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Theme: Finance

In response to the review of the UK’s aid investment in Afghanistan published this week by the UK Independent Commission on Aid Impact (ICAI), Josie Stewart, Director of Transparency International Defence and Security, said:

“This review adds to the now sky-high pile of evidence that corruption was central to the tragic downfall of the country. Corruption within the security services was particularly damaging, undermining the cohesion and operational capacity of the army and police. Arms and equipment were stolen, and sold to the Taliban.

“Following the downfall of Kabul last year, Khalid Payenda, Afghanistan’s former finance minister, said that most Afghan troops on the payroll had in fact been ‘ghost’ soldiers, made up by corrupt officials who exploited the system for money. The operational capability of soldiers who did not actually exist had proven to be, unsurprisingly, limited.

“ICAI’s new report highlights that the UK provided over £400 million in aid over just six years to fund the Afghan security services, including paying the salaries of the Afghan National Police who acted primarily as a paramilitary force engaged in counter-insurgency operations against the Taliban. We will never know how much of this £400 million was stolen, how much indirectly funded the Taliban, or how much it contributed to the overestimation of the Afghan security forces’ operational capability which led to such devastating consequences for the Afghan government, its NATO partners, and the Afghan people. But anyone who cares about global peace and security must learn the lessons from Afghanistan.”

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Our latest research catalogues conflict and corruption around the word – harm caused by leaving the privatisation of national security to grow and operate without proper regulation.

Post-Afghanistan, exploitation of global conflicts is big business. Most private military and security firms are registered in the US, so we are calling on Congress to take a leading role in pushing through meaningful reforms under its jurisdiction. The time has also come for accreditation standards to be enforced rather than only encouraged, at both a national and international level.

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

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

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

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

Hidden costs from the trade in national security

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

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

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

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

Pressing priority

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

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

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

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

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

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

Required response

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

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

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

Work is underway to shape policies necessary for the prevention of further coups in Mali, following two recent military takeovers of the west African nation.

Mali has been operating under what leaders have described as a period of “transitional” military governance since August 2020, with elections repeatedly delayed.

Transparency International is embarking on a new project aimed at establishing policies that would prevent future coups being carried out and see corruption threats mitigated in the nation’s defence and security sector, assessed as “high risk” through our Government Defence Integrity Index.

The initiative supported by the United Nations Democracy Fund aims to empower ordinary Malians and their civil society organisations to “exercise oversight” and engage with government representatives and defence institutions in reforming defence governance.

Legislative foundations will be laid in preparation for the resumption of parliamentary work following a two year hiatus that has seen female representation in positions of political influence shrink to zero.

‘Power to convene’

The project will be delivered through a partnership between Transparency International’s national chapter — CRI 2002 — and TI-UK.

Working together we combine national level civil society legitimacy, contextual understanding and power to convene with global expertise in corruption in the defence sector.

We will partner with local journalists and with a civil society network — the CSO Forum created under the previous UNDEF project — while expanding the project’s reach to all 10 of the country’s regions.

We will present policy recommendations to the National Transition Council (NTC), with whom we are already engaged, to integrate into legislation once the National Assembly resumes.

Three-pronged approach

Our approach is underpinned by three activities:

  • In-depth research into the role that corruption can play in facilitating military coups. The paper we produce will identify policy recommendations to anticipate and prevent future coups in Mali. It will also signpost risks to other countries facing similar challenges.
  • Analysis of the defence sector’s performance during the COVID-19 emergency. Our briefing will focus on the impact of corruption during emergencies and how it undermines the country’s capacity to respond to disasters. The analysis will include policy recommendations that can inform disaster risk reduction (DRR) interventions.
  • An advocacy program for CSOs to facilitate engagement with the National Transition Council and defence institutions. This will encourage integration of policy recommendations into legislation.

 

This report examines the quality and effectiveness of defence governance across fifteen countries in Central and Eastern Europe: Albania, Armenia, Azerbaijan, Bosnia & Herzegovina, Estonia, Georgia, Hungary, Kosovo, Latvia, Lithuania, Montenegro, North Macedonia, Poland, Serbia and Ukraine. It analyses vulnerabilities to corruption risk and the strength of institutional safeguards against corruption across national defence sectors, drawing on data collected as part of Transparency International Defence & Security’s (TI-DS) Government Defence Integrity Index (GDI).

