Q70.

When negotiating offset contracts, does the government specifically address corruption risk by imposing anti-corruption due diligence on contractors and third parties?

70a. Legal framework

Score

SCORE: 0/100

Assessor Explanation

Assessor Sources

70b. Due diligence

Score

SCORE: 0/100

Assessor Explanation

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Reports published prior to 2016 stated that Algeria did not have a specific offset policy (1 and 2). A review of laws and regulations published in the official gazette showed no evidence that Algeria has passed a policy during the last years (3). Also the Law of Public Procurement of 2016 does not specify any offset policy for the defence and security sector (4).

The last country assessment mentioned a report that noted that the anti-corruption law of 2006 calls for an estimation of expenditures in offsets agreement (7). However, it is unclear to which article in the law the author referred to. No specific information on offset contracts was found in the anti-corruption law (5).

Algeria has signed agreements with foreign companies in the last years, mainly prior to 2016, to develop a military-related manufacturing in Algeria. In 2016, Algeria signed an agreement with the Italian defence and aeronautic form to build a helicopter factors in Algeria (6). But no information on the contract could be found. As such, there is no evidence that the government imposes anti-corruption due diligence or auditing requirements on offset contracts.

In 2016, Angola passed specific legislation on offset contracts, Law 20/16 (Law of Countertrade Offsets/ Regime Jurídico das contrapartidas), and in 2017 a National Countertrade Policy (presidential decree 4/17 of January 26). The law of countertrade offset contracts applies to all public contracts in foreign exchange with a minimum value of USD 10 million, and in national currency with a minimum value of 700 million Kwanzas (1).

The general principles and provisions of the Public Procurement Law apply to anti-corruption and due diligence. The law establishes that contracting entities in the sector of defence, security and internal order need to appoint a beneficiary that has ties to the sector (Art. 20), but there are no specific provisions that aim at preventing corruption risks (1).

While the United State Department of State confirms the existence of offset contracts in Burkina Faso, the practice remains informal. The procurement legislation does not reference offset contracts, and there are no existing policies or procedures that clearly outline the performance, reporting and delivery of obligations in offset contracts (1), (2).

There is no evidence that the government follows up the implementation of offset contracts, nor that it performs audits of benefits or integrity in the contract. With the country’s strong willingness to attract foreign investment to nurture a growing economy, chances are great that offset contracts increase. Neither Law N° 039 (2016) nor Decree N° 0049 ( 2017) directly address offset contracts (1), (2). Indeed, corruption does take place during the implementation of offset contracts because there is not a frequent control of the potential benefits deriving from the investment made, a lack of follow-up and auditing, and the results of the investment are not published as well. According to the 2015 Burkina Faso Government Defence Anti-Corruption Index, the United States Department of State found out that the government of Burkina Faso seems to impose some anti-corruption due diligence requirements on contractors involved in offset contracts (3). However, these due diligence requirements are not enforced; like most regulations (4).

There is no known legislation that addresses offset contracts.

Defence and security procurement is confidential and exempt from tenders and the OTC market. Therefore, it is unknown if offset contracts are used in defence and security procurement [1] [2] [3]. However, if they are, it is reasonable to assume that anti-corruption due diligence requirements are not imposed on such contracts, as there is no evidence to suggest they are imposed on any defence and security procurement.

The score of NA is based on the fact that the use of offset contracts is not a standard legal practice in Côte d’Ivoire.

Known in French as “clauses de résiliation-compensation”, “contrat de compensation” or “contrepartie”, this type of contract is not part of Côte d’Ivoire’s public procurement process. For example, there is no mention in the 2009 Code of Public Procurement of offset contracts in any form (1).

The 2009 Code of Public Procurement does not contain any provisions regarding offset contracts or evoking the use of this type of legal arrangement. It is not part of standard legal practice in Côte d’Ivoire (1).

Articles 66 to 68 of the Implementation Rules Document of the Import and Export Law no. 118 of 1975 permit offset trade (1), (2).

