There are no provisions in the Albanian legislation on procurements regarding offset contracts [1]. The State Supreme Audit Institution (SSAI) has no records on the auditing of offset contracts [2].

There are no provisions in the Albanian legislation on procurements regarding offset contracts [1]. The State Supreme Audit Institution (SSAI) has no records on the auditing of offset contracts [2].

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).

There is still no legislation in Argentina regarding offset agreements. Moreover, as Aldazabal and Breerton point out, that is a “long-standing requirement, coming from local industrial entrepreneurs and producers,” especially in the field of defence where the authors indicate that “in the fields of war material and communications Argentina lost 30 years of development potential.” [1] [2]

There is still no legislation in Argentina regarding offset agreements. Moreover, as Aldazabal and Breerton point out, that is a “long-standing requirement, coming from local industrial entrepreneurs and producers,” especially in the field of defence where the authors indicate that “in the fields of war material and communications Argentina lost 30 years of development potential.” [1] [2]

The concept of offset contracts has no definition in the Armenian legislation. It has also never appeared in the media outlets [1].

No evidence has been found about the Armenian Government explicitly prohibiting offset contracts. As mentioned above, offset contracts have no definition in the Armenian legislation. Nothing has changed in this area since the last publication of GDI for Armenia. [1] However, if offset contracts should be regulated and Armenia must be scored, then the score is 0.

Since 2003, Australia has not allowed mandatory offsets to be enforced [1-3]. Though Defence has an Defence Industry Policy Statement [4] and Defence Export Strategy [5], these do not include any offset policy. In fact, the Defence Export Strategy states, “Australia views offset programs as protectionist measures that hinder the competitiveness of local industry” [5, p31].

This indicator is scored ‘Not Applicable’ given Australia does not allow offsets to be a part of public procurement contracts.

The Azerbaijani government does not officially disclose any offset contracts and financial transactions on them. Ministry of Defence Industry says the ministry cooperates with the military-industrial complex of 45 countries. As a result, enterprises in Azerbaijan are being reconstructed and technologies of world-leading companies are brought to Azerbaijan. Based on these technologies, defence products are produced in the country (1).
At present, Azerbaijan actively cooperates with military companies Paramount (South Africa), Aeronautics (Israel), Rosoboronexport (Russia). Azerbaijan also cooperates with several Turkish military companies. Joint production with the majority of these countries was established (2, 3, 4, 5). At the same time, Azerbaijan imports a large number of weapons and military equipment from Russia, Belarus, Turkey, Israel and other countries. Moreover, there are a large number of military exports from Azerbaijan to several foreign countries. No official audit has been conducted on all of these.

There is no evidence to indicate that the government imposes anti-corruption due diligence or auditing requirements on offset contracts.

There is no legal framework that regulates offset contracts. Most of these contracts are made by the king’s office or his deputy, which makes them above the law [1, 2, 3]. Following a search of the websites of the Parliament, the MoD, the Ministry of Finance, the government and other media sources, and then verified by interviewees, no further information on this subject could be found.

Offset contracts are made through the commander in chief office or the MoD special procurement mechanism, so there is no oversight or due diligence over offset contacts. Indeed, there is no information about offset contracts, and no one knows if this procurement is done through offset-specific contract or via a standard contract [1, 2, 3]. Following a search of the websites of the Parliament, the MoD, the Ministry of Finance, the government and other media sources, and then verified by interviewees, no further information on this subject could be found.

Bangladesh does not have any law that regulates offset contracts for defence purchases. An online search yielded zero results for Bangladesh offsets guidelines [1].

There is not enough information to score this indicator due to the lack of public information on offset contracts. It is also not clear whether the government imposes anti-corruption due diligence or auditing requirements on offset contracts [1].

Offset contracts are illegal under European Union law [1]. They are only authorised when an exemption from EU las such are Article 346 TFEU is validly invoked to protect the essential security interests of Belgium. When deciding whether or not to require measures aiming to protect the essential security interests of the country within the scope of a public procurement, Belgium attempts to strictly comply with EU law, including the Court of Justice case on the use of exemptions and the EU Commission’s guidance to that effect.

A new royal decree defining the procedures to be used when measures aiming at protecting the essential security interests of Belgium, based on the second part of Article 15 and on the new Article 43/1 of the defence and security procurement law of 13 August 2011, is in preparation [2].

Such a new royal decree would help provide legal certainty, but the procedures described in this draft decree are already applied in practice. The decision to invoke an exemption from EU law and to require measures aiming at the protection of its essential security interests within the scope of a new procurement always has to be approved by the Council of Ministers.

There is Not Enough Information to score this indicator [1, 2]. Belgium follows the EU regulations, but there are clear procedural guidelines. In practice, offset contracts barely ever take place. When they do, their nature is generally very sensitive and thus information is not readily available.

There is no legislation regarding offset contracts. The Ministry of Defence (MoD) does not negotiate offset contracts [1, 2, 3, 4].

According to the government reviewer, to date, the MoD BiH has neither concluded nor participated in offset contracts.

There is no legislation regarding offset contracts. The Ministry of Defence (MoD) does not negotiate offset contracts [1, 2, 3, 4]. “The PPL defines procedures which describe “operationally necessary” and “single source” procurement exceptions. Some 90% of procurement is conducted under open procedures while there were no classified procurement tenders in 2013. The MoD does not now use agents or intermediaries for procurement and offsets are not used in BiH.” (NATO: Building Integrity: Process and impact, Bosnia and Herzegovina, p. 23, paragraph 43) [3, 4].

There is no evidence with regards to offset accounts in the security services sector [1,2]. There is no legislation which either permits or prohibits this mechanism. There is evidence to suggest that the Government of Botswana is reviewing this legislation to include offset provisions in the future [3].

There is no evidence with regards to offset accounts in the security services sector [1]. Even the PPADB Act and the PPADB Manual are silent on this aspect [2].

There is a 2018 policy that regulates offset contracts for defence acquisitions [1]. It establishes additional guidelines for Public Procurement Law 8.666/1993 and gives more details about offset contracts which were already mentioned in Law 12.598/202 [2], which aims is to induce a stronger industrial defence base in Brazil.

Brazil’s Offset Policy does not mention integrity or anti-corruption, but since the procurement process is the same as the one described in the Public Procurement Law, in this legal piece we can find integrity standards [1, 2]. First, the company should be registered in a national register and has to present many documents that show fiscal integrity, the financial health of the company and no previous legal problems with public contracts. There is nothing specifically on defence products [3].

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.

Offset contracts are permitted and regulated by legislation to support the domestic defence sector, address security concerns and capture economic benefits from defence and security procurements. Goverment Contracts Regulations (GCRs) apply to the Industrial and Technological Benefits (ITB) Policy. [1] The same integrity and legal regimes apply to their involvement in government contracts. There is reporting on ITBs (and their predecessor “Industrial Regional Benefits – IRBs”) in Canada as there is clear interest in promoting (domestic) regional parity/representation in the awarding of contracts. [2] [3] [4] [5] [6] The Competiton Act also assists in providing the necessary legal framework upon which anti-corruption due diligence can be enforced. [7]

The GCRs apply to Industrial and Technological Benefits (ITB)/IRB/offset contracts, and the same integrity and legal regimes apply to their involvement in government contracts. There is extensive reporting on IRBs in Canada as there is a clear interest in ensuring (domestic) regional parity/representation in the awarding of contracts. [1] [2] [3] [4] [5] While the same due diligence is done on the core contractors regarding integrity, there is no specific framework for contractors and third parties.

