Category: Industry Integrity

As world military spending hits all-time high, findings from Transparency International highlight urgent need for transparency and accountability 

April 24, 2024 – Rising military expenditure is outpacing countries’ safeguards against corruption and threatening national and global security, new research from Transparency International finds.

Trojan Horse Tactics explores the nexus between the risk of corruption in the defence sector and rapid militarisation fuelled by Russia’s full-scale invasion of Ukraine, conflicts in the Middle East and the Sahel, and heightened tensions in the Asia-Pacific. 

Read the report  

This comprehensive paper by Transparency International Defence & Security (TI-DS) examines the relationship between military expenditure and corruption through the lens of defence governance. 

Analysis using the TI-DS Government Defence Integrity Index (GDI), which assesses nearly 90 countries on the strength of their corruption safeguards, combined with military spending data from the Stockholm International Peace Research Institute (SIPRI) reveals a clear trend. Countries that spend more on defence as a percentage of GDP tend to score lower in the GDI, indicating a higher vulnerability to corruption. 

Additionally, the issue is becoming more serious. Data released by SIPRI this week shows world military expenditure rose for the ninth consecutive year to an all-time high of $2.443 trillion in 2023. This represents an increase of 6.8 per cent in real terms from 2022, which is the steepest year-on-year increase since 2009. 

Corruption in the defence & security sector, including bribery, conflicts of interest, embezzlement, nepotism and sextortion severely undermines national security. These practices divert critical resources and erode public trust, weakening a country’s defence capabilities and stability. 

Despite this, ‘defence exceptionalism’ – the idea that because of national security considerations the sector should be exempt from transparency norms – means that many countries neglect or completely ignore good governance standards such as parliamentary and civil oversight, accountability, and transparency rules. 

Sara Bandali, Director of International Engagement at Transparency International UK, said:  

“In an era marked by increasing militarisation, it’s crucial that we confront the deep-seated vulnerabilities to corruption in the defence & security sector.  

“Our findings clearly indicate that rising military spending is linked with heightened corruption risks, which in turn threaten national and global security. Our previous research has shown how many defence institutions in countries around the world are ill-equipped to manage the higher corruption risks militarisation brings. If militarisation is to achieve the aim of upholding national and human security, these are issues which can no longer be overlooked. 

“The evidence-based Government Defence Integrity Index not only identifies key areas of concern but also sets global benchmarks for accountability and transparency. We urge all countries to move towards these standards in response to growing insecurity.” 

TI-DS calls on all countries to make transparency and accountability around defence spending a core aspect of the response to increased global insecurity by:  

1. Improving transparency and appropriate oversight of defence budgets to ensure that the public has as comprehensive a picture as possible of spending plans. 
2. Introducing controls to reduce risks of funds being lost to corruption as budgets are spent. 
3. Integrating anti-corruption measures into arms exports controls. This is to prevent exporting countries providing arms to countries which cannot demonstrate their will and capacity to manage corruption risks. 

April 11, 2024 – New research from Transparency International warns that the United States is ignoring potentially dangerous corruption risks around opaque defence contract payments (aka ‘offsets’) that threaten to undermine U.S. and international security.

As the U.S. escalates its defence collaboration globally, Blissfully Blind breaks down the complex web of corruption risks associated with offsets – financial sweeteners added to overseas arms sales in addition to the military hardware the country receives.

Read the report

Offsets are increasingly common parts of international arms deals but the huge amounts of money involved combined with a lack of transparency, especially for offsets going to economic sectors outside defence, makes them especially vulnerable to corruption.

Defence companies are incentivised to offer big offset packages to secure lucrative deals. Foreign officials in importing countries may choose to buy from whichever firm they can personally gain the most, regardless of whether they offer best value for the people they represent.

Gary Kalman, Executive Director at Transparency International U.S. (TI-US), said:

“The culture of offsets in international arms sales may seem an odd practice to the public. Imagine the look you’d get from telling a car dealership that you’ll only buy a car from them if they help fund your child’s school.

