Q32.

Are military-owned businesses subject to transparent independent scrutiny at a recognised international standard?

32a. Independent scrutiny

Score

SCORE: 0/100

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32b. Transparency

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SCORE: 0/100

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In theory, military-owned businesses could be subject to an auditing process by the Court of Auditors. Since the military has disallowed any civilian oversight, as has been noted by Yazbeck (1, p. 7, see as well 2), doubts are justified that the Court of Auditors actually audits military businesses. Moreover, the auditing organ lacks independence and reliability.

The Court of Auditors (La Cour des Comptes, sometimes also refer to as the Supreme Audit Institution, SAI) shall generally audit public industrial and commercial establishments and public undertakings and bodies carrying on industrial, commercial or financial activities, whose funds, resources or capital are entirely of a public nature (see Art. 8 of law 95-20/1995, 3). This would formally include businesses undertaken by the ministry of defence.

As has been outlined under question 17B, the Court of Auditors’ formal independence is only limited. Law No. 80-05/1980 puts it under the authority of the President of the Republic (4). Current President Bouteflika is also Minister of Defence which is why SAI cannot considered to be independent of the ministry of defence. The Court of Auditors’ formal discretion to undertake audits is further undermined by the fact that its head is not appointed by the legislature or judiciary. According to the Open Budget Survey, the Court of Auditors only provides weak budget oversight (5).

Details of audits are not available to the public (see the answer to question 17C). Annual reports from the Court of Auditors for the years 2015-2018 could not be found online (1). Only the annual reports of 1995 and 1996-1997 are made available on the website. The content of both reports does not suggest that they contain information from the Ministry of Defence (2), (3). According to Art. 192 of the Algerian Constitution (2016), the annual reports are sent to the President of the Republic, the President of the Council of the Nation, the President of the APN and the Prime Minister (4). In 2017, there was a report, that there were leaks of SAI’s annual report to the press (5).

The Defence Ministry runs two known public companies: Aerovia, tasked with maintaining roads and airports, and the military procurement company, Simportex. Both appear to lack effective independent scrutiny in Angola, though the Angolan Audit Court has the mandate to review contracts of state-owned companies. According to reports in Angolan and international media, Simportex has long been controlled by senior officials of the presidency and been used for corrupt dealings by Angolan senior officials, including with foreign companies (1), (2), (3), (4).

Recently, both employees of Aerovia and former business partners of Simportex have publicly addressed complaints about corruption and mismanagement to President Lourenço (4).

There is no audit evidence available to the public.

There is no evidence of military institutions being involved in business or taking part in commercial enterprises. However, they have been rumours that military staff members are involved in businesses, even though the law prohibits it. There is no independent scrutiny of funds derived from such illicit activities (1).

There is no evidence of military institutions being involved in business or taking part in commercial enterprises. However, they have been rumours that military staff members are involved in businesses, even though the law prohibits it. There is no independent scrutiny of funds derived from such illicit activities (1).

There is no evidence that military institutions in Cameroon own businesses. However, some military officers are involved in microbusiness activities such as farming or writing [1] [2].

There is no evidence that the military owns any form of business. Therefore this indicator has been marked Not Applicable.

According to an IMF review (July 2018) of Cameroon’s fiscal transparency, “the extent of government holdings in the commercial sector is significant … these holdings are detailed in an annex to the budget law; however, this annex is not made public” [1]. Therefore, it is difficult to ascertain the involvement of military and security institutions in commercial activities as this is not declared publicly.

There is no evidence of MoD-owned commercial businesses.

There is no evidence of MoD-owned commercial businesses. Therefore this indicator has been marked Not Applicable.

Although the CAA has a right to scrutinize all public enterprises, the military institutions and their enterprises have never been and they were expected from such scrutiny measures (1), (2), (3), (4). The news regarding independent scrutiny of military-owned businessmen has been very conflicting. On the one hand, former CAA chief Hisham Geneina complained about the lack of access to Armed Forces businesses. Geneina in April 2013 before the military power takeover said: “the economic projects, companies, social clubs and hospital of the ‘sovereign entities’ are not subject to the scrutiny of the CAA” (5). It is difficult to believe that after Geniena was sacked and the military consolidated its political power that CAA oversight has improved. On the other hand, President Sisi and senior military officials have insisted that military-owned business are subject to CAA audits (6). However, there is no evidence of that given that these audits and the company’s accounts are not made public. Even if some audits have taken place, one can only wonder about their effectiveness given that they are secret and given the institutional power dynamics that have brought the CAA under the control of the executive, and has, in turn, brought the executive under the control of the military (7), (8).