There is no evidence of offset contract regulation, and it is permitted and utilised [1, 2]. The mechanism of industrial compensation (offset) projects has been used in arms system acquisition processes in Chile since 1996 (Proyecto “CAZA 2000”). The Handbook of National Defence (2002) defined it as an opportunity for the technological, industrial, and commercial development of the country’s defence system [3].

There have been several attempts at regulating offset contracts, such as the National Committee of Complementary Industrial Programs (a pro-industry committee), which carried its functions as part of the government’s Production Development Corporation (CORFO) [4] from 2000 to 2011. The committee was assigned with the exclusive prerogative of evaluating and negotiating compensation proposals derived from the renewal of defence material. The technical reports produced by the committee described the experience of negotiating offset mechanisms but did not identify any anti-corruption mechanisms or potential corruption risks [5]. Likewise, it must be noted that the committee was composed entirely of political representatives from the government and authorities of the navy and the air force [6].

There is no evidence of anti-corruption due diligence imposed on offset contracts.

There are no laws or policies regulating offset contracts for general and defence procurement. [1]

There are no specific regulations or laws on offset contracts.

Offset agreements or industrial and social cooperation agreements represent economic, commercial, and social benefits for the Colombian state, either directly or indirectly. The execution of these types of contracts is under the direction of the Vice Ministry of the Social Business Group of the Defence (GSED), the Directorate of Science and Technology and Innovation (DICTI), and the Group of Industrial and Social Cooperation of the Ministry (OFFSET). [1, 2] According to the Contracting Manual, as stipulated in Resolution 6302 of 2014, [3] the Ministry’s Industrial and Social Cooperation Group is in charge of concluding these contracts and negotiating them according to CONPES 3522 of 2008 and the Directive 14 of 5 July of 2007. [4] The contracts must be implemented when purchases of national defence goods or services are made whose amount exceeds the sum of US $ 1 million, or for perishable goods of a military nature greater than US $ 5 million. However, the Ministry of Defence may request the subscription for lower amounts or refrain from purchasing for purchases greater than the aforementioned value, provided that is a reasoned decision. [3, 5, 6]

Resolution 6302 of 2014, item 1.5.2.2 authorizes the Ministry of Defence to sign offset contracts. The procedure for direct contracting includes a “Verification, Control, Vigilance and approval” stage controlled by GATI, an institutional transparency group, but only “when necessary.” [1] A special document on Offsets, CONPES 3522 states that proposed offsets have to be evaluated by a Committee, where the Comptroller General participates. [2] These provisions do not seem to incorporate an actual duty to carry out an anti-corruption due dilligence on contractors, but merely allow the Ministry to “request technical concepts” and “evaluate the projects” through a Committee with participation of the Comptroller General. There is no specific due dilligence criteria set out with regard to anti-corruption specifically.

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).

Research found that offset contracts are permitted. They are regulated by clear policies compiled in collaboration between the Ministry of Industry, Business and Financial Affairs (Erhvervsministeriet) and the Ministry of Defence [1, 2, 3, 4, 5]. Offset contracts are determined after a concrete and invididual assessment and evaluation and are in accordance with EU law, especially article 346 in the Treaty of the Functioning of the European Union [6, 7]. However, the assessor stresses that it is unclear why the prohibition of offset contracts awards a higher score than regulated offset contracts. The score of 1 is misleading in the Danish case, because there are very clear policies and guidelines regulating when and how an offset contract should be made.

Industrial cooperation contracts are made between the supplier and the Danish Business Authority. A review of the contract templates and the guidelines for industrial cooperation show no indications that suppliers are subject to due diligence requirements [1, 2, 3].
However, due diligence is integrated in the procurement process. An ICC is made when DALO wants to make a contract for a given procurement. The order is awarded either by public tender or as a directly awarded the supplier. In this process the supplier is assessed on the basis of various parameters. As such due diligence is a part of the procurement process.
The supplier is obliged to enter into an ICC with the Danish Business Authority, before signing a contract with DALO. The ICC is therefore made due to the contract with DALO and not on the request of the Danish Business Authority – hence due diligence is made in the procurement process and not in the process of making the ICC. In addition, it should be noted, that due diligence is de facto made when negotiating the contract, and before signing the contract, wherein the risk of corruption is sought prevented.

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).

There is not enough information to score this indicator.

The European Union has implemented a new directive that treats offsets as illegal. Offsets are also not favoured by official pronouncements of the European Union and the World Trade Organization. [3] It is not clear if Estonia has incorporated this directive into its national laws.

There have been two offset contracts signed in Estonia since its independence. [1] The last contract of the type was signed in 2010 and the negotiations lasted for three years previously. [2]

There is not enough information to score this indicator.

In 2011, the European Commission implemented a directive stating that since offset practices violate basic rules and principles of primary EU law, the Directive cannot allow, tolerate or regulate them. [1] The governmental agency as a contracting authority can only implement offset contracts as exceptions, for example if the offset arrangement would protect the essential interests of national security. Therefore, as they are deemed unlawful, the government is distancing itself from offset contracts and there are no long-term strategies or procedures developed to regulate offset contracts. Offset contracts are not seen important, and nor is regulating them or even including the possibility of an offset contract in long-term defence strategies. [2]
There was an Offset Instruction Document developed by the Ministry of Defence [3] in 2013, but it is not publicly available. Based on an interview with an expert in the field, there is no intention from anywhere to update it. [4]

According to a written response provided by the Headquarters of the Defence Forces, in case industrial cooperation is incorporated in a procument of the Defence Forces, the Ministry of Defence is in charge of negotiating the contract and the content of the contract. Rules and instructions concerning industrial cooperation are on the responsibility of the Ministry of Economic Affairs and Employment of Finland. [1] Industrial cooperation is expected to contribute to national security of supply and, therefore, is an integral part of defence procurement [2]. Industrial participation is managed by the Ministry of Economic Affairs and Employment, and the Finnish Committee on Industrial Participation, with the Ministry of Defence as the contracting party.[3]

Anti-corruption efforts are demanded of the prime contractor whose responsibility it is to ensure the sub-contractors in the industrial participation projects follow national laws and international statutes. Industrial participation is managed by the Ministry of Economic Affairs and Employment, and the Finnish Committee on Industrial Participation, with the Ministry of Defence as the contracting party.[1]

France does not appear to have an official offset policy or law, which makes it difficult to evaluate how often or in what manner it engages in offset contracts. While it is bound by EU Competition Law under the EU Directive on Defence Procurement 2009/81/EC, [1] an exemption under Article 346 allows for offsets under a restrictive interpretation: “any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material”. [2] There is evidence to suggest that the government does not request offset agreements but that it may be subject to applicable regulations imposed by a purchasing company in the export process. [3]

As noted in 70A, France does not appear to have an official offset policy or law, which makes it difficult to evaluate how often or in what manner it engages in offset contracts. However, it should be noted that any exports are subject to compliance with relevant national laws such as the “Sapin 2” anti-corruption law. The Sapin 2 Law does not establish clear due diligence requirements for sub-contractors or offset agreements. Article 17 mentions the requirement of conducting a corruption risk mapping exercise to better identify potential corruption risks and put in place appropriate procedures to miitgate such risks [1]. In the case of non-compliance with their prevention obligations, companies may be fined up to one million Euros. The head of the company him/herself may be held personally liable for the lack of compliance of its company to measures of prevention and detection of corruption. In case of breach, they may be fined up to 200,000 Euros.

A review of Ministry of Defence, Ministry of the Armed Forces, Cour des Comptes and Inspector General documents could not find any reference to due diligence being carried out in practice in relation to offset contracts.

