Corruption

Corruption is not victimless. It can undermine democratic accountability and divert resources away from 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. Dedicated anti-corruption legislation came with the Bribery Act 2010. After consulting with business, the Coalition government will publish its finalised guidance in early 2011. The Act is expected to come into force in April 2011.

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. By 2004, after allegations about the company's deals in a number of countries, the Serious Fraud Office opened an investigation. Further details can be found here.

In response to the many 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 the nature of the company's business nor to past allegations, reported in May 2008. The company said it would implement the 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 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. However, in 2010 at the end of the Labour government, the ECGD weakened its anti-corruption procedures in so far as they affect projects where an overseas export credit agency might also be involved.

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 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.

Page updated 15 December 2010
 
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