“The corruption and other risks of these side deals are so great that, in most industries, the practice is banned. Yet, in the defence sector offsets are standard practice.

“At the very least, we need the type of transparency and accountability called for this in this report.”

Key Findings:

• The global value of defence offsets is projected to reach $371 billion for the 2021-2025 period, with U.S. defence firms estimated to provide between $36.5 billion and $52.4 billion for FY 2021 and FY 2022 combined.
• Among arms importing countries, Indonesia, Malaysia, Oman, Saudi Arabia, Taiwan, the United Arab Emirates, and the UK all face high or very high corruption risk due to a lack of transparency, support for risky types of investments, and weak monitoring or enforcement around offset contracts.
• Other arms importing countries, including Australia, India, Israel, the Netherlands, Poland, South Korea, and Ukraine have specific high-risk aspects of their offset policies.
• Corruption in defence offsets can undermine efforts to obtain critical defensive capabilities, waste government funds, complicate U.S. government and defence company relations with key security partners and weaken citizen faith in governments.
• Meanwhile, U.S. defence companies show weak controls to prevent corruption in offsets. Many lack explicit policies and procedures to address the risks.
• The U.S. government’s ‘hands-off’ approach to overseeing offsets effectively leaves defence firms to mark their own homework. Regulation of offset agreements by the Commerce Department is inadequate.

This report comes at a critical moment. There are increasing demands for offsets from purchasing countries and greater collaboration with countries like the United Arab Emirates, Indonesia, Saudi Arabia, and Malaysia – all nations with minimal anti-corruption safeguards in their defence sectors. 

And in the U.S., there are now moves by Congress to further weaken the already lax checks on offset arrangements by significantly raising the dollar value of arms deals that require congressional review before they can go ahead.

Colby Goodman, Senior Researcher at Transparency International – Defence & Security and author of the report, said:

“A surge in demand for defence offsets, inadequate anti-corruption measures by U.S. defence companies, poor safeguards in many U.S. partner nations, and lenient oversight from Washington has created a perfect storm of corruption risks, which has the very real chance of undermining any public benefit of the offsets to the importing country.

“It’s essential that these corruption risks are confronted and mitigated, with responsibility falling on both the U.S. and importing countries to enact meaningful reforms.”

The report makes a series of targeted recommendations to the U.S. government that would enhance the oversight of defence offsets and significantly address corruption risks, while also ensuring U.S. defence firms do not face unnecessary barriers to their business with international partners:

1. Increase transparency by strengthening reporting on defence offsets and political contributions. Prioritize detailed private disclosures through the State and Defence Departments and establish an interagency task force to improve overall private and public transparency.
2. Assess corruption risks by taking a proactive approach to mitigate corruption risks in offsets by reviewing agreements and conducting comprehensive studies on past arrangements. A focus should be on indirect offsets (investments not directly related to the equipment being sold in the contract)  and partner country controls.
3. Penalize wrongdoing by enhancing the investigation and prosecution of offset-related corruption, establishing watchlists for offenders, and enforcing strict penalties for non-compliance with reporting requirements.
4. Encourage stronger foreign offset policies by urging U.S. partner countries to do the following: adopt transparent and effective offset policies, emphasize the disclosure of offset details similar to Australia, demand stricter oversight of high-risk activities, and ensure robust enforcement against violations.

Notes to editors:

Transparency International is a global network with chapters in more than 100 countries to end the injustices caused by corruption.

Blissfully Blind is a joint research report from Transparency International – Defence & Security, one of Transparency International’s global programs that works to reduce corruption in defence and security sectors worldwide, and Transparency International U.S.

The report was produced through a comprehensive approach that included reviewing U.S. defence offset laws and regulations, analysis of U.S. arms sales data and reports, and 30 interviews with industry experts, U.S. government officials, and representatives from partner countries such as India, Malaysia, and South Korea.