In the case of offset contract negotiations, anti-corruption and anti-conflict of interest due diligence are not always imposed, as suggested by the case of the Rafale deal with India [2] and the scandal of the offset contract with the Reliance Defence group, a company closely linked to Prime Minister Modi and having funded a movie produced by the French President’s partner Julie Gayet is interesting: “Indian and French officials say that [Dassault] has freely chosen to partner with Reliance Group, led by magnate Anil Ambani. This company had no previous experience in aeronautics. “We did not have a say in that. (…) We took the interlocutor that was given to us,” said the former President of the French Republic (2012-2017) François Hollande to Mediapart. “It is the Indian government that has proposed this group of services, and Dassault who negotiated with Ambani.” Mr. Hollande uses this argument to defend himself against any possible conflict of interest with Reliance Group, which partially funded, in 2016, a film by his companion, Julie Gayet.” This case seems to show that in the case of offset contract negotiations, anti-corruption and anti-conflict of interest due diligence are not always imposed.

In accordance with EU legislation, German legislation does not allow offsets [1]. Offsets are incompatible with EU primary law since they are not compatible with the principle of free movement of goods or services. Offsets are inadmissible because of the principle of non-discrimination, including for defence-related material. Recital 45 of Directive 2009/81/EC states that ‘no performance conditions may pertain to requirements other than those relating to the performance of the contract itself’ [2]. In German law, Section 9, Paragraph 2 of the VSVgV prohibits the contracting authority from asking the contractor to discriminate against potential subcontractors because of their nationality [3].

This indicator is marked ‘Not Applicable’ as offsets are prohibited under German and EU law [1,2,3].

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.

The Government has prohibited offset contracts by law since 2011 [1]. The reason for this is that offset contracts were often a source of corruption for Greek and foreign companies because there was little accountability and transparency [2]. In current legislation, Law 4376/16 (superseding Law 4284/2014) provides a settlement framework for expired contracts with liquidated damages imposed (henceforth terminated contracts) to be substituted by new contracts of credit obligation equal to the remaining credit obligation [3]. However it should be noted that the offset contracts can exist in agreements between governments which are beyond the scope of Law 3978/2011.

Greek Governments are no longer able to negotiate offset contracts as doing so is now prohibited by Law 3978/2011. However there are some exceptions regarding agreements between governments. Overall, a major course of corruption has been removed by legislation aiming at promoting more transparency.

Since the new EU level regulations have come into force, there have been no ongoing or projected offset programmes in the country [1].

Since the new EU level regulations have come into force, there have been no ongoing or projected offset programmes in the country [1]. As such, this indicator is scored Not Applicable.

Offset contracts are permitted and regulated by legislation. The government conducts due diligence on contractors and third parties during offset contract negotiations as per the DPP. The general terms and clauses of the main procurement contract also apply to the offset contract [1]. As mentioned in Q.57, provisions of the CIPP must be followed by the procuring authorities, bidders, suppliers, contractors and consultants. Prohibited practices in the CIPP comprehensively cover corrupt practice, fraudulent practice, anti-competitive practice, coercive practice, obstructive practice and conflict of interest [2].

The contract process is monitored and the contractor is audited as is the agreement. The Defence Offsets Management Wing (DOMW) of the MoD monitors the discharge of offset obligations, including auditing and review of progress reports received from contractors [3]. As discussed in Q. 62, bidders and the MoD need to sign an Integrity Pact committing to not offering or accepting bribes, ensuring integrity in public procurement for all capital procurement/schemes of Rs 20 crores and above. The range has been dropped to this amount to bring smaller defence deals under the Integrity Pack remit to reduce corruptive practices. Submission of Integrity Pact Bank Guarantee (IPBG) is needed. The Seller must confirm and declare to the Buyer that it is the original manufacturer of the stores contracted and that no third party has been engaged who can influence or manipulate award of the contract, or indulge in corrupt and unethical practices [4][5][6].

As of 2015, any changes to offsets need to be approved by the Secretary for Defence Production. This procedural change is to facilitate speedier executions of contracts [7].

The above procedures have been implemented over the course of the last few years, thus more time is needed to truly measure their effectiveness.

The government conducts due diligence on contractors and third parties during offset contract negotiations as per the DPP. The general terms and clauses of the main procurement contract also apply to the offset contract [1]. As mentioned in Q.57, provisions of the CIPP must be followed by the procuring authorities, bidders, suppliers, contractors and consultants. Prohibited practices in the CIPP comprehensively cover corrupt practice, fraudulent practice, anti-competitive practice, coercive practice, obstructive practice and conflict of interest [2].

The contract process is monitored and the contractor is audited as is the agreement. The Defence Offsets Management Wing (DOMW) of the MoD monitors the discharge of offset obligations, including auditing and review of progress reports received from contractors [3]. As discussed in Q. 62, bidders and the MoD need to sign an Integrity Pact committing to not offering or accepting bribes, ensuring integrity in public procurement for all capital procurement/schemes of Rs 20 crores and above. The range has been dropped to this amount to bring smaller defence deals under the Integrity Pact remit to reduce corruptive practices. Submission of Integrity Pact Bank Guarantee (IPBG) is needed. The Seller must confirm and declare to the Buyer that it is the original manufacturer of the stores contracted and that no third party has been engaged who can influence or manipulate award of the contract, or indulge in corrupt and unethical practices [4][5][6].

As of 2015, any changes to offsets need to be approved by the Secretary for Defence Production. This procedural change is to facilitate speedier executions of contracts [7].

The above procedures have been implemented over the course of the last few years, thus more time is needed to truly measure their effectiveness.

Offset is required in arms procurement from abroad, as stipulated in Law No. 16/2012 on Defence Industry [1]. It is further regulated through Government Regulation No. 76/2014 [2] and Minister of Defence Regulation No. 30/2015 [3]. Offset contracts are prepared separately from the main procurement contract, but are attached to the main contract. Offset contracts are signed by the supplier company and the Directorate General of Defence Potential (POTHAN) at the Ministry of Defence. The Pothan is responsible for offset implementation, from providing information to the supplier during the procurement bid to negotiating and contracting, as well as monitoring in accordance with Government Regulation No. 76/2014 [1].

There are no due diligence obligations for contractors/suppliers and third parties involved in offset contract negotiations. The Ministry of Defence focuses more on mitigating the risk of overall offset failure, because this can be interpreted as a violation of law by the DPR [1]. This risk mitigation is discussed internally within the offset team, namely the internal independent team established by the Directorate General of Defence Potential, as detailed in Article 22 of Law No. 16/2012 [2]. This team, consisting of officially authorised academics from various relevant backgrounds, is tasked with verifying the offset value during negotiations between prospective providers and offset receivers. The authority of the offset team is renewed on annual basis.

There is no known law or policy that regulates offset contracts, having said that there is no evidence in the public domain to indicate that Iran has entered into offset contracts in the defence sector. At the moment given that Iran is under an arms embargo until 2020, there is only speculation about potential arms details that may come to fruition after that date [1, 2].

There is not enough evidence to score this indicator. This is because there is no evidence in the public domain to indicate that Iran has entered into offset contracts in the defence sector. Iran was under a conventional arms embargo until October 2020, and there has only been speculation about potential arms deals that may be forthcoming [1, 2].

Offset defence contracts, and associated requirements and safeguards, are not discussed in the context of Iraq’s security sector. As pointed out in Transparency International’s 2015 assessment, Iraq, in spite of its “firm intention to resume formal WTO accession” (1) which first began in 2007 (2) is yet to become a member state, and thus, is not party to its conventions on trade, and more specifically, the use of offset contracts.