It is intended to provide governments and policymakers with an analysis of defence governance standards in the region and supply civil society with an evidence base that will facilitate their engagement with defence establishments and support advocacy for reforms that will enhance the transparency, effectiveness and accountability of these institutions.

This report details good practice guidelines and policy implications that are designed to reduce the opportunities for corruption and improve the quality of defence governance in Central and Eastern Europe. It identifies five key issues of defence governance where improvements are urgently needed in order to mitigate corruption risks: parliamentary oversight, defence procurement, transparency and access to information, whistleblowing, and military operations.

January 14, 2020 – Sweeping reforms to controls on American arms sales abroad are increasing holes in checks to identify and curb corruption – measures that can also be used to assess whether sales may help or hurt efforts to address terrorist threats and attacks – according to new research by Transparency International Defense & Security.

Launched today, Holes in the Net assesses the current state of US arms export controls by examining corruption risk in three of the most prominent sales programs, which together authorized at least $125 billion in arms sales worldwide for fiscal year 2018.

Across all three different arms sales programs, which are managed by the Defense, State, and Commerce Departments, there is a clear gap in American efforts to assess critical, known corruption risk factors. This include the risks of corrupt practices – such as theft of defense resources, bribery, and promoting military leaders based on loyalty instead of merit – weakening partner military forces.

The United States is one of the biggest arms exporters to countries identified as facing ‘critical’ corruption risk in their defense sector, including Egypt, Jordan, Oman, Qatar, and Saudi Arabia, according to recent analysis by Transparency International – Defense & Security.

Steve Francis OBE, Director of Transparency International – Defense & Security, said:

“Given the corrosive effect corruption has on military effectiveness and legitimacy, it is deeply concerning to see that these reforms to American arms export controls have made it easier for practices like bribery and embezzlement to thrive.  In order to ensure American arms sales do not fuel corruption in countries like Egypt, Qatar, and Saudi Arabia, it is imperative to understand and mitigate the corruption risks associated with countries receiving US-made weapons before approving major arms deals.”

Of the three programs assessed in the report – Foreign Military Sale, Direct Commercial Sale, and the 600 Series – the 600 Series was identified as having the biggest gaps in its anti-corruption measures. Overseen by the Commerce Department, sales through this program do not require declarations on a series of major corruption risk areas, including on certain arms agents or brokers, political contributions, company subsidiaries and affiliates, and any defense offsets. These areas are common conduits used for bribery and political patronage.

More recently, the Trump administration has proposed moving many types of semi-automatic firearms and sniper rifles to Commerce Department oversight. The proposal calls for additional controls for firearms, but also reduces overall oversight of small and light weapons exports.

 Colby Goodman, Transparency International – Defense & Security consultant and author of the report, said:

“Over the past 30 years, America has established some of the strongest laws to prevent bribery and fraud by defense companies engaged in arms sales. However, defense companies selling arms through the 600 Series program no longer have to comply with key anti-corruption requirements. As a result, US officials will likely find it harder to identify and curb bribery and fraud in sales of arms overseen by the Commerce Department.”

The report analyzed five priority corruption risk factors for American arms sales programs: 1) Ill-defined and unlikely military justification; 2) Undisclosed or unfair promotions and salaries in recipient countries; 3) Under-scrutinized and illegitimate agents, brokers and consultants; 4) Ill-monitored and under-publicized defense offset contracts, and 5) Undisclosed, mismatched or secretive payments.

The report makes a series of policy recommendations that would help strengthen anti-corruption measures in these prominent arms sale programs, including:

  • Creating a corruption risk framework for assessing arms sales through programs managed by the Defense, State, and Commerce Departments. These assessment frameworks must examine key risk factors identified in our report, including theft of defense resources and promoting military leaders based on loyalty instead of merits, among others.
  • Strengthening defense company declarations and compliance systems for sales of arms overseen by the Commerce Department, including declarations of any defense company political contributions, marketing fees, commissions, defense offsets, and financiers and insurance brokers of arms – all clear conduits for corruption.
  • Increasing transparency on arms sales and actions to combat arms trafficking overseen by the Defense, State, and Commerce Department. Critically, the Defense and State Departments need more details on defense offsets in order to properly review proposed arms sales. There is virtually no information on Commerce Department approved arms sales.
  • Legislation requiring for firearms and associated munitions to remain categorized as munitions to ensure further relaxing of export controls do not adversely impact US national security or foreign policy objectives.