There is no clause or provision in the Tenders Law or its executive regulations that address or impose anti-corruption due diligence on contractors and third parties (1). Articles 66 to 68 of the Implementation Rules Document of Law no. 118 (1975) do not mention or impose any form of due diligence on contractors or third parties (2). According to our sources, corruption is not perceived as a strategic issue in the procurement processes, including off-set contracts, and therefore, there is no clear mention of corruption cases from the government (3), (4).

Ghana does not have an offset contract policy or regulations governing offset contracts. There is no evidence of recent offset contract negotiations, but in the absence of a formal policy or regulations on offset contracts, this indicator is scored as zero.

In the absence of a formal policy or regulations on offset contracts, this indicator is scored as zero.

Although the law allows the Commander in Chief to sign offset contracts, there is no evidence that such agreements take corruption risk to be a serious issue. [1,2].

It has already been established that the only defence institution that publishes its tenders is the Royal Jordanian Airforce, whilst the largest defence institution does not publish tenders [1, 2]. In addition to that, the majority of the armed forces’ procurement is not conducted through an open competition. The Directorate of Defence Procurement for the Jordanian Armed Forces sometimes, posts tenders and calls for proposals for its needs [3], and there are also attempts to make governmental tenders available online through the Government Tenders Directorate [4]. For these reasons, it is impossible to know whether the Government specifically addresses corruption risk by imposing anti-corruption due diligence on contractors and third parties. Although the law allows the Commander in Chief to sign offset contracts, there is no evidence that such agreements take corruption risk to be a serious issue [5,6].

Offsets are permitted and managed by the National Offset Commission (NOC). Regulations guiding offset contracts and activities are outlined in the ‘Offset Booklet’ (1). It is important to note that the Emir has full control over the NOC and other executive branch entities.

When negotiating offset contracts, the Government demands that the contractor identifies all risks related to the program and how they would deal with them but it does not specifically address corruption. It is required that the contractor provides extensive financial data including their monthly cash flows, all their expenses, and their financial projections for at least five years, according to the NOC’s booklet (1). The Government also demand the identities of all directors and managers, complete with their qualifications and their salaries.The NOC has internal auditors whose sole job is to make sure that all operations are efficient, transparent (to the Government mostly) and in line with its financial laws.

No formal policies and procedures that outline the reporting and delivery obligations for offset contracts were found (1), (2).

No evidence of offset policies or contracts was found (1). This maybe because most of the LAF’s weapons come in the form of donations and military assistance (2). The MoD’s budget does not provide enough resources to allow the military to purchase equipment (2).

The assessor found no evidence that Malian law contains any provision for the use of offset agreements.¹ ² The Procurement Code makes no reference to the concept of an offset agreement, making it unclear whether such a deal would be legal or illegal in the country. Indeed, it is highly possible that such a deal would fall foul of article 29 of the Code, which states that:
“Offers and submissions must contain a commitment by the candidate or tenderer to:
– neither grant nor promise to grant to any person involved in the process of awarding a contract an improper advantage, financial or otherwise, directly or via an intermediary, with the intention of securing the contract.
– inform the contracting authority of any payment, advantage or privilege accorded to the benefit of any person, acting as an intermediary or an agent, to recompense them for any service provided.
– to respect, in general, legal provisions, notably those outlawing acts of passive corruption or trading of favours or any constituting offences of this nature”.¹
What is clear is that were the Malian government to negotiate an offset contract, the contract would not be subject to any special or additional scrutiny under the existing law. An offset contract would be subject to the normal levels of anticorruption oversight for public procurement contracts, as carried out by the ARMDS and the CRD (see Q59).
The assessor found no evidence of the Malian government contemplating, signing or expressing a desire for an offset agreement. Google searches reveal that the only reference to an “accord de compensation” in connection with Mali concerns a media article about Moroccan-Malian economic ties. The author speculates hypothetically whether it would be wise for IBK to negotiate such a deal with Moroccan companies in the event of them finding vast reserves of natural resources in Mali.³