In absence of a legal framework that governs methods of payments across other major industries and sectors, beyond defence, it is highly improbable, as one source (3) told Transparency, “for offset defence deals to be monitored and audited” in light of corruption practices such as “inflated commissions and kickbacks”. A recent World Bank report (4) suggest that offset agreements can provide the GoI with the upper hand in leveraging foreign investment, by requiring firms to boost development across other sectors, beyond oil and defence. This implies that offset contracts are not legally prohibited. However, experience reveals missed opportunities with contracts often being awarded to questionable suppliers over firms capable of encouraging domestic growth.

While article 4 of Iraq’s 2017 Arms Act (N 52) prohibits the sale of arms in absence of the consent of the issuing authority, the law is void of information concerning defence offset agreements and anti-corruption due diligence [1].

Mandatory Industrial Cooperation’ is a requirement for international tenders valued at $5million or greater. Foreign suppliers that win government tenders are required to engage in an offset procurement in Israel to the value of 35 percent (or 20 perecent for signatories of the WTO Government Procurement Agreement). Offsets are handled by the Industrial Cooperation Authority (1).

The government imposes anti-corruption due diligence on contractors and third parties during offset contract negotiations (1) (2) (3).

Offset contracts are generally not allowed in Italy, in accordance with the EU legislation on defence procurement. In practice, offset contracts in defence are possible in Italy through Government-to-Government agreements and are managed by the Segretariat General for Defence/ National Armament Directorate (SGD/DNA)[1] , whose attribution have been modified by Ministerial Decree of 16 January 2013 [2]. According to the Decree, its third department, that is responsible for defence industrial policy and international relations, is also accountable for controlling offsets. The Italian legislation concerning offset contract derives from the EU directive 2009/81/EC [3]. The Directive has been transposed in the Italian legislation with Legislative Decree n. 208/2011 [4]. Furthermore, Italy also adopted the 2009 Code of Conduct on Offsets of the European Defence Agency (EDA) [5]. Therefore, offset contracts might be included in governamental agreements, which are taken by political considerations.

It is not possible to assess the presence of due diligence and anti-corruption clauses in cases of offsets agreements, since offset contracts are generally not accessible to the public. Moreover, the 2016 evaluation report on the Directive 2009/81 [1], although assessing a slight decrease in the use of offsets agreements, does not provide information on anti-corruption clauses. It is, nonetheless, possible to assess that offset contracts are subjected to controls of the Court of Auditors as well as that of the Parliament during the annual state report of the Court of Auditors to the Parliament [2].

Japan became a party to the WTO’s Agreement on Government Procurement on January 1, 1996. [1] The use of offsets is explicitly prohibited in the agreement (although developing countries may be permitted to use them restrictively). [2] Nevertheless, according to a section in Lexology on Japanese defence procurement, “there are no trade offsets at the moment, although the Ministry of Defence is considering their introduction”. [3] Japan has, on a few occasions in recent years, contributed domestic production to defence products which it has procured from foreign countries. Two Japanese manufacturers provided components for F-35A fighters procured from a US-led consortium and one Japanese enterprise assembled the aircraft, work that was regulated by the Acquisition, Technology & Logistics Agency (ATLA). [4] Seeker gyro produced by a Japanese business under licence from a US business was used in PAC-2 missiles, which Japan bought from the US. Display software produced by a Japanese enterprise was exported to the US and used in the American Aegis naval weapons system, which Japan bought. The sales of the seeker gyro and the display software were subject to Japanese export regulations. [5] A Japanese company is producing components for the SM-3 Block 2A missile, which a US company is producing, and which Japan will import, a project administered by the Ministry of Defence of Japan. [6] The US Defence Security Cooperation Agency states that “there are no known offset agreements proposed in connection with [the] potential sale” of the SM-3 Block 2A to Japan. [7] The examples mentioned are, in addition to the Japanese authorities, also regulated by the US authorities. There is, on the one hand, a lack of clear prohibition of offsets by law, but, on the other hand, the government does regulate the domestic production mentioned in the examples.

There is a lack of transparency about defence procurement contracts with foreign governments and/or companies that include Japanese domestic production (see Q71B). A search of the webpages of the MOD did not provide any information on whether the government imposes stringent anti-corruption due diligence on contractors and third parties during negotiations about such contracts. [1] However, the four Japanese companies that have been examined in the section on “offset contracts” already meet such requirements. They are Fujitsu, IHI, Mitsubishi Electric and Mitsubishi Heavy Industry. Within the timeframe of this research, they have all won open competition tenders organised by ATLA [2] while contributing components or services for a defence product that the Government of Japan procures from abroad. To be eligible to bid on open competition tenders organised by ATLA, a company must meet requirements that cover the most basic anti-corruption due diligence requirements. An applicant must enclose documentation of the management history, tax payment certificates, a certificate of registered matters and financial statements of the company with an application for eligibility as a bidder. [3] The applicant must not have disturbed fair trade or supervision and inspection of the company. [4] Applicants must also exclude violent gangs [5] and ensure that company rules satisfy compliance requirements. [6] Subcontractors must meet all compliance requirements as well (see Q62A). [7] It should be noted that the Government of Japan does not use the term offset contract about any of its contracts in the sources cited.

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].

Kenya follows the World Trade Organisation (WTO) agreement on treaties, which prohibits offsets in the procurement process, including selection of supplier, evaluation of tenders and awarding of contracts. However, as outlined by the WTO, the government may, whenever necessary, negotiate offsets but only for a qualification to participate in the process and not for awarding contracts. [1]

Currently, there is no evidence of anti-corruption due diligence on offset deals because Kenya’s military does not utilise offset contracting. In the event that the government would opt to utilise offsets, it would be required to devise objective and non-discriminatory conditions for the use of offsets. [1] Given the lack of evidence on this issue, this indicator is marked ‘Not Enough Information’.

Offset contracts are not regulated in Kosovo’s current legal framework. It is important to emphasise that there is no evidence that offset contracts occur in practice [1].

Offset contracts are not regulated in Kosovo’s current legal framework. It is important to emphasise that there is no evidence that offset contracts occur in practice [1].

Offsets are permitted and managed by the Kuwait Direct Investment Promotion Authority (KDIPA). Any defence contract of the value greater or equal to KD3 million is required to be conducted as an offset contract, in which the obligation value of the offset is 35% of the monetary value of the contract [1].

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 ‘Guidelines for Kuwait Offset Program’ [1]. Although these guidelines were produced under the now defunct National Offset Company, which was replaced by the KDIPA, the guidelines are still referred to on the new website suggesting they are still effective. The Government also demand the identities of all directors and managers, complete with their qualifications and their salaries.

Offset contracts are prohibited by the law based on EU legislation. [1] [2]

This indicator is marked Not Applicable as there is no evidence that offset contracts are concluded in the defence sector of Latvia. Offset contracts are prohibited by the law based on EU legislation. [1] [2]

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).

National offsets are banned in Lithuania. Back in 2012, the European Commission informed Lithuania that national offset agreements violated European Union Law [1]. As the European Commission has stated, such contracts “go against the basic principles of the Treaty, because they discriminate against economic operators, goods and services from other Member States and impede the free movement of goods and services. Since they violate basic rules and principles of primary EU law, the Directive cannot allow, tolerate or regulate them”. The Assessor found no evidence that offset agreements had taken or would take place.