Defence offsets are side deals made between a purchasing government and a foreign defence company in connection with a major arms sale. They are an inducement offered by a defence company and/or a requirement by the purchasing government and would not exist without an arms sale. Offsets typically involve defence companies investing in the local defence industry or other economic sectors in the purchasing country. Offsets can be direct, that is tied to the specific equipment or service sold, or indirect, a broad investment unrelated to a specific contract.

March 6, 2024 – Following the acquittal of two men charged with paying bribes to secure and maintain a major multi-billion-pound defence contract with Saudi Arabia, a full independent inquiry is now vital in order to examine the evidence presented in court of the British government’s direct involvement in these corrupt arms deals.  

Despite it being accepted that millions of pounds of bribes were paid to senior Saudi officials in exchange for lucrative deals to supply military communications equipment between 2007 and 2012, the two former executives of GPT Special Project Management were today found not guilty of corruption after being prosecuted for overseeing these payments. 

The two men had argued that British officials, politicians and diplomats knew about and consented to nearly £60 million worth of bribes to the Gulf state since 1978.  

It is reasonable to assume that, in deciding to acquit these men, the jury gave serious weight to the significance of the evidence that was presented in court of the UK government’s involvement in the alleged bribes. 

Josie Stewart, Director of Transparency International Defence & Security, said: 

“This case involves Europe’s largest defence manufacturer, senior members of the Saudi Royal Family, and allegations of high-level involvement by successive UK governments about systemic corruption that went on for decades. The details that emerged in court wouldn’t look out of place in a Hollywood screenplay but sadly the reality surpasses fiction.  

“Ian Foxley, the whistleblower who lifted the original lid, had no idea at the time how far the rot would go. Thanks to the court monitoring work of our partners at Spotlight on Corruption, we now have a good idea: it went far, and it went high. We now need to know how far, and how high.”  

The case raises serious questions over whether any of the Ministry of Defence’s (MoD) procurement staff queried the corrupt payments. If not, then why not? If so, then to what level and who authorised their continuity? And, who within the MoD authorised the decision to continue opaque payments that may have benefitted Saudi government officials after the case was under investigation? 

Transparency International Defence & Security joins Spotlight on Corruption’s urgent call for a transparent, independent judge-led inquiry into the full nature and extent of the UK government’s knowledge of and involvement in these defence contract payments made to Saudi Arabia.  

This inquiry must consider whether ongoing contractual arrangements are still at risk of corruption, what measures the MoD is putting in place to prevent this, and the adequacy of the MoD’s measures to protect and enable whistleblowers to uncover corruption. A temporary halt should also be placed on any arms transfer licenses approved by the same officials during the period in question until evidence of responsible and corruption-free arms control systems can be provided. 

But this inquiry will not be enough, because this case is not an isolated incident. Enormous budgets, close political ties, and high levels of secrecy make the defence and security sectors fertile ground for hidden payments, undue influence, bribery, and corruption.  

It’s imperative that we restore integrity to the arms trade in order to rebuild trust in our institutions, safeguard the public interest, and strengthen global security. 

As this case shows, the UK, and governments in all arms-supplier countries, must take action to integrate heightened anti-corruption standards into arms transfers. The current controls are clearly not up to the task. They need strengthening with:  

• Increased investment in proactive measures to detect corruption risks in arms transfers, including during the arms deal and licensing processes.  
• Development of arms transfer policies that recognise corruption as a significant risk and establish procedures for investigation and mitigation;  
• Comprehensive disclosure of all intermediaries, subcontractors, and service providers involved, and independent monitoring of all defence sector contracts in which official support is sought or given;  
• Verification of recipient countries’ anti-corruption systems and inclusion of this verification as criteria in arms transfer/license decision-making; and 
• Commitment to share information on corrupt recipient(s) to other arms supplier states.
  