Notes to editors:

Interviews are available with the report author.

Holes in the Net is available to download here.

Saudi Arabia, a major importer of US-made arms, failed to defend against an attack on its oil facilities in September 2019. Reports have suggested that corrupt ‘coup-proofing’ measures designed to shield the ruling family likely contributed to the ineffective response.

Contact:

Harvey Gavin

harvey.gavin@transparency.org.uk

+44 (0)20 3096 7695

+44 (0)79 6456 0340

20th December, London – The complex web of murky pathways through which the American defense industry works to secure permission to export arms to repressive regimes in the Middle East has been laid bare in new research by Transparency International – Defence & Security.

A Mutual Extortion Racket: The Military Industrial Complex and US Foreign Policy reveals how defense industry players, elected officials, the defence bureaucracy, and governments in the Middle East – working through intermediaries such as lobbyists, think tanks, and public relations firms – are intertwined and serve one another’s interest, often at the expense of US foreign policy outcomes.

These mutually-beneficial relationships have contributed to a vicious cycle of conflict and human rights abuses across the Middle East and North Africa (MENA), including increased exports of arms and defence services to Saudi Arabia and the United Arab Emirates which began under the Obama administration and has ramped up under President Trump.

Steve Francis OBE, Director of Transparency International – Defense & Security said:

“In the midst of the unending war in Yemen and after the murder of journalist Jamal Khashoggi last year, questions have been asked over why American arms exports to places like Saudi Arabia and the UAE have not only continued, but accelerated. After examining the murky web of lobbying, campaign finance, revolving door employment, and sometimes even downright corruption, it is now clearer how these exports are allowed to continue, despite attempts by many in Congress to stem the flow.

“While much of the system that allows these exports to continue is riddled with a lack of transparency and oversight, there are some areas in which existing strengths can be amplified. We urge Congress and the Executive branch to adopt our recommendations and ensure that arms exports are better aligned with US foreign policy interests and the American defense industry no longer wields excessive influence over policymaking.”

 

The pathways which allow this ‘extortion racket’ to play out include:

  • Controversial sweeteners bolted on to defence contracts known as ‘offsets’

Despite rarely making economic sense, these side deals account for US$3 to $7 billion in obligations every year – and the lack of transparency around offsets means they are a notorious conduit for corruption.  A series of leaked emails in 2017 revealed that American defence firms were indirectly funding advocacy campaigns around drones which were friendly to the Saudi and Emirati governments. Money from the US companies was paid directly into an Emirati development fund which was eventually routed to a US think tank who created the campaigns.

  • Political campaign donations

‘Dark money’ groups such as the US Chamber of Commerce, the largest American business lobbying organization, are under no obligation to reveal their donors but can contribute to influence political campaigns, especially via so-called Super PACs. According to a defence lobbyist, the Chamber aims to move any discussion about US defense exports “straight down to dollars and jobs in a congressional district” to incentivise members of Congress not to take any steps that could impact arms sales.

  • The so-called ‘revolving door’ between high-level jobs in government and the military and senior roles with defense companies or lobbying firms.

After leaving Congress, Republican Howard McKeon set up a lobbying firm which boasts its status as “the only firm led by a former Chairman of two full congressional Committees”. McKeon signed as a registered foreign agent for the Saudi government in 2016 soon after setting up his firm. During his tenure as Chairman of the House Armed Services Committee, $10 billion in military sales were approved to Saudi Arabia – a doubling of previous sales to the country.

Rarely is just one of the pathways identified in the report is used and they are often intertwined to magnify influence towards desired policy outcomes.

Simply limiting lobbying and campaign finance contributions is necessary but not enough to rebalance the egregious flaws of this influence system. Our policy recommendations include:

  • Establish a ‘Defense Exports Czar’ on the National Security Council to oversee all aspects of security assistance, including defence exports, and assess whether exports align with larger US foreign policy goals.
  • Legislate a ban on offset contracts between the American defence industry and foreign governments.
  • Re-establish the State Department as the lead agency for all security assistance, including all defense exports, while Congress should demand more insight and transparency into these exports
  • Require all contractors and sub-contractors to list their beneficial owners to ensure contract funds are not funnelled to those tied to corrupt politicians, insurgents, terrorists, warlords or criminal actors.
  • Establish legislation to limit contributions to super PACs by the defense industry or its intermediaries and prevent anonymous donations; require defence firms to publicly disclose all donations or political activity over $10,000.