National offsets are banned in Lithuania, as such this indicator is scored Not Applicable. Back in 2012, the European Commission informed Lithuania that national offset agreements violated European Union Law [1]. As the European Commission has stated, such contracts “go against the basic principles of the Treaty, because they discriminate against economic operators, goods and services from other Member States and impede the free movement of goods and services. Since they violate basic rules and principles of primary EU law, the Directive cannot allow, tolerate or regulate them”. The Assessor found no evidence that offset agreements had taken or would take place.

There is a legal framework for offset contracts, governed by the Industrial Collaboration Program (ICP) Policy and Guidelines which was established by the Ministry of Finance [1]. According to a senior MINDEF official, offset contracts usually involve the nations’ strategic matters and interests. “In the case of sub contracts – where other local sub contractors are involved in the execution of the offset programs – the information is shared with them on a need to know basis. The process is guided by Ministry of Finance’s Internal Audit implementation directives. [2] Completion reports for every offset program/project are compiled and presented to the Ministry of Finance – but NOT published” for public consumption. Furthermore, offset contract are not subject to the normal process of awarding contracts since they do not fall under the yearly budget. Hence, direct negotiation is possible. [3] This then potentially exposes them to corrupt practices as has been evidenced in the procurement of helicopters in 2015. The Air Force still has not received a single helicopter at the time of writing.

There is no evidence that the government imposes a strict anti-corruption due diligence study on offset contracts. Offset contracts are usually done through direct negotiations. [1] As long as the companies are not blacklisted by the Ministry of Finance, the contract negotiation can be done. This lack of due diligence opens the door to corrupt practices, which can be manifested in the failure of the contract implementation. The current offset contract does not include an anti-bribery clause, nor is there evidence that corruption addressed in a contract clause. There is no clear reference to due diligence or anti-corruption measures in the main policy document, the ICP. [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 is no prohibition of offset contracts under Mexico law. In Mexico however, no commercial compensation offset agreements are made [1] and legally there are no restrictions or policies that delineate their implementation. [2] [3] [4]

In Mexico, no commercial compensation offset agreements are made (domestically) [1] and legally there are no restrictions or policies that delineate their implementation. [2] [3] [4]

The government claims that there are no offset contracts and no specific legislation for such contracts. [1][2] Annual reports of the Ministry [3][4][5][6] as well as reports on oversight adopted by the Parliamentary Committee [7][8][9][10] do not provide any information about offset contracts.

The government claims that there are no offset contracts and no specific legislation for such contracts. [1][2]
The procedure for offset contracts is not defined by any written rule, but in practice Ministers propose that the Government signs such a contract, and, following the government’s approval, the contract is signed. [3] The government imposes no anti-corruption due diligence or special audit for offset contracts. [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.

The government is entirely excluded from the military’s defence contracts. Article 20(b) of the 2008 Constitution grants the military the power to administer its affairs independently [1]. Myanmar’s military mostly makes its defence purchases in secret and rarely makes them public [2]. As a consequence, Myanmar’s defence market lacks transparency and the assessors were not able to access enough information about offset contracts. Given this, there does not appear to be any legislation on the issue of offset contracts in defence procurement.

There is no legal window for the civilian government to intervene in the military’s defence contracts, especially offset contracts, because the military has the constitutional right to administer its affairs independently [1]. The military’s defence contracts are so confidential that we are not able to access adequate information. As such, this indicator cannot be scored and is marked ‘Not Enough Information’.

Offset contracts (referred to in Dutch law and policy as ‘industrial participation’) are permitted by law under Article 346 of the Treaty on the Functioning of the European Union [1,2]. This Article permits exemptions from the Defence and Security Procurement Act, as it allows Member States to implement measures necessary ‘for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material’ [3]. When the Ministry of Defence plans to start a tendering process for materiel over 5 million euros, assessments are conducted on a case-by-case basis by the Ministry of Economic Affairs and Climate Policy on whether and to what extent industrial participation mechanisms should be implemented [1]. If a foreign supplier is awarded a contract, they may be required to place offset orders with Dutch manufacturers [2]. It is worth noting that the European Commission has declared that the Netherlands wrongfully invokes Article 346 in order to justify its offset policy [1].

The Defence Industry Strategy, cited as the key policy document regarding industrial participation, makes no reference to the need to prevent or monitor corruption and integrity risks during the industrial participation process [1,2]. Though the overarching legal framework relevant for procurement does contain provisions on corruption, no specific provisions are present on due diligence of potential offset contractors and third parties [3,4].

New Zealand Government policy does not permit the seeking of offsets. Under Government Procurement Rules (Rule 3), an agency must not as for, take account of, or impose any offset at any stage of the procurement process [1.] According to the Deputy Secretary (Capability Delivery) and Assistant Secretary (Capability Delivery), tenderers can voluntarily propose to manufacture in New Zealand outside of core tender processes provided that they do not change the conditions of the original tender proposal, such as by increasing risk or cost. Such proposals are at the contractor’s discretion and are not to be disclosed until after tender assessments have been carried out, Cabinet has made its decision, and the appropriation for an acquisition is set. This ensures that there is no undue influence on decision-making and is in accordance with Article XVI the World Trade Organisation’s Agreement on Government Procurement [2, 3].

Offset contracts are explicitly prohibited via legislation. As such, this indicator is marked “Not Applicable” [1].

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..

Offset contracting was legally introduced in 2014. The Law on Production and Trade of Arms and Military Equipment specified the offset arrangements and circumstances under which this can happen [1]. Article 4 defines offset as compensation, so another form of payment for goods and services takes place when equipping the Army and the Police of the North Macedonia.

There is not enough information to provide a score for this indicator, as no offset contracts for defence procurement have so far been concluded [1]. It is worth noting that, in the Law on Inspection Supervision, anticorruption measures are not explicitly mentioned. However, anticorruption control mechanisms for such contracts do exist [2]. Article 31-i stipulates compulsory preparation of offset programs by the Ministry of Defence for the implementation and realisation of offset liabilities in cooperation with the Ministries of Economy and Finance. Explicitly, the program ought to contain priority- and goal- setting, the type of arrangement (direct or indirect), the value, the list of needs, the offset period, the coefficients and the relevant transactions. In the end, the Article stipulates that the Government of the North Macedonia gives the final consent for the program [2].
In addition, Article 8-a gives the Ministry of Defence the responsibility to oversee inspection for offset contracts, based on the Law on Inspection Supervision [2]. The Ministry regulates the enforcement of laws and regulations adopted (Article 2).
Lastly, Article 31-a of the Law on Production and Trade of Arms and Military Equipment requires the establishment of a Special Committee to review requests for import-export, transit, broker services and offsets for the armed forces and also to give initiatives for regulating related issues. The Commission is composed of a Chairperson, Deputy Chairman, five members and five deputy members, including representatives of the Ministry of Economy, the Ministry of Defence, the Ministry of the Interior and the Ministry of Foreign Affairs and the Customs Administration of the North Macedonia.

Offset contracts (industrial cooperation agreements) are permitted by Norwegian law and are regarded as a governmental tool “to secure enhanced access to foreign defence markets” [1]. Offset contracts are regulated by the Regulations on Industrial Co-operation Related to Defence Acquisitions from Abroad, which are pursuant to the Norwegian Acquisition Regulations for the Defence Sector (ARF) and are attached to the ARF [2, 3].