According to our sources, there are no auditing reports that contain information about the military-owned businesses. Despite there are some reports about the general budget, there is a strong believe among sources that there are no details about the defence sector (1), (2), (3), (4). The fact that the debate is still at a point where discussion about mere independent oversight is not a given, and there is a strong reason to believe that military businessmen are not subject to independent audits (see 32A). this is evidence that audit information not made public. Egypt still has no freedom of information act (5) or any other laws that explicitly require the Armed Forces to disclose audit information on its military business. Also, for the CAA, there is no obligation to make any of its reports public. The only disclosure requirement is for the CAA report on the budget’s closing account to be given to the members of parliament. However, even then, members are not allowed to disclose this report (6).

The principal businesses of the military are the Defence Industry Holding Company (DIHOC), a defunct shoe factory in Kumasi, 37 military hospitals, and a micro-financing company, and a bank (1), (2), (3). There is a board in place to oversee the DIHOC’s operations, and the Auditor General is also an external oversight, but there is no evidence of thorough financial scrutiny for any DIHOC-related businesses.

The principal businesses of the military are the Defence Industry Holding Company (DIHOC), a defunct shoe factory in Kumasi, 37 military hospitals, and a micro-financing company, and a bank (1), (2), (3). There is a board in place to oversee the DIHOC’s operations, and the Auditor General is also an external oversight, but there is no evidence of thorough financial scrutiny for any DIHOC-related businesses. There are auditing records for DIHOC related businesses that are available in the Auditor General’s audit reports, but they are not detailed.

Military-owned businesses are not subject to any scrutiny or auditing processes. There is no evidence at all of any of the military businesses, mentioned on the armed forces website [1], being scrutinised or audited. The businesses are also not included in the list of audited entities by the Audit Bureau, and they are not included in the Government’s final annual accounts produced by the Ministry of Finance of either 2016 or 2017 [2,3,4]. There is also no mention of these businesses being addressed or questioned by the Parliament at all in the past three years, neither on its website or news sections [5,6,7]. These businesses are not subject to any independent scrutiny either by the legislature or the Audit Bureau.

None of the military-owned businesses are subject to an external audit, and thus there is no financial information publicly available about them. The businesses in question namely KADDB, JLVM, JORDANAMCO, JMSS, JADARA, JORAMMO, and ARM [1], do not appear on the list of audited entities by the Audit Bureau, and do not appear on the Ministry of Finance’s final annual accounts [2, 3, 4]. As independent enterprises from the Government, these businesses are not under the scrutiny of the governmental institutions [5,6].

There is no reason to think that the defence and security institutions own any businesses, according to activists, journalists and former and current officials (1, 2, 3, 4, 5, 6, 7, 8 and 9). Both the police and the military earn money by leasing their property to businesses, among other things, and these transactions are legally meant to be scrutinised by the SAB (14) and Parliament (13), but both institutions lack independence and are full of supporters of the royal family and the executive branch, or those are who too afraid to challenge them.

These weaknesses mean that these security agencies may actually have businesses that simply no one knows about because the auditors can’t or won’t do their jobs properly, the sources said.

This sub-indicator has been marked Not Applicable because it is unlikely that military-owned businesses exist. With regards to individually-owned businesses, only a summary of the audit report is available to the public, according to officials and journalists (1, 2, 3, 4 and 5). And these summaries are extremely opaque when it comes to military and security (business-related) revenues, separating everything into vague titles like “sales of state assets,” giving the public no information about nature of their activities (6).

There are “private institutions affiliated” with the LAF called “military clubs” (1). For instance, according to the LAF, the Monroe Hotel in Beirut is owned by it (2). Furthermore, the Personnel Directorate (J1) is responsible for overseeing and managing the clubs (3).
There were no financial statements to an independent external audit, based on relevant international auditing standards for the military clubs (4). However, it is important to note scrutiny exists in the LAF (5)

There were no audit details published by the LAF (1).

