Corruption

Corruption is not victimless. It can undermine democratic accountability and divert resources away health care or education into projects which are amenable to bribery. These projects are often over-priced to allow the companies to recoup the money spent on bribes and these costs can be passed on to the consumer or taxpayer in some form.

Military industry, along with construction, is the most prone to corruption. This is because the buyers for military aircraft are, unlike the customers for washing machines or other consumer goods, very few in number - a handful of people make the decision to spend what are often vast sums of money.

Opinion has moved strongly in the direction of seeing corruption as a wrong which distorts trade and in 1997 the Organisation for Economic Cooperation and Development adopted an Anti-Bribery Convention. In the UK a clause in the Anti-terrorism, Crime and Security Act 2001 made bribing a foreign official a criminal offence from 2002, but proper anti-corruption legislation has been much delayed.

BAE allegations

In July 2004 the Serious Fraud Office (SFO) began an investigation into BAE Systems arms deals with Chile, the Czech Republic, Qatar, Romania, Saudi Arabia, South Africa and Tanzania. The investigation with regards to Saudi Arabia was stopped by the Government on 14th December 2006 and is the subject of legal action by CAAT, see box above. More information about the others follows.

Chile In September 2005 The Guardian reported that BAE had secretly paid £1 million to General Pinochet between 1997 and 2004 in return for help with arms deals.
Czech Republic In February 2007 a former Czech foreign minister admitted that "money changed hands" with politicians over the sale of Gripen fighter aircraft to the Czech Republic. That month a senior Swedish prosecutor started an investigation into the contract due to the involvement of Saab, the part-BAE-owned manufacturers of Gripen aircraft. Czech police are also making inquiries.
Qatar Following the sale of a package of UK arms to Qatar in 1996, BAE paid a £7 million "commission" into three Jersey trust funds under the control of Qatar's Foreign Minister.
Romania In June 2006, with the arrest of a BAE agent, it emerged that payments of £7 million in "secret commissions" were allegedly made to clinch the £116 million ship refurbishment deal asociated with the 2003 sale of two ex-Royal Navy frigates to Romania.
South Africa In October 2006 the SFO raided the offices of John Bredenkamp, alleged by The Guardian to be BAE's agent in the £1.6 billion sale of Hawk and Gripen jets to South Africa in 1999. These aircraft deals formed part of a wider arms package that continues to be the subject of numerous allegations of corruption involving several companies leading, so far, to the successful prosecution of two high-profile political figures.
Tanzania In January 2007, following interviews with two Tanzanian middlemen, The Guardian alleged that commissions of $12 million, 30 per cent of the value of the of a BAE military air traffic control system, had been paid into Swiss bank accounts by BAE.

In response to these allegations, in June 2007 the BAE Board asked the former Lord Chief Justice, Lord Woolf, to review and evaluate the Company’s policies and processes relating to ethics and business conduct. The Woolf Committee, whose remit did not extend either to nature of the company's business nor to past allegations, reported in May 2008. The company has vowed to implement its recommendations.

UK Export Credits Guarantee Department

The Export Credits Guarantee Department, which reports to the Secretary of State for Business Enterprise and Regulatory Reform, insures export deals, including many arms deals, which are too risky for the private market to touch. The ECGD is subsidised so while companies pay premiums, in effect the UK taxpayer would underwrite any corrupt deal.

In 2004 the ECGD announced that it was introducing tough new rules on bribery and corruption. Arms companies, led by BAE Systems objected, and the proposals were watered down.

After a legal challenge by an anti-corruption group, The Corner House, the Government agreed in January 2005 to hold a public consultation over the proposals. As a result, the ECGD reintroduced key anti-corruption measures in July 2006, including a requirement on exporters to name agents involved in the transaction.

Further Reading

Transparency International has set up Defence Against Corruption, a global project to tackle corruption in the military sector.

CAAT research revealed by Newsnight: UK arms sales to Saudi founded on bribery, June 2006

The UK government and Arms Trade Corruption, by Nick Gilby, June 2005

Parallel Markets, Corruption in the Arms Trade, CAAT Lecture, February 2005

Publish What You Pay

CAAT is part of the Publish What You Pay coalition which calls for governments of wealthy countries to be more transparent in their business dealings with more resource-limited countries.

last updated: 3rd July 2008