The Regulations on Industrial Co-operation Related to Defence Acquisitions from Abroad stress that the defence sector and its suppliers are to operate in line with agreed business standards and ensure high ethical standards. The document refers to good governance provisions in the Acquisition Regulations for the Defence Sector [1, 2]. The Ethical Statement for Suppliers to the Royal Norwegian Ministry of Defence with Underlying Agencies is a mandatory attachment to all defence sector contracts worth 1.1 million NOK excluding VAT (approximately 100 000 US dollars) or more [3]. The Ethical Statement imposes anti-corruption due diligence on suppliers to the Norwegian Ministry of Defence. Suppliers are obliged to exercise good business practice and respect the Ethical Guidelines for Contact with Business and Industry in the Defence Sector [4]. They must also provide information on manpower, who in the past two years has been employed (beginning from the offer due date) in the MOD or underlying agencies; if the business is bankrupt or the subject of proceedings for a declaration of bankruptcy; if the business (or its employees) has been convicted of any offence concerning its professional conduct or offence against criminal acts; if the business (or its employees) has been guilty of grave professional misconduct (for example breach of obligations regarding security of information). Breach of provisions included in the Ethical Statement may lead to rejection from delivering offers to the Ministry of Defence and underlying agencies. It should be noted that neither the Regulations on Industrial Co-operation Related to Defence Acquisitions from Abroad nor the Acquisition Regulations for the Defence Sector specify if the Ethical Statement also applies to third parties. However, according to the regulations, the parties are not permitted to conclude any agreements with third parties that restrict the MoD’s rights under this provision [1].

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).

Offset agreements are permitted under the Philippine government’s countertrade policy which is managed by the Philippine International Trading Corporation (PITC) under the Department of Trade and Industry; there are set policies and mechanisms through which such agreements take place [1, 2, 3, 4].

No specific due diligence or auditing requirements specific to the PITC were disclosed on its website or in documents made publicly available [1, 2, 3, 4].

Offset contracts are permitted and regulated by the “Offset Law” of 2014. [1] Only direct offset is allowed, no third parties take part in negotiations. Negotiations are conducted with a winner of a tender only, consequently offset obligations not influence the course of a tender and award of a contract. However, in cases where the offset law applies, the sign of the delivery contract with a tender’s winner is conditioned by reaching successful agreement on offset obligations. It creates the risk of undermining tender results by intentional failure of offset’s negotiations by the state officials. Such suspicions were raised when in 2016 new government could not agree on offset contract with winner of helicopter tender conducted by a previous one. [2]

The “Offset Law” contains no provisions on imposing anti-corruption due diligence on contractors. Only direct offset is allowed, no third parties take part in negotiations. However, the law contains stronger regulations preventing the conflict of interests among governmental personnel negotiating and supervising the implementation of the offset contract. These representatives are required to sign declarations of impartiality. The declarations are by law verified by the Central Anti-corruption Bureau. Verification includes due diligence of contractor to uncover any links between a contractor and governmental personnel.
In February 2017 the Ministry of National Defence published the decision defining the conducting of inspections and the competence of authorized persons regarding the correctness of performing offset obligations and exercising supervision over the performance of offset agreements [1]. The decision complements the provisions of the “Offset Law” from 2014. The offset performance is also assessed by the Supreme Audit Office [2].

Offsets were regulated under the law [1] but were prohibited on 7 October 2011, four years later [2]. There is evidence that currently contracted offsets are being wound down [3], are being audited [4] and scrutinised in the media [5, 6], which allege malpractice [4, 6].

Offset contracts are explicitly prohibited via legislation [1]. As such, this indicator is marked ‘Not Applicable’.

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]

In 2016, Federal Law No. 365 introduced an amendment to Federal Law No. 44 that outlines rules for special investment contracts (SIC, Article 111.3) and contracts that suggest ‘mutual investment obligations’ (Article 111.4) [1]. Experts say that the newly-introduced contracts qualify more as off-pay contracts than offset contracts [2,3] meaning that the client (central or regional agency) simply commits to buy in the future the products that are not yet produced (off-pay). Therefore, the amendments do not provide legal basis or obligations for classic defence offset contracts.

Russian law does not impose any due diligence requirements on parties of off-pay contracts regulated by Federal Law No. 365 of 2016 [1]. As for offset contracts, there is no legislation and therefore no anti-corruption due diligence or auditing requirements.

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

Offset arrangements are not mentioned in Serbian legislation, either explicitly or implicitly [1, 2]. In the self-assessment carried out in the framework of the NATO Building Integrity programme in 2012, the MoD stated that Serbian legislation did not permit offset arrangements [3].

There is a recent example of an offset arrangement in practice, although the word ʻoffsetʼ has not been used by either the MoD or in media coverage. Namely, in December 2016 the MoD and the Ministry of Interior signed a contract with the Airbus Group which stipulates procurement of a total of nine H145M helicopters for the Serbian Armed Forces and the police. At the same time, the contract includes provisions on transfer of technology for helicopter overhaul and maintenance, certification of the Serbian Armed Forces’ aeronautical institute (overhaul and maintenance centre) for maintenance of Gazela type helicopters and the Airbus Group’s commitment to promote this institute as an overhaul and maintenance centre and include it in its supply chain [1, 2, 3]. The contract has not been published and the government has refused to disclose the value of the deal, citing the contractor’s interests as justification [2]. Considering that the MoD officially does not use offset arrangements, it is unclear which regulation was applied during the contract negotiations and if any ad hoc due diligence was imposed.

The Singaporean government does not formally recognise defence offset contracts. Article 9 of the Government Procurement Regulations 2014 states that a “contracting authority shall not seek, take account of, impose or enforce any offset” [1].

This indicator has been marked Not Applicable, as offset contracts are prohibited.

According to a 2013 article written by Peter Platzgummer, the usage of arms trade offsets to bribe public officials has been one – if not the – major allegation in defence procurement in recent years [1]. This is especially the case when a company, personally associated with public officials, is a beneficiary in the second phase of the offset process, including in South Africa.

According to the Arms Procurement Commission (which has been set up to investigate the 1999 arms procurement scandal), offsets related to the Arms Deal only generated 26,000 direct jobs in ten years, instead of the 65,000 opportunities promised when the acquisitions were first mooted in 1999, according to the National Industrial Participation Programme’s (NIPP) Performance Review 2009. According to interviewee 2, this means that arms deal contractors only created 40 per cent of the jobs they committed to [2]. There seemed to be no due diligence or performance requirements linked to this. While the deal has been recently audited in the Strategic Defence Packages Performance Review Report there seemed to be no consequences as of yet for this discrepancy [3].

The most recent, large-scale example of due diligence measures enacted during offset negotiations on offsets is the Strategic Defence Procurement Packages, or “Arms Deal”. However, this process left many holes in the process [1].

In South Korea, offset contracts are permitted and regulated by the Defence Acquisition Programme Act. According to Article 20 of the Act, offset contracts are allowed under certain conditions, such as securing technology necessary for a defence force improvement project or logistic support capability for weapon systems. [1]

There are no specific rules for offset contractors and third parties. General rules for defence contractors and third parties apply, including pledge of integrity and consequences of its breaking. [1]

The procurement act, and the public financial management act do not spell out any policy on offset contracts [1, 2]. The SPLA White Paper on Defence, in its discussion of procurement strategy, does not mention the term either [3]. There are no examples of offset contracts in the public domain, for example, no media coverage.

The procurement act, and the public financial management act do not spell out any policy on offset contracts [1, 2]. The SPLA White Paper on Defence, in its discussion of procurement strategy, does not mention the term either [3]. There are no examples of offset contracts in the public domain, for example, no media coverage.