The assessor found no evidence that Malian law contains any provision for the use of offset agreements.¹ ² The Procurement Code makes no reference to the concept of an offset agreement, making it unclear whether such a deal would be legal or illegal in the country. Indeed, it is highly possible that such a deal would fall foul of article 29 of the Code, which states that:
“Offers and submissions must contain a commitment by the candidate or tenderer to:
– neither grant nor promise to grant to any person involved in the process of awarding a contract an improper advantage, financial or otherwise, directly or via an intermediary, with the intention of securing the contract.
– inform the contracting authority of any payment, advantage or privilege accorded to the benefit of any person, acting as an intermediary or an agent, to recompense them for any service provided.
– to respect, in general, legal provisions, notably those outlawing acts of passive corruption or trading of favours or any constituting offences of this nature”.¹
What is clear is that were the Malian government to negotiate an offset contract, the contract would not be subject to any special or additional scrutiny under the existing law. An offset contract would be subject to the normal levels of anticorruption oversight for public procurement contracts, as carried out by the ARMDS and the CRD (see Q59).
The assessor found no evidence of the Malian government contemplating, signing or expressing a desire for an offset agreement. Google searches reveal that the only reference to an “accord de compensation” in connection with Mali concerns a media article about Moroccan-Malian economic ties. The author speculates hypothetically whether it would be wise for IBK to negotiate such a deal with Moroccan companies in the event of them finding vast reserves of natural resources in Mali.³

There does not appear to be a formal policy which regulates offset contracts (1)(2)(3).

The 2013 version of the Code of Public Procurement Contracts states that due diligence requirements are imposed on contractors when negotiating offset contracts, including policies on anti-corruption (1).

In particular, article 171.5 concerns specifically national defence, and article 13.B.I concerns special prescriptions.

Nonetheless, both interviewees expressed concerns about the fact that the government may not specifically address corruption risks by imposing due diligence requirements on contractors when negotiating offset contracts (2)(3). No evidence of audits to check performance and integrity was found.

Neither the 2016 Code for Public Procurement (1) nor the 2013 Decree (2) includes any provisions on offset contracts.

Neither the 2016 Code for Public Procurement (1) nor the 2013 Decree (2) includes any provisions on offset contracts.

Given that the PPA 2007 does not apply to special goods and services such as weapons acquisitions, details of offset arrangements are difficult to determine. Off-set contracts are mainly the subject of inter-government contractual negotiations in the interest of national security (1), (2).

Given that the PPA 2007 does not apply to special goods and services such as weapons acquisitions, details of offset arrangements are difficult to determine. Generally it is not known what specific due dilligence requirements the Nigerian government imposes on offset contractors. The recent purchase of Tucano fighter planes was a government-to-government transaction. Recent pronouncements by the Buhari administration have highlighted the need for increasing domestic capacity in relation to some military needs. In discussions with a source at the Ministry of Defence, it was stated that off-set contracts are rarely subjected to corruption risk due diligence as they are considered particularly sensitive. The oversight agencies are provided with very little information in this regard which makes it dififcult to apply scrutiny to such transanctions. These off-set contracts are manly the subject of inter-government contractual negotiations in the interest of national security. The FGN has been slow to take up the use of off-set agreements to defence local capcity for defence technological production..

There is some relevant legislation addressing offset contracts; however, it is solely directed at foreign companies, RD 9/2014, establishes an Omani Authority for Partnership For Development (PFD) to oversee offset obligations for state (including defence) procurement contracts (1). Offset obligations apply to military or defence contracts over five million OMR (5). The website for this authority emphasizes the PFD program (ratified in June 2015), designed to diversify Oman’s economy through an offset of 50% (1), (2), (3), (4).

The government imposes no anti-corruption due diligence or auditing requirements on offset contracts (1). Another resource confirms that corruption is not seen as a risk and a big issue within Oman and especially the armed forces, and therefore, there is no need to mention them in contracts aside from the delivery and quality conditions of the supplies (2). Neither the Omanuna, e-government portal, or the Ministry of Defence websites account for negotiations of offset contracts including anti-corruption and auditing requirements for contractors and third parties (3), (4). No obligation combats corruption; moreover, the offset obligations are solely applied to foreign companies.

There is no regulation on offset contracts (1), (2).

There is little evidence that the government-run offset contracts in general within the security and national forces apparatus (1). Therefore the government imposes no anti-corruption auditing requirements on offset contracts if they exist. As per the Law of General Procurement reporting for any amount spent in any procurement process is a must; however, there is no clarity or evidence that reporting happens as per the law (2).