As with many other defence activities, military-owned businesses are not subject to any meaningful scrutiny. The BVG is the public auditing body responsible for overseeing state finances. The body has 17 agents and publishes annual reports evaluating the government’s various spending programmes and budgets.3,4 But the BVG’s last published report came in 2015 and made no mention of defence spending or incomes.¹² The failure to publish any subsequent reports or to address the defence budget by the body supposed to monitor accountants and administrators highlights the lack of transparency relating to defence activities.
As the World Bank points out, the BVG has not specifically reviewed Ministry of Defence accounts, and only an aggregate administrative account is transmitted to the auditor when the annual budget is examined.3,4
When the IMF, the World Bank and the EU suspended their aid programmes to Mali following reports of the off-budget purchase of a new presidential jet in 2014, it was the BVG that audited the account (see Q16C). But the BVG never received access to the plane’s operating contract, in the face of resistance from either the executive, the military or both.2
Moreover, in 2016, Mali’s authority for regulating public sector contracts and spending (ARMDS) found that it was wholly unable to audit the Ministry of Defence’s finances for 2014 because of the lack of documents provided by the ministry.1

Audit details are not generally made available to the public. As with many other defence activities, military-owned businesses are not subject to any meaningful scrutiny. The BVG is the public auditing body responsible for overseeing state finances. The BVG’s last published report came in 2015 and made no mention of defence spending or incomes.3 The failure to publish any subsequent reports or to address the defence budget by the body supposed to monitor accountants and administrators highlights the lack of transparency relating to defence activities.
As the World Bank points out, the BVG has not specifically reviewed Ministry of Defence accounts, and only an aggregate administrative account is transmitted to the auditor when the annual budget is examined.1,2

There are no military owned businesses in Morocco.

This sub-indicator is scored as Not Applicable because here are no military-owned businesses in Morocco.

Neither the Constitution (1) nor the Military Penal Code (2) bans defence institutions from having beneficial ownership of commercial businesses. However, Section 6, Art. 129 of the Public Penal Code provides strict regulations around which public officials can be involved in private business. Sanctions range from 100 000 FCFA to 1 million FCFA and, at least, two years of imprisonment (2). The assessor did not find evidence of any military involvement in private enterprises.

No evidence was found of any military involvement in private enterprise, the interviewees agreed that this was unlikely. Therefore, this indicator has been marked Not Applicable.

Military owned businesses are subject to some level of scrutiny by the Ministry of Defence and in theory by the NASS. The absence of reliability arises from the fact that the audited information is not readily available to the public. Allocations moving from the government to the entities are reported in the budget (1). However, the income generated by the entities is not disaggregated, so it is unclear if these entities make returns into the single treasury account.

Audit information is generally incomplete. Audit authorities failed to provide reports for many years. The budget implementation consolidated report for 2016 does not provide information about the revenue generated by these agencies (1).

There is no information on military-owned businesses in Oman available to the public. According to our sources, the military does not own businesses, and therefore, it is not subject to scrutiny and oversight (1). Apart from information about Ministry of Defence Pension Funds’ shares, the government does not declare any other military-owned businesses (2), (3). Given the special position of the army as a protectorate of the Sultanate, the Ministry of Defence has a seperate tender board, no clear audit system, or mechanisms to ensure access to information (4), (5). The sultan’s absolute power, as head of state, government and the army, suggests military businesses fall within state control, should they exist (4).

The government does not declare any military-owned businesses; an assessment of scrutiny is irrelevant in this context (1).

Most national investment projects are managed by the Palestine Investment Fund which reports to the president’s office, and it deals with any national commercial projects that generate fund for the Palestinian Authority, thus the security and defence sector do not control any commercial businesses because it is the role of the Palestine Investment Fund to manage national businesses for the Palestinian Authority (1).

This indicator has been marked Not Applicable, because there are no military owned bussinesses in Palestine (1).

Military-owned businesses are not subject to transparent independent scrutiny in Qatar. The military and security sectors do not get scrutinised and/or audited, they are the only sectors in the Qatari Government that have immunity from any kind of oversight. The Emir, as the chief commander of the armed forces, has direct authority that supersedes the authority of the legislature [1]. For Qatar, defence and security is a taboo, and access to internal information is not possible. Therefore, according to our sources, scrutiny over the military or defence-related activities, including the businesses, does not take place [2,3]. There are no controls or laws that regulate the work of the defence sector, including the armed forces. The military and defence sectors are typically run by powerful Qatari families and tribes, who also keep information on military owned businesses confidential.

