Shadowy world where the prizes are high

A UN embargo inspired arms dealers to new levels of subterfuge, report Chris Blackhurst and Tim Laxton

Arms dealing has always been secretive, involving shadowy middlemen and commission agents, but the Iran-Iraq war from 1980 to 1988 gave the business new depths of intrigue.

A UN arms embargo meant that in theory, manufacturers could not supply arms to the two protagonists. Instead of stopping them, it encouraged them to find devious ways of getting their weapons to the two states.

One of the most favoured conduits was Singapore. It was a standing joke in the industry that if the tiny island off the tip of the Malaysian peninsular kept all the arms its officials had signed for, it would sink.

In one notorious, well-documented case, a British firm, Casalee, arranged the shipment of 9 million anti-personnel mines to Charter Industries of Singapore, a company owned by the Singapore government. According to their end-user certificates, the mines, made by Valsella in Italy, were to be used by the Singapore armed forces. All of them, however, went to Iraq, for use by Saddam Hussein against the Kurds, Marsh Arabs and allied forces in the Gulf War.

Coincidentally, the same company, Charter Industries, was the purported end-user for the 140 naval guns made by BMARC that went to Iran. The structure of the BMARC deal was classic arms tradecraft. The guns were sent to Singapore in bits while 37 key parts were made by Charter using tooling supplied by BMARC. As the guns were not sent complete from Britain they did not require an end-user certificate specifying if they were being sold on by Charter to a third country.

Just as nobody ever questioned why Singapore needed 9 million mines, nobody, apparently, ever asked why the small Singapore navy needed 140 naval guns - one or two per ship.Companies willing to trade with embargoed countries always ran the risk of prosecution from Customs and Excise, and ultimately, ruin. Since the Second World War, there have been at least 20 successful prosecutions in Britain alone of arms makers breaking export laws.

Not surprisingly, sanctions-busting deals were never discussed in those terms at board meetings or spelt out in company papers. Security was always ferociously tight - with nobody prepared to admit to anything. The rewards were huge: the Casalee-Charter mines deal was worth over $200m (£124m).

Deals were put together overseas, using front companies, offshore bank accounts and bogus paperwork. Every step along the trail involved payment of an arrangement fee or bribe. Following the money was fruitless: the money was routed through secretive offshore centres, ending up in numbered accounts in Switzerland and the Cayman Islands.

Nobody has come close to unravelling the biggest deal of all: the sale of arms from Britain to Saudi Arabia, the £20bn Al Yammamah contract. An attempt by the National Audit Office, the public finance watchdog, to get to the bottom of who paid what to whom, failed. MPs on the Public Accounts Committee, which receives reports from the NAO, has never been given the results of the investigation.

The Scott inquiry into arms to Iraq has also passed this shadowy world by, concentrating on the level of knowledge in Whitehall. Businessmen, City bankers and middlemen have not been interviewed.