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 (OECD) 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 dedicated anti-corruption legislation has been much delayed, with a draft Bill only being made public in March 2009.
BAE allegations
Rumours of corruption around the BAE Systems Al Yamamah deal with Saudi Arabia started almost as soon as the contract was signed in 1985. The Government's spending watchdog, the National Audit Office, investigated, but its 1992 report has never been made public. The allegations continued, many the subject of reports in The Guardian. In 2004, following revelations about a £60 million "slush fund", the Serious Fraud Office (SFO) began an investigation into this and other BAE deals. There were further allegations in June 2007 that BAE, with approval of the UK’s Ministry of Defence, had made payments worth hundreds of millions of pounds since 1985 to bank accounts under the personal control of Prince Bandar, the son of Prince Sultan.
On 14th December 2006 the SFO announced that it was stopping its investigation. CAAT and The Corner House challenged the decision in the courts. In April 2008 the High Court ruled that the SFO had acted unlawfully in curtailing the inquiry, but this ruling was overturned by the House of Lords on 30th July 2008. More information about the case and documents which were released during it can be viewed here.
The SFO continued to investigate BAE deals with Chile, the Czech Republic, Qatar, Romania, Saudi Arabia, South Africa and Tanzania. On 1 October 2009 the SFO announced that it begin prosecution proceedings against BAE for alleged corruption in relation to its activities in "Africa and Eastern Europe". The announcement came after BAE rejected a "plea bargain" offer. Read CAAT's press release here.
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 May 2004, the ECGD introduced tough anti-bribery procedures in an attempt to make sure that projects it supported were not tainted by corruption. However, following lobbying by BAE and engine maker Rolls Royce, these procedures were weakened in December 2004.
After a legal challenge by 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.
OECD criticism
The UK came in for considerable criticism in an OECD Anti-Bribery Working Party report (PDF 739kb) in October 2008, which followed from the decision to stop the SFO inquiry BAE's Saudi deals. The damning report highlighted the lack of progress on anti-corruption legislation, the failure to consider alternatives to pulling the investigation and the delay in responding to the United States' request for Mutual Legal Assistance with regard to its Department of Justice investigation into Al Yamamah.
The ECGD also came in for strong criticism. The SFO gave the ECGD evidence regarding allegations involving misrepresentations made when the insurance cover was obtained. The report expressed serious concern that nothing was done by the ECGD to follow up this up.
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.
Information regarding documents uncovered by a CAAT researcher in the UK's National Archives reveal the lengths to which past and present Governments have gone to cover up questionable payments in UK arms deals, especially with Saudi Arabia, January 2006.
The UK government and Arms Trade Corruption, by Nicholas Gilby, June 2005.
Parallel Markets, Corruption in the Arms Trade, CAAT Lecture by Joe Roeber, 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.
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