Offset contracts are expressly prohibited in the legislation of the European Union, as the European Commission views them as restrictive measures that violate the basic principles of the Treaty of the European Union. Directive 2009/81/EC “does not explicitly refer to offsets as they are implicitly prohibited. In this regard, however, the Commission considered it necessary to issue a guide on the matter, the Interpretive Guide on Offsets in relation to Directive 2009/81/EC on the award of contracts in the fields of defence and security, which it is legally binding, but it is an essential reference in any action that arises in relation to offsets” [1]. Offset contracts can only be accepted as an exception included in Article 346 of TFUE (Article 296 TEC), which states that:
“1. The provisions of the Treaties shall not preclude the application of the following rules: (a) no Member State shall be obliged to supply information the disclosure of which it considers contrary to the essential interests of its security; (b) any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes.
2. The Council may, acting unanimously on a proposal from the Commission, make changes to the list, which it drew up on 15 April 1958, of the products to which the provisions of paragraph 1(b) apply” [2]. To use Article 346 it must be exceptional, interpreted in a restrictive way, argued and evaluated case by case, “which is incompatible with national regulations that request offset in certain type of contracts” [3].

However, the European Commission “admits this practice when it comes to exports outside the EU, although it does look for ways to reduce possible negative effects on European industry” [4]. Also, apart from Article 346 of TFUE, offset contracts in Spain “can also be justified on the basis of other legal businesses excluded in accordance with article 7 of Law 24/2011” [1]. In fact, for the Spanish Ministry of Defence, “the term offset encompasses industrial cooperation, technology transfer, industrial participation and similar terms” [1]. According to Arturo Alfonso Meiriño, then Director of Industry and Defence Market of the European Defence Agency, “international cooperation programs fall outside the scope of this directive [on offsets] and given that these programs are associated with large recruitment figures, we will have to wait to be able to analyse what portion of the pie of the defence market is impacted by the New Directive” [5].

In Spain, the offset framework is regulated by decree-law RD1551/2004 and a specific standard approved by the Secretary of Defence, Instruction 375/2000, “both rules set the kind of compensatory actions in order to accomplish the society and security industry objectives” [6]. Art. 4.2. of RD1551/2004 states that the responsibility of applying this directive lies on the Armament and Material Management Head [7], and instruction 375/2000, “the Secretary of Defence considers cooperation agreement negotiation with foreign supplier of defence in order to grant an appropriate return of investments” [6]. Instruction 375/2000 was abrogated and replaced by Instruction 14/2015, of 13 February, which was in turn abrogated and replaced by Instruction 27/2018, of 18 May [8]. All in all, the type of contracts referred to in the previous paragraph are regulated by Law 24/2011, of 1 August (of contracts in the public sector in the field of Defence and Security), and by Law 9/2017, of 8 November, of contracts in the public sector [8].

As stated by expert Enrique Navarro Vice-Chair of Global Offset and Countertrade Association (GOCA), recently renamed as the Global Industrial Cooperation Association (GICA): “Being [Spain] within the European Union and subject to the directive on offset and on public purchases, it is not requiring European companies this type of agreement. Yes it does to outside companies. But, at the same time, in all programs there are industrial structures. We just have to look at the programs that are being launched. They all have national content, a local partner, and that is a consequence of the fact that the strategy has not been changed, even though its name has been changed. In program 8×8, in the one on frigates, in the one on unmanned aircraft that have recently been bought …, in all there is an industrial strategy so that, we would say, the foreign company collaborates with the national company. Therefore it is a question more nominal than substantive” [9].

The only evidence of a mandatory imposition of anticorruption measures on contracts is Instruction 23/2020 of the Secretary of Defence, on the Ethical Code and Code of Conduct of Personnel Related to Purchasing, which affects both military and civilian staff in the purchasing areas of the Ministry of Defence. It is “applicable to suppliers, contractors and collaborating companies of the Ministry of Defence, who directly or indirectly have a relationship with the actions, procedures, processes and phases of the purchasing function” [1]. This instruction makes clear and wide-ranging references to bribery, gifts, conflict of interest, and other corruption-related practices, but no express mention is made of offset contracts or similar contracts [1].

A review of Sudan’s Public Procurement Act of 2010 [1] and an interview with an expert on Sudan’s defence sector [2] did not yield any evidence that a policy or law exists to regulate offset contracts in Sudan’s defence sector. However, the International Budget Partnership’s 2019 report on Sudan verified that it is within the remit of the Auditor General to review extra-budgetary expenditures [3].

A review of Sudan’s Public Procurement Act of 2010 [1] and an interview with an expert on Sudan’s defence sector [2] did not yield any evidence that the Government of Sudan imposes any anti-corruption due diligence or auditing requirements on offset contracts. The International Budget Partnership’s 2019 report on Sudan verified that, in 2019, the Auditor General did not audit any extra-budgetary funds spent by the government [3].

Although offering offset contracts is a common practice in Swedish arms trade [1], no law or policy currently regulates this area [2] [3]. Swedish NGOs and peace researchers have expressed strong concerns regarding this issue [4] [5]. Sweden does, however, subscribe to the voluntary intergovernmental Code of Conduct on Defence Procurement [6] drafted by the European Defence Agency (EDA) which since 2008 includes an amendment on offsets, but it could not be determined how well implemented these codes of conducts are, or to what extent they are followed in practice.

As no offset-related policy or law exists [1] [2], the government cannot impose any anti-corruption due diligence, and the parliament’s right to audit offset contracts are restricted due to the Law on Commercial Confidentiality [3]. Sweden does, however, subscribe to the voluntary intergovernmental Code of Conduct on Defence Procurement [4] drafted by the EDA which since 2008 includes an amendment on offsets, but it could not be determined how well implemented these codes of conducts are, or to what extent they are followed in practice.

Under the plurilateral Agreement on Government Procurement (GPA), offset contracts are only legal for armament procurements [1]. Offset contracts are part and discussed in the Federal Council’s armament strategy [2]. There is public scrutiny, and the current minister of defence ordered an investigation on problematic offset deals for the procurement of new fighter jets [3] and managed to convince Parliament to not insist on 100% of offset deals [4].

The operational controlling is led by Armasuisse in cooperation with the Offset Office in Bern. The office was set up by the industry interests and financed by a fraction of percentages of the offset deals beneficiaries agree to pay on their contracts [1]. There is no specific anti-corruption due diligence imposed on contractors and third parties in offset contract negotiations. However, Armasuisse monitors the fulfilment of the obligations and that the agreed supplies and services were executed [2, 3].

Offset programmes derived from industrial cooperation of defence procurements are permitted by laws and guided by the “Ministry of National Defence’s Guidelines on Industrial Cooperation” [1, 2]. Risks of corruption are not considered in these guidelines [1]. In addition, lack of transparency is a major issue that has been criticised by the CY [3, 4, 5].

Offset programmes derived from industrial cooperation of defence procurements are guided by the “Ministry of National Defense’s Guidelines on Industrial Cooperation” which do not impose anti-corruption due diligence or auditing requirements on offset contracts [1].

The evidence available suggests there is no law or policy that regulates offset contracts. The Public Procurement Act 2011 and its regulations also make no mention of offset contracts. [1] [2] An online search found no other legislation that mentioned offsets.

There is not enough information to score this indicator. It cannot be definitively determined that there are no offset contracts in place, and therefore the issues of due diligence in awarding them cannot be addressed. There is no explicit provision for them in the Public Procurement Act 2011, or its regulations. [1] [2] They are not mentioned in the Annual Performance Evaluation Reports produced by the Public Procurement Regulatory Authority, [3] the Controller Auditor General, [4] or reports of the Standing Committee for Foreign Affairs, Defence and Security of parliament. [5]

The Public Procurement and Supplies Administration Act B.E. 2560 (2017) does not contain any provisions focussing on offset contracts [1]. Kanchitpon Soonthonchaiya suggested that even though Thailand is legally ready to join the agreement on government procurement according to the WTO framework, a developing country like Thailand may need to negotiate conditions for the use of offsets, such as requirements for the incorporation of domestic content. However, these requirements shall only be used for qualification to participate in the procurement process and not as criteria for awarding contracts [2]. This is because for the countries outlined in the WTO framework, which includes Thailand, international procurement opportunities often come with conditions (offsets) even though these might introduce significant legal obligations and compliance risks, which sometimes engenders political controversy [3].