 

Notes to Editors:

The report is available to download here.

Transparency International’s newly-released Government Defence Integrity Index scores countries according to the risk of corruption in their defence institutions. Saudi Arabia was ranked F – indicating a critical risk – while the UAE was ranked E, indicating a very high risk.

The American arms industry is the largest in the world. In 2018, American companies were responsible for 57 percent of worldwide arms sales, totalling $226.6 billion.

The sector is also a major force in US manufacturing in employment. In 2017, 10 percent of the $2.22 trillion factory output went to produce weapons sold to the Defence department.

Between 2012 and 2015, the US exported 46 percent of all arms delivered to the Middle East. In 2016, 35 of the 57 arms sales proposed were to countries in the MENA region.

 

Contact:

Interviews are available with the report author.

Harvey Gavin

harvey.gavin@transparency.org.uk

+44 (0)20 3096 7695

++44 (0)79 6456 0340

By Steve Francis OBE, Director of Transparency International – Defence & Security

The Government Defence Integrity Index (GDI) is the first global analysis of corruption risks and the existence and enforcement of controls to manage that vulnerability in defence and security institutions, highlighting priority areas for improvement. Key to analysing results from the Index is understanding that the GDI measures corruption risk, not levels of corruption per se.

GDI data will be released in regional waves through 2020. Results from the most recent wave – the Middle East and North Africa – were published in November.

On the whole, the data paints a fairly bleak picture for the region. Tunisia leads the group with an overall grade of “D,” indicating a “high” degree of defence corruption risk, while the other 11 assessed countries received either an “E” or an “F” – signalling “very high” or “critical” levels of risk. Regional averages reflect a similar performance across the individual risk areas – political, financial, personnel, operations, and procurement.

With these findings in mind, what can the analysis of the GDI’s result teach us about protracted cases of armed conflict, political instability, and insecurity that seem to characterise the region?

1. In many cases, high defence corruption risk is symptomatic of wider governance issues.

The GDI’s political risk indicators and aggregated scores on anti-corruption themes examine broader issues of legislative oversight, public debate, access to budgetary information, and civil society activity – issues that don’t just impact the defence sector. Indeed, this area of the assessment highlights essential ingredients for any open and transparent government that engages constructively with its citizens. As most of the assessed MENA countries are governed by authoritarian regimes, we should not be too surprised then that these wider governance challenges also exist in the defence sector. Specifically, our data found a clear lack of external oversight, audit mechanisms, and scrutiny of defence institutions across the region.

Table: MENA region average scores for key political risk indicators and anti-corruption themes

Question Indicator/Theme Score Grade
Q1 Legislative scrutiny of defence laws and policies 15 F
Q3 Defence policy debate 9 F
Q4 CSO engagement with defence and security institutions 15 F
Q6 Public debate of defence issues 23 E
Q13 Defence budget scrutiny 10 F
Q17 External Audit 8 F
Aggregate Openness to civilian oversight 14 F
Aggregate Oversight 14 F
Aggregate Budgets 15 F
Aggregate Transparency 15 F
Aggregate Undue influence 19 E

 

2. Countries with the highest defence corruption risk are also significant arms importers.

Saudi Arabia, Egypt, and Algeria were three of the world’s top five arms importers from 2014-2018. All three received an “F” grade in the GDI, with Egypt and Algeria receiving the bottom two regional scores (6/100 and 8/100, respectively).

The region has gaps in export controls, with only Lebanon and Palestine having ratified the Arms Trade Treaty, in addition to related risks like a lack of regulation around lobbying in defence and virtually no transparency around defence spending.

Although major arms exporters to the region like the United States have rules against the transfer of arms to third parties, end-use monitoring is not always consistent or comprehensive. This is especially troubling given that top arms importers in the region are either directly involved in or are arming parties to the devastating conflicts in both Yemen and Libya.