Qatar has no requirements or formal policies to manage offset contracts, including reporting, monitoring, and delivery obligations. [1,2,3,4] Offset contracts are spread out in Qatar, especially within the armed forces, as many of its purchasing budgets come from the Emir office and not the general budget.

According to our sources, the government does not impose any anti-corruption regulations within the armed forces or the MoD agencies/ units. Therefore, it is safe to say that off-set contracts happen through the Emir office, which means there is no way to audit them. [1,2]

According to our sources within Saudi Arabia, offset contracts are not regulated and managed through the Office of the Crown Prince (1), (2).

When offset contracts are negotiated, there is no mention of corruption or anti-corruption efforts. Corruption risk is not an issue when signing contracts (offset or regular) (1), (2). Conversely, according to a Gulf affairs expert outside the country, anti-corruption due diligence is “now a regular feature of offset contracts and has been for about the past 20 years” (3). A US military official supported this assertion, stating that the “offset contracts are now fairly rigidly regulated” (4). Regardless, there appears to be no requirement to include anti-corruption due diligence in off-set contracts.

In June 2017, regional press sources reported that Crown Prince and Minister of Defence Mohammed bin Salman was making efforts to increase Saudi Arabia’s “direct” offset mechanisms as opposed to indirect offset programs. The former involves the purchasing country supplementing elements of the contract through co-production, technology licenses, and other supply arrangements. This was in the context of the USD 110 billion arms deal signed between the US and Saudi Arabia the previous month, which reportedly included several distinct defence agreements with various contractors that had commercial offset and local partnership elements (5). The Saudi Arabian Military Industries (SAMI), a military industry body created in May 2017 to increase local defence manufacturing, will reportedly be tasked with managing new projects related to offset contracts (6). SAMI has launched several joint ventures and partnerships with foreign defence firms as part of these plans (7). It is unclear what due diligence procedures, if any, are in place with regards to SAMI’s contracts with suppliers

According to our sources, the Tunisian MoD and armed forces have not had a policy of offset contracts or regulations for a long time(1,2).

According to our sources, the Tunisian MoD and armed forces have not had a policy of offset contracts or regulations for a long time(1,2).

There is no evidence that there are any laws that regulate off-set contracts. All off-set contracts (and contract budgets) go through the Emir’s office (1), (2), (3).

Although evidence suggests that some defence contracts explicitly include anti-corruption clauses, there is no evidence to suggest that the government specifically addresses corruption risks by imposing anti-corruption and due diligence conditions on contractors and third parties when negotiating offset contracts. There is evidence of a UAE-US contract agreement that included a clause on corruption. Reported in the New York Times, the contract was signed between the Armed Forces GHQ (General Headquarters in Abu Dhabi) and a US-based private military contractor (Reflex Responses Management LLC). The New York Times stated that, “The two parties hereto understand that no commission, remuneration or fees have been or shall be paid by way of tips, gifts, or personal payments granted directly or indirectly or otherwise by [the firm/contractor] to any officer, individual, civilian or UAE Armed Forces member, or any of the UAE governmental employees working within or outside the UAE representing a bribe or commission to ensure the signature of this contract” (1), (2), (3), (4), (5).

Country Sort by Country 70a. Legal framework Sort By Subindicator 70b. Due diligence Sort By Subindicator
Algeria 0 / 100 0 / 100
Angola 50 / 100 0 / 100
Burkina Faso 0 / 100 0 / 100
Cameroon 0 / 100 0 / 100
Cote d'Ivoire 0 / 100 0 / 100
Egypt 50 / 100 0 / 100
Ghana 0 / 100 0 / 100
Jordan 50 / 100 0 / 100
Kuwait 50 / 100 0 / 100
Lebanon 0 / 100 0 / 100
Mali 0 / 100 0 / 100
Morocco 0 / 100 50 / 100
Niger 0 / 100 0 / 100
Nigeria 0 / 100 0 / 100
Oman 25 / 100 0 / 100
Palestine 0 / 100 0 / 100
Qatar 0 / 100 0 / 100
Saudi Arabia 0 / 100 0 / 100
Tunisia 0 / 100 0 / 100
United Arab Emirates 0 / 100 0 / 100

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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