Audit details are not typically made available to the public, due to the lack of an oversight body that audits the defence institutions [1]. The military and security sectors are excluded from all types of state audits, whether through the State’s Audit Bureau or the Administrative Control and Transparency Authority. The government considers all information related to military, defence and security to be classified. [2]

According to our sources, such industries are not controlled directly by MoD, even though they are mentioned to be under the purview of the ministry. The Office of the Crown Prince is the main point of contact and administration. Therefore, there is a lack of transparency and no public auditing over these businesses (1),(2).
There are several companies owned or linked to the Saudi military, including Military Industries Company (MIC), which is under the purview of the Saudi MoD, as well as Advanced Electronic Company (AEC) and Alsalam Aircraft Company (3). Several of these have joint operations or ventures with global arms and defence companies. In this context, there are some references to the auditing process, for example, a supplier assessment audit conducted by the Northrop Grumman Corporation into AEC in December 2014 (4). However, there are no references in the public domain to financial audits of these businesses conducted by either the Saudi government or international regulatory bodies. The Saudi Arabian Monetary Agency (SAMA) does not publish figures relating to the revenues or income of these companies or their affiliated operators, such as the MIC’s affiliate the Armored Vehicle and Heavy Equipment Factory (5). It is unclear if any financial audit indeed takes place internally. While the SAMA formally published topline figure for government spending on the MIC, it has not done this since its 2014 annual report (6).

Saudi Arabian Military Industries, the recently-formed military industry company, will act as both a manufacturer and service provider and plans to establish several local companies including through joint ventures with global equipment manufacturers (7). This includes plans to establish Raytheon Arabia, a Riyadh-based affiliate of US defence contractor Raytheon Company (8). GAMI’s mandate includes acting as an industry supervisor and regulator, which may entail scrutiny of military-owned businesses. However, there is as of yet no information available on the effectiveness of this mechanism in practice to date.

The General Authority for Military Industries (GAMI), the military authority established in August 2017, is set to act as an industry regulator, issuing tenders and licenses and approving defence contracts, while SAMI, formed in May 2017, is an industrial manufacturer and service provider that contracts directly with foreign companies. According to a regional consultant who has worked with the Saudi defence sector, the two bodies will be involved in procurement processes across various Saudi military and defence bodies such as the Saudi Arabian National Guard, the Royal Guard, the Presidency of State Security and the Ministry of Interior (1). Industry analysis publication Intelligence Online further stated that both SAMI and GAMI will be steered by inter-ministerial committees led by Mohammed bin Salman (8).

As stated above, there are no financial auditing procedures in place for Saudi military-owned and linked companies; there are no reports which are available publicly. If there financial and budgetary audits exist, their details are not made publically available (1), (2).

According to our sources, there are no military-owned businesses in Tunisia (1,2).

This indicator is marked Not Applicable because there are no military owned businesses, hence audit reports do not exist. (1,2)

There are no military owned businesses in the country (1), (2), (3).

This sub-indicator is marked Not Applicable as there are no military owned businesses in the country (1), (2), (3).

Country Sort by Country 32a. Independent scrutiny Sort By Subindicator 32b. Transparency Sort By Subindicator
Algeria 0 / 100 0 / 100
Angola 50 / 100 0 / 100
Burkina Faso 0 / 100 0 / 100
Cameroon 100 / 100 NA
Cote d'Ivoire 100 / 100 NA
Egypt 0 / 100 0 / 100
Ghana 50 / 100 50 / 100
Jordan 0 / 100 0 / 100
Kuwait 100 / 100 NA
Lebanon 50 / 100 0 / 100
Mali 0 / 100 0 / 100
Morocco 100 / 100 NA
Niger 100 / 100 NA
Nigeria 50 / 100 0 / 100
Oman 0 / 100 0 / 100
Palestine 100 / 100 NA
Qatar 0 / 100 0 / 100
Saudi Arabia 0 / 100 0 / 100
Tunisia 100 / 100 NA
United Arab Emirates 100 / 100 NA

With thanks for support from the UK Department for International Development and the Dutch Ministry of Foreign Affairs who have contributed to the Government Defence Integrity Index.

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