Revelation highlights danger of collusion in arms procurement

February 2, 2024 – Responding to reports that officials in Ukraine had uncovered a mass procurement fraud in the country’s Ministry of Defence, Josie Stewart, Head of Transparency International – Defence & Security, said:

“The confirmation of mass procurement fraud by Ukraine’s Defence Ministry is disheartening and comes at a critical time for a nation grappling with the enduring challenges posed by Russia’s continuing invasion. This revelation poses a significant threat to the safety and security of the Ukrainian people, undermining the effectiveness of the armed forces in their defence efforts.

“We commend the ongoing investigations into this case and the efforts to recover stolen assets, which send a strong signal of Ukraine’s commitment to its continuous and transparent fight against corruption. However, this incident highlights the genuine danger of collusion in arms procurement, with destabilising effects not only on Ukraine’s self-defence but also in neighbouring countries in the Balkans.

“The fight against corruption is an ongoing struggle, and the exposure of such malpractices is a necessary step toward fostering transparency and rebuilding public trust. Transparency International Defence & Security underscores the imperative that, in times of conflict, anti-corruption measures must be central to all defence and security decisions. In Ukraine, corruption in procurement can have life-threatening consequences, compromising military operational capabilities and endangering frontline lives.”

Notes to editors:

Ukraine’s Defence Ministry recently confirmed investigators had uncovered a corruption scheme in the purchase of arms by the country’s military totalling the equivalent of about $40 million.

January 18, 2024 – Transparency International Defence & Security welcomes the seizure of $8.9million that was siphoned off by corrupt Nigerian officials from funds meant to be used to equip the country’s military in its fight against Boko Haram.

The Royal Court in Jersey, a British Crown Dependency, last week ruled that the funds were illicitly obtained by Nigerian officials in 2014.

Instead of being used for legitimate purchases of military equipment, the funds were moved out of Nigeria to a bank account in Jersey. The true source of the funds was obscured using foreign bank accounts and shell companies but the money ultimately benefited family members of Nigeria’s former ruling party.

Nigeria received an ‘E’ in Transparency International Defence & Security’s Government Defence Integrity Index, indicating a very high risk of corruption. Our assessment from 2018/19 showed Nigeria still faces considerable corruption risk across its defence institutions, with extremely limited controls in operations and procurement.

Josie Stewart, Head of Transparency International Defence & Security, said:

“We welcome the Royal Court’s decision to seize these misappropriated funds and begin the process of returning them to the people of Nigeria. This money, rather than supporting the security forces fighting Boko Haram, was diverted to enrich the country’s ruling class.

“This case underscores the pervasive risks of corruption in the defence sector, where the secrecy and complexity inherent in international arms deals, coupled with the large amounts of money at stake, create an environment ripe for abuse of office.

“It is incumbent on the Jersey authorities to return these funds openly and accountably to avoid them being stolen again. The successful return of these assets to the people of Nigeria will not only serve justice but also highlight the critical need for greater transparency in the global arms trade.”

Auwal Ibrahim Musa Rafsanjani, Executive Director of CISLAC/Transparency International Nigeria, added:

“While we wholeheartedly welcome the decision, we are hopeful that when repatriated, the funds will be judiciously utilised in improving the living standards of common Nigerians.

“We find it disturbing that money, rather than supporting the security forces fighting Boko Haram, was diverted to enrich the country’s ruling class.

“We on this note call on Nigerian Government to strengthen the procurement process in the defence and security sector through enhanced transparency and accountability, regular review as well as independent auditing.

“We also call on relevant legislative Committees in the National Assembly and Civil Society to galvanise external oversight of the Defence and Security through regular tracking and scrutiny of budgetary allocation, appropriation, implementation and procurement activities.”

Transparency International highlights key areas for anti-corruption efforts

January 15, 2024 – Following the elections in Taiwan, Ara Marcen Naval, Head of Advocacy at Transparency International Defence & Security, said:

“Following Taiwan’s important election, it’s imperative for the new president and legislature to balance their approach towards external threats with a strong stance against corruption. The country has already taken significant steps to mitigate corruption risk in its defence & security sector, as evidenced by its high score in our Government Defence Integrity Index, but challenges remain in defence contract offsets and the roles of brokers and agents in arms deals.