3. Low-scoring countries also exhibit high corruption risk by blurring the line between business and defence.

While the region as a whole scored poorly on indicators relating to the beneficial ownership (47/100) and scrutiny of military-owned businesses (44/100), these risks are greatest in countries with extensive military-run industries and/or significant natural resources. In Egypt for example, the military owns lucrative businesses across industries ranging from food and agriculture to mining, but has few controls in place for regulating these ventures. In Algeria, a largely state-owned economy renowned for high levels of corruption and patronage, there are a range of potential implications now that the military has stepped in to fill the vacuum following the ousting of President Bouteflika in March 2019 following mass public unrest.

The Gulf monarchies offer an example of how defence and business can overlap at the level of the individual. In the assessment for Saudi Arabia, we found that members of the royal family who serve in senior military positions also have controlling or financial interests in businesses related to the country’s petroleum sector. In the UAE as well, our research found that Mohammed bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, is also the Chairman of a company dealing in natural resources.

On the other end of the spectrum, the GDI found that in Morocco, Palestine, and Tunisia, defence and security institutions do not own businesses of any significant scale, thereby removing a significant source of corruption risk.

 

As the GDI data shows, the risk of defence corruption in the MENA region is a serious concern with the potential to exacerbate ongoing conflict and instability. However, robust tools like the GDI can help governments to identify gaps in safeguarding practices – the first step in a process towards reform – while supporting civil society and oversight actors in countries across the region in conducting evidence-based advocacy.

27 November, London – A court ruling this week that paves the way for civil society in Nigeria to challenge senior politicians over their secretive spending of billions of Nigerian Naira has been praised by Transparency International.

Transparency International and the Civil Society Legislative Advocacy Center (CISLAC) in Nigeria have previously called for the scrapping of the unaccountable and secretive “security vote” spending – one of the most durable forms of corruption in Nigeria—saying that they fail to provide real security for citizens.

The security votes issue was explored in a joint report by the groups in May 2018. Camouflaged Cash estimates that security votes in Nigeria total around $670 million annually – more than the annual budget of the Nigerian Army.

Responding to the court decision, Steve Francis OBE, Director of Transparency International’s Defence & Security Programme said:

“This is an important moment in the campaign for transparency in defence and security spending in Nigeria, as well as government accountability more generally. Civil society in Nigeria, including Transparency International’s colleagues in CISLAC, deserve praise for successfully challenging in the courts the government’s refusal to explain how billions of Nigerian Naira were spent over the last twenty years. We see this as another important step in bringing about more openness and accountability in how the country spends taxpayer money on its citizens’ security and defence.”

 

Contact:

Harvey Gavin

Harvey.gavin@transparency.org.uk

+44 (0)20 3096 7695

++44 (0)79 6456 0340

Ahead of the 2019 Presidential elections in Nigeria, Transparency International and the Civil Society Legislative Advocacy Center (CISLAC) are calling on candidates to commit to scrapping the unaccountable and secretive “security vote” spending – one of the most durable forms of corruption in Nigeria—saying that they fail to provide real security for citizens.

Read the full report below and download ‘Annex A: Federal Security Vote Data’ here and ‘Annex B: State Security Vote Data’ here.

Read the Press Release here.

The theme of this report is the analysis of corruption risks in the financial and economic activities of the defence and security sectors, based on a review of the audit reports and law enforcement bodies’ reports published in the period from January 2010 to October 2011. The intention was to combine the approaches of external, governmental, and internal revisors, auditors and law enforcement agencies, in order to highlight ‘red flags’ and warning of the methods of corruption in a simplified form. The second purpose of the report is to discuss the role of internal audit in preventing and reducing corruption in the defence and security sectors. It is not a primary role of internal audit to detect corruption, but it is a role more people expect internal audit to undertake. There is, therefore, an expectations gap that needs to be filled given that internal audit has no legal responsibility to counter corruption.

One of the areas of corruption risk we are often asked about is commercial businesses that are owned by the military. This is a surprisingly common phenomenon and is open to a wide range of potential abuses. As there is extremely limited information on such businesses, we have taken a first step to provide an overview of information that is in the public domain on this topic, through this initial review by Kevin Goh and Julia Muravska. They have focused on a few very different countries with extensive military-owned businesses—China, Turkey, Pakistan and Indonesia—and looked at national efforts of reform. In addition, they have looked at one of the major areas of abuse—exploitation of natural resource assets by the military—in oil, mineral, forestry, agriculture, fisheries and land.