel Kemi's activities. Although questions
about the Social Democrats' role in the Bofors scandal will almost
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certainly be raised in the runup to the September 1988 election, we
do not expect any of the major parties to put the Bofors scandal in
the forefront of its election campaign. To date, Prime Minister Ingvar
Carlsson has weathered the scandal virtually unharmed. The
Greens--who are expected to win their first seats in parliament in
the 1988 election--stand to gain the most from the Bofors affair by
picking up support from voters disillusioned with the traditional
parties and opposed to exporting arms to countries involved--or
likely to become involved--in a military conflict. (b)(3)
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