“These murky areas are especially prone to corruption, which can undermine national security and public trust. We urge the incoming administration to enhance efforts to ensure transparency and integrity, particularly in defence procurement. Strengthening these areas will build on existing progress and ensure that Taiwan’s defence sector not only remains effective and resilient, but also fosters a sense of accountability and credibility within the international community.

“By prioritising transparency and integrity in defence procurement, the incoming administration can fortify Taiwan’s position as a responsible global player. This commitment will not only bolster national security but also contribute to building enduring partnerships, fostering regional stability, and upholding the principles of good governance on the global stage.”

Notes to editors:

The Government Defence Integrity Index (GDI) scores and ranks nearly 90 countries on the quality of institutional controls to manage the risk of corruption in defence and security institutions.

Taiwan achieved an overall rank of B, indicating a low risk of defence & security corruption.

However Taiwan was ranked C, indicating a moderate risk of corruption, on the Index’s ‘procurement’ indicator. 

This assesses the level of safeguards against corruption in arms deals and includes the use of defence contract offsets and the roles of brokers and agents.

Transparency International Defence & Security will be publishing new research on the corruption risk posed by offsets later this year.

December 5, 2023 – Four of the world’s 10 biggest arms producers listed in new research from the Stockholm International Peace Research Institute (SIPRI) show a concerning lack of commitment to anti-corruption, Transparency International Defence & Security said today.

SIPRI’s 2022 Arms Industry Database lists the top 100 arms-producing and military services companies.  Four of the top 10 score either an E or F Transparency International’s Defence Companies Index (DCI), which assesses and ranks major global defence companies based on their commitment to anti-corruption and transparency.

In the top four, SIPRI’s data shows General Dynamics (US), NORINCO and AVIC (China), and Rostec (Russia), collectively responsible for $876 billion in global arms trade last year. All scored poorly in the DCI, indicating a minimal or extremely poor commitment to anti-corruption.

The problem extends beyond these firms, with dozens of other companies in the top 100 assessed by the DCI to show poor or non-existent commitment to anti-corruption.

This is alarming given SIPRI’s data on the increasing demand for arms and military services globally. Corruption in the arms trade can have devastating impacts on people’s lives, leading to heightened conflict and violence, undermining governance and the rule of law, diverting resources from essential public services, and eroding trust in institutions.

Josie Stewart, Programme Director at Transparency International Defence & Security, said:

“The latest SIPRI report, when combined with our previous research on arms producers’ commitment to anti-corruption, paints a troubling picture. Far too many of the world’s biggest arms producers are falling short in addressing corruption risks.

“This should urgently motivate governments and the international community to prioritise addressing these issues in the defence and security sectors.

“As demand for arms and military services grows, it’s crucial to ensure that anti-corruption standards remain a forefront consideration, not secondary to trade, foreign, and defence policy objectives. The cost of neglecting integrity and transparency in these sectors is too great to ignore.”

Notes to editors:

Transparency International is a global movement that combats corruption and promotes transparency, accountability, and integrity in government, politics, and business worldwide.

Transparency International – Defence & Security is one of Transparency International’s global programmes and is committed to tackling corruption in the global defence and security sector.

The Defence Companies Index on Anti-Corruption and Corporate Transparency (DCI) assesses the levels of public commitment to anti-corruption and transparency in the corporate policies and procedures of 134 of the world’s largest defence companies. By analysing what companies are publicly committing to in terms of their openness, policies and procedures, the DCI seeks to inspire reform in the defence sector, thereby reducing corruption and its impact.

Michael Ofori-Mensah, Head of Research at Transparency International Defence and Security, describes some of the dangers documented in our latest research paper.

Unaccountable private military and security companies continue to pursue partnerships that in recent years have led indirectly to the assassination of presidents and journalists, land grabs in conflict zones, and even suspected war crimes.

From Haiti to Saudi Arabia to Nigeria, US-based organisations – the firms that dominate the market – have found themselves associated with a string of tragedies, all while their sector has grown ever-more lucrative.