As mentioned above, there are no laws focussing on offset contracts, including the Public Procurement and Supplies Administration Act B.E. 2560 (2017) [1]. Therefore, there are no formal anti-corruption due diligence or auditing requirements on offset contracts. However, according to Pannida Ruayduang, Thailand’s defence sector can increase its competitiveness by studying and implementing laws or policies regulating offset contracts [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).

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).

Interviewee 4 suggested that there is no specific law regulating offset contracts but there are some regulations issued by the SSB [1]. He emphasised that offset contracts are carried out under the observance of the SSB’s Offset Regulation issued in 2007 [1,2]. SSB also has Offset Guidelines, which were issued in 2011 and include some sections on integrity and ethics [3].

To reiterate, corruption is only combated through the general provisions of the Turkish Criminal Code, meaning that there is no specific legislation to combat corruption in the defence industry. Interviewee 6 suggested that the absence of a law about multi-million-dollar offset contracts is a big disadvantage for the Turkish defence/security sector. He underlined that the lack of strong legislation regulating offset contracts is one of the primary factors corrupting the defence/security sector in Turkey [4].

Interviewee 4 suggested that there is not a state body or department within the Ministry of Defence formally imposing due diligence services on decision-makers, nor are there independent consultancy firms in Turkey providing due diligence or background check services. He said that there are only some law attorneys/offices that informally provide this service in the field of defence/security. He added that the government does not impose any anti-corruption due diligence or auditing requirements on offset contracts [1].

The slide presentation entitled ‘TURKISH INDUSTRIAL PARTICIPATION-OFFSET POLICY’ by A. Güzin Oduncuoğlu from the SSM Offset and Local Content Department provides good insights on this issue [2].

There is no legal framework or policy covering offset contracts in Uganda.

There is not enough information to score this indicator. No evidence of offset contracts was identified for the period of research covering this index. Therefore, it is not possible to assess the application of anti-corruption due diligence.

Offset contracts are permitted and regulated by legislation. The need to regulate offset contracts is provided by the Law “On State Defence Order” [1] and the CMU Resolution “On Approval of the Procedure for Compensation (Offset) Agreements and Types of Compensation that may be provided by Compensation (Offset) Agreements” [2].

The legislation does not provide any anti-corruption related offset requirements that should be set onto a foreign supplier [1].

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).

Offsets are prohibited under the World Trade Organisation’s (WTO) Agreement on Government Procurement (GPA) 21 binding nearly 40 countries, including the UK [1]. Prior to the UK officially leaving the EU on 31 January 2020, offsets were prohibited via EU legislation [2]. As a result of the 2009 EU Directive that ruled offsets unlawful, the UK scrapped its Industrial Partnership policy and replaced it with the Defence and Security Industrial Engagement Policy (DSIEP) in order to replace offsets but encourage voluntary investment [3].

This indicator is marked Not Applicable, given the fact that offsets are explicitly prohibited [1].

With regard to offsets in defence trade, the 1992 Amendments to the 1950 Defence Production Act states that offsets are ‘economically inefficient and trade distorting’ and that ‘no agency of the United States government shall encourage, enter directly into or commit US firms to any offset arrangement in connection with the sale of defense goods of services to foreign governments’ [1]. This is further supplemented by the 2000 Appropriations Act, which declares that ‘mandated offset requirements can cause economic distortions in international defence trade and undermine economic fairness and competitiveness’ [2]. These two pieces of legislation prohibit federal agencies, including the Department of Defense, from engaging in offsets. However, the legislation only refers to offsets with regard to foreign companies, not US companies.

With regard to US firms, the Buy American Act (BAA) has been likened to an offset stipulation; it requires that at least 50% of the components (in terms of cost) must be produced in the US and that the end product is manufactured in the US [3,4]. The Berry Amendment Act requires the DoD to only use appropriated funds to buy food, clothing, tents, fabric products, etc. that have been grown, reprocessed, reused or produced in the US [5,6]. Given that the BAA is mandated across all DoD procurement, there is no specific offset contracting. With regard to arms sales from the US (either through foreign military sales, direct commercial sales or the 600 series), the DoD and State Department take a ‘hands-off’ approach to reviewing US defence company offsets in relation to arms deals [7]. In other words, the federal agencies allow the private sector to settle on offset agreements without government support or hindrance [8]. In the Direct Commerical Sales (DCS) programme, arms sales are negotiated directly between defence companies and foreign governments and are overseen and regulated by the State Department Directorate of Defense Trade Controls. In the DCS programme, the US defence company registers with the State Department and applies for a licence of US governmental approval in order to export or broker arms sales. It is not clear whether this approval process includes the submission of details about any offset agreements, further suggesting that the US government takes a hands-off approach [7]. The Bureau of Industry and Security (BIS) of the US Department of Commerce produces an annual report to Congress on the impact of offsets in defence trade by collecting data from US firms involved in defence exports. In 2018, for example, US defence contractors entered 39 new offset agreements valued at $5.147 billion, equivalent to 35.2% of the total contracts agreed [9]. Other offset-related regulations can be found on the BIS website [10].

However, this only refers to the export and sale of arms and does not reflect the DoD’s approach to procuring arms. There is no evidence that the DoD negotiates offset agreements when procuring defence materiel for the military. Given the Defence Production Act and the 2000 Amendment, it can be concluded that the US prohibits offsets in the procurement of defence materiel by law and does not engage in negotiations of offset agreements for procurement purposes.

This indicator is scored ‘Not Applicable’ because the United States prohibits any federal agency from entering into any offset agreement [1]. However, there is strong evidence that US defence companies who engage in offset agreements do not undertake appropriate due diligence with regard to anti-corruption [2,3].

From the beginning of Hugo Chávez’s government to the current Maduro administration, Venezuela has signed various military cooperation agreements, primarily with China, Russia and Belarus. However, these agreements do not qualify as offset agreements, as they do not form part of framework agreements for the purchase of weapons or military equipment, nor do they seek to generate obligations in which countries or companies that contract with Venezuela must reinvest part of the proceeds in the country [1].

As far as our research has revealed, there is no law or policy which regulates offset contracts.

The discretion and opacity with which the last two governments have handled the signing and implementation of agreements and the purchase of weapons [1] prevents an evaluation of whether the agreements signed include commitments that could be considered offset contracts. Based on available unofficial information, it is not possible to claim that the agreements of recent years can be classified as such. Moreover, given that these agreements are unknown to citizens, social organisations, and even the current National Assembly [2], it is clear that they do not amount to clauses ensuring good anti-corruption practices.

The Public Procurement and Disposal of Public Assets Act does not directly regulate or prohibit offset contracts [1, 2].

There is no evidence or information which shows that there is due diligence on offset contracts, most these offset contract/agreements are usually opaque and specific details are not publicised. [1] The regulations on due diligence in procurement and contracting processes in the Public Procurement and Disposal of Public Assets Act are generalised and do not speak to offset contracts specifically [1]. The president has powers in terms of the Public Procurement and Disposal of Public Assets Act to order the relaxation or even exemption from applying procurement rules and regulations [2].