Transparency International Defence and Security’s latest research – ‘Hidden Costs: US private military and security companies and the risks of corruption and conflict – catalogues the harm playing out internationally as countries increasingly seek to outsource national security concerns to soldiers of fortune.

Hidden costs from the trade in national security

While the US and other governments have left the national security industry to grow and operate without proper regulation, the risks of conflict being exploited for monetary gain are growing all the time.

Hidden Costs documents how the former CEO of one major US private military and security company was convicted – following a guilty plea – of bribing Nigerian officials for a US$6bn land grab in the long-plundered Niger Delta.

Our research also highlights that the Saudi operatives responsible for Jamal Khashoggi’s savage murder received combat training from the US security company Tier One Group.

Arguably most damning are the accounts from Haiti, where the country’s president was killed last year by a squad of mercenaries thought to have been trained in the US and Colombia.

Pressing priority

Many governments around the world argue that critical security capability gaps are being filled quickly and with relatively minimal costs through the growing practise of outsourcing.

Spurred on by the US government’s normalisation of the trade, US firms are growing both their services and the number of fragile countries in which they operate.

The private military and security sector has swelled to be worth US$224 billion. That figure is expected to double by 2030.

The value of US services exported is predicted to grow to more than $80 billion in the near future, but the industry and the challenge faced is global.

The risks of corruption and conflict in the pursuit of profits are plain.

These risks are as old as time. But their modern manifestations in warzones must not be left to spill over. The 20-year war in Afghanistan cultivated dynamics that threaten further damage, more than a decade after governments first expressed their concerns.

Required response

International rules and robust regulation are urgently needed. We need measures that ensure mandatory reporting of private military and security company activities. The Montreux Document lacks teeth, operating as it does as guidance that is not legally binding. Code of conduct standards must also become mandatory for accreditation, rather than purely voluntary.

Most private military and security firms are registered in the US. So Transparency International Defence and Security is also calling on Congress to take a leading role in pushing through meaningful reforms under its jurisdiction. There is an opportunity arriving in September, when draft legislation faces review.

Policymakers have long been aware of the corruption risks and the related threats to peace and prosperity posed by this sector. The time for action is well overdue. No more Hidden Costs.

Transparency International Defence & Security will release the full results of its Government Defence Integrity Index on Tuesday, November 16 at 00.01 CET.

The Government Defence Integrity Index (GDI) is the only global assessment of corruption risks in the defence and security sector. It provides a snapshot of the strength of anti-corruption safeguards in 86 countries.

More on the GDI: https://ti-defence.org/gdi/about/

The GDI highlights a worrying lack of safeguards against corruption in defence and security sectors worldwide. It also shows countries contributing to or leading major international interventions lack key anti-corruption measures in their overseas operations.

Full results and scores for countries will be published here at 00.01 CET on Tuesday, November 16: https://ti-defence.org/gdi/map/

To request interviews or press materials under embargo until publication, please email the Transparency International UK press office press@transparency.org.uk

May 6, 2021 – Close links between the defence industry and governments in Europe are jeopardising the integrity and accountability of national security decisions, according to a new report by Transparency International – Defence and Security.

Defence Industry Influence on Policy Agendas: Findings from Germany and Italy explores how defence companies can influence policy through political donations, privileged meetings with officials, funding of policy-focused think tanks and the ‘revolving door’ between the public and private sector.

These ‘pathways’ can be utilised by any business sector, but when combined with the huge financial resources of the arms industry and the veil of secrecy under which much of the sector operates, they can pose a significant challenge to the integrity and accountability of decision-making processes – with potentially far-reaching consequences.

This new study calls on governments to better understand the weaknesses in their systems that can expose them to undue influence from the defence industry, and to address them through stronger regulations, more effective oversight and increased transparency.

Natalie Hogg, Director of Transparency International – Defence and Security, said:

“When individuals, groups or corporations wield disproportionate or unaccountable influence, decisions around strategy and expenditure can be made to benefit private interests rather than the public good. In defence, this can lead to ill-equipped armed forces, the circumvention of arms export controls, and contracts that line the pockets of defence companies at the public’s expense.

“The defence and security sectors are a breeding ground for hidden and informal influence. Huge budgets and close political ties, combined with high levels of secrecy typical of issues deemed to be of national security, means these sectors are particularly vulnerable. Despite the serious risk factors, government oversight systems and regulations tend to be woefully inadequate, allowing undue influence to flourish, with a lot to gain for those with commercial interests.”

Transparency International – Defence and Security calls on states to implement solutions to ensure that their defence institutions are working for the people and not for private gain.

Measures such as establishing mandatory registers of lobbyists, introducing a legislative footprint to facilitate monitoring of policy decisions, strengthening conflict of interest regulations and their enforcement, and ensuring a level of transparency that allows for effective oversight, will be important steps towards curbing the undue influence of industry over financial and policy decisions which impact on the security of the population.

Notes to editors:

Defence Industry Influence on Policy Agendas: Findings from Germany and Italy is based on two previous reports which take an in-depth look at country case studies. The two countries present different concerns:

• In Italy, the government lacks a comprehensive and regularly updated defence strategy, and thus tends to work in an ad hoc fashion rather than systematically. A key weakness is a lack of long-term financial planning for defence programmes and by extension, oversight of the processes of budgeting and procurement.
• In Germany, despite robust systems of defence strategy formation and procurement, significant gaps in capabilities have led to an overreliance on external technical experts, opening the door to private sector influence over key strategic decisions.

The German report can be found here and the Italian report here.

The information, analysis and recommendations presented in the case studies were based on extensive document review and more than 50, mainly anonymous, interviews.

Contact:

Harvey Gavin

harvey.gavin@transparency.org.uk

+44 (0)20 3096 7695

+44 (0)79 6456 0340 (out of hours)

New report warns close relationships and weak regulations leave door open to undue influence

28 April, 2021 – A close relationship between the defence industry and the Italian government jeopardises the integrity and accountability of the political decision-making process, according to new research by Transparency International – Defence and Security.

Released today, Defence Industry Influence in Italy: Analysing Defence Industry Influence on the Italian Policy Agenda details how defence companies can use their access to policymakers to exert considerable influence over defence and security decision-making in Italy.

The report, prepared by Transparency International – Defence and Security with the support of the Italian Coalition for Civil Liberties and Rights (CILD) and Osservatorio Mil€x sulle spese militari, invites the Italian government to understand better the weaknesses of its system such as to expose the decision-making process to undue influence by the defence industry, as well as to address them through more stringent regulations, more effective control and greater transparency.

In particular, Transparency International, Osservatorio Mil€x and CILD call on the Italian government to:

1. Establish a process to publish and review a regular, clear and comprehensive national defence strategy with meaningful participation of different stakeholders including civil society.
2. Introduce a new law to regulate lobbying and implement a mandatory stakeholder public register, with clear definitions and a public agenda of meetings between stakeholders and authorities, to allow full scrutiny.
3. Widen the scope and applicability of ‘revolving door’ regulations to prevent conflicts of interest and reduce opportunities for undue influence
4. Increase transparency in the export licensing process to allow for full and meaningful oversight.

Notes to editors:

• The full press release, in Italian, is available here.
• The report “Defence Industry Influence in Italy: Analysing Defence Industry Influence on the Italian Policy Agenda” was prepared by Transparency International – Defence & Security with the support of Italian Coalition for Civil Liberties and Rights (CILD) and Osservatorio Mil€x sulle spese militari.
• The report examines the structures, processes and legal regulations designed to ensure transparency and control based on 20 expert interviews. The report is part of an overarching study of the influence of the defence industry on politics in several European countries.

Contact:

Harvey Gavin

harvey.gavin@transparency.org.uk

+44 (0)20 3096 7695

By Ara Marcen Naval, Head of Advocacy – Transparency International Defence & Security

Nearly three-quarters of the world’s largest defence companies show little to no commitment to tackling corruption. That’s the headline finding from our newly published Defence Companies Index on Anti-Corruption and Corporate Transparency (DCI). It assesses 134 of the world’s leading arms companies, ranking their policies and approach to fighting corruption from A to F.

The statistic is deeply concerning, if not altogether surprising to those familiar with the defence industry.  Reducing corruption in the defence sector is imperative to guarantee safety and security. Yet, a veil of secrecy, invoked ostensibly in the interests of national security, shrouds the defence sector’s activities making it especially vulnerable. The widespread use of middlemen, whose identities and activities are kept secret, further limits oversight. The impact of corruption in the arms trade is particularly pernicious. The high value of defence contracts means that huge amounts of public money may be wasted, instead of being spent on essential public services. Corruption can encourage the excessive accumulation of arms, increase the circumvention of arms controls and facilitate the diversion of arms consignments to unauthorized recipients, perpetuating conflict and costing lives and undermining democracy.

According to the Stockholm International Peace Research Institute, of the world’s 10 largest importers of major arms between 2015-2019,  eight countries – Saudi Arabia, Egypt, Algeria, Iraq and Qatar, UAE, China and India – are at high, very high or critical of corruption in the defence sector as measured by our Government Defence Integrity Index, the DCI’s sister index. Critical risk of defence sector corruption means major arms are sold to countries where they are likely to further fuel corruption, and where appropriate oversight and accountability of defence institutions is virtually non-existent.

The findings of the DCI add to this worrying picture. Nearly two thirds (61%) of the companies assessed show no clear evidence of policies or processes to assess and manage risk in markets they operate in. In addition, only 10% of the companies actively disclose full details of countries in which they and their subsidiaries operate, leaving a major gap in transparency and oversight of corporate activity.

Click here to view full screen.

The DCI has revealed that many companies score well on the quality of their internal anti-corruption measures, such as public commitments to fighting corruption and processes to prevent employees from engaging in bribery. However, because most companies publish no evidence on how these policies work in practice, it is impossible to know whether they are actually effective. Many firms do not publicly acknowledge they face increased risks when doing business in corruption-prone markets nor do they have apparent measures in place to identify and mitigate these risks. Few take measures to prevent corruption in ‘offsets’ – controversial side deals that involve a company reinvesting some of the proceeds of an arms deal into the customer’s economy but are banned in other sectors because of the corruption risks such deals pose – and most do little to counter the high-risk of bribery associated with using agents and intermediaries to broker deals on their behalf.

It is essential that companies have procedures in place to deal with these often opaque and high-risk aspects of the defence sector – including agents and intermediaries, joint ventures, offset contracting and operating in geographies considered at high risk of corruption.

We urge defence companies to increase corporate transparency through meaningful disclosures of:

• their corporate political engagement – a particularly high-risk issue in the defence sector -including their political contributions, charitable donations, lobbying and public sector appointments for all jurisdictions in which they are active;
• their procedures and the steps taken to prevent corruption in the highest risk areas, such as their supply chain, agents and intermediaries, joint ventures and offsets;
• procedures for the assessment and mitigation of corruption risks associated with operating in high-risk markets, a major risk for defence companies, as well as acknowledgement of the corruption risks associated with such practices;
• beneficial ownership and advocate for governments to adopt data standards on beneficial ownership transparency;
• all fully consolidated subsidiaries and non-fully consolidated holdings, and to state publicly that they will not work with businesses which operate with deliberately opaque structures; and
• the nature of work, their countries of operation and the countries of incorporation of their fully consolidated subsidiaries and non-fully consolidated holdings.

The DCI provides a roadmap for better practice within the defence industry. It promotes appropriate standards of anti-corruption and transparency of policies and procedures suited to the risks faced in the defence sector. Adopting these will not only reduce corporate risk, but also increase accountability and reduce the risk of corruption in the sector more widely.