Theme: Political

This report examines systemic vulnerabilities and influence pathways through which the German defence industry may exert inappropriate influence on the national defence and security agenda. Governments and industry should mitigate the risk of undue influence by strengthening the integrity of institutions and policy processes and improving the control and transparency of influence in the defence sector. Compiled by Transparency International Defence and Security with the support of Transparency International Germany, this report forms a case study as part of a broader project to analyse the influence of the arms industry on the defence and security agendas of European countries. Alongside Italy, Germany was selected as a case study due to its defence industry characteristics, industry-state relations, lobbying regulations and defence governance characteristics. The information, analysis and recommendations presented in this report are based on extensive research that has been honed during more than 30 interviews with a broad range of stakeholders and experts.

Despite promising initiatives, tackling corruption in the Nigerien security sector is still hindered by secrecy

By Flora Stevens, Project Officer – Global Advocacy

Africa’s Sahel has been plagued with conflict and insecurity for more than a decade, and the recent ramping up of violence in the region is putting already weakened armed forces under increased strain. Defence sectors across the region suffer from low levels of civilian democratic control, weak institutional oversight and are struggling to fulfil their mission to improve security in the face of a sharp uptick in attacks from non-state armed groups.

Sandwiched between jihadi militants operating in Mali and Burkina Faso to the west, Boko Haram and affiliated groups continuing to launch devastating attacks in Nigeria to the south and war-torn Libya to the north, Niger has found itself drawn into these conflicts. The complex operational requirements of bringing security to the country, with the huge distances between major settlements, porous borders and hundreds of thousands of displaced people, would pose a challenge for any armed force. But Niger, like its neighbours in the region, is also grappling with the debilitating issue of corruption in its defence sector.

Transparency International Niger has been part of the fight against corruption since 2001. The chapter works to raise public awareness of corruption issues and offers anti-corruption training to citizens. “This has enabled us to mobilise and engage citizens in the fight against corruption in our country,” said Hassane Amadou Diallo, head of the organisation. Transparency International Niger has recorded a series of major successes in its work, including a long-running advocacy campaign which culminated with Niger ratifying the United Nations Convention against Corruption in 2006, and a separate effort to abolish the ‘entrance exam’ to the civil service, a highly competitive processes which on two occasions was marred by fraud and corruption.

More recently, working with Transparency International – Defence & Security, the chapter has been involved in tackling the pernicious issue of defence corruption. Despite recent promising initiatives at national level, efforts designed to fight corruption and improve defence governance have been hindered by a high level of secrecy. It was recently revealed that almost 40% of the $312 million Niger spent on defence procurement contracts over the last three years was lost through inflated costs or materiel that was not delivered, according to a government audit of military contracts. “More than 90% of the contracts awarded to the Ministry of Defence were negotiated by direct agreement, which favoured corruptive practices and overbilling”, said Hassane Amadou. “The competition is unfair, fictitious and sometimes non-existent.” These findings came as the crisis in the Sahel continues to worsen, with hundreds of Nigerien security forces killed in fighting. At the same time, troops on the front line have complained about a lack of kit or being provided with inadequate equipment. Hassane Amadou said the audit that uncovered the extent of the procurement mismanagement would now be subject to a lengthy legal challenge. “TI Niger is hoping a fair trial will take place and that those responsible will be punished in accordance with the law,” he said.

While the findings of the audit are shocking, they unfortunately do not come as a surprise. Transparency International – Defence and Security’s Government Defence Integrity Index (GDI) recently found that while government procurement regulations are clearly spelled out in law, there is a long-standing exemption for defence procurement. The 2016 Code of Public Procurements omits goods, equipment, supplies and services related to defence and security, which effectively leaves the door open to the sort of corrupt practices uncovered by the audit.

Hassane Amadou said that TI Niger has shared the main conclusions of the GDI findings with those in charge of the defence and security forces in the country. “On the basis of the GDI, we then developed an action plan targeting various stakeholders, namely the Ministry of Defence, the parliament, defence and security officials, technical and financial partners, the media and civil society,” he said.

But while there have been signs that Niger is striving to improve its security sector governance as a key pillar for future development and long-term peace and stability, the lack of emphasis on the issue of corruption could critically undermine the effectiveness and sustainability of the whole process.

Despite the impressive reform efforts of the past few years, including the 2016-2021 Renaissance Programme, the 2016 Anti-Corruption Bill, and the 2018 National Strategy to Fight Corruption, Niger is struggling to ensure their effective implementation. The Nigerien government should primarily focus on closing this gap and on rectifying loopholes that allow for corruption in the defence procurement sector to thrive. This could include revising relevant legislation to ensure it effectively applies to all defence acquisitions, with no exceptions.

It is fundamental for the Nigerien military to fully grasp the intrinsic link between corruption and operational efficiency. An important focus area must be the deployment of trained professionals to monitor corruption risks in the field. There is unfortunately currently little evidence of this. There is no pre-deployment corruption-specific training for personnel and no guidelines on addressing corruption risks during operations.

To tackle the security threats Niger is facing, mitigating corruption risks in the defence sector is paramount and requires a robust, disciplined and integrated approach on the part of the Niger government. It needs to ensure civilian oversight is strengthened through well-functioning oversight mechanisms, while making sure corruption is approached in a systemic or comprehensive manner during troop deployment.

By Matthew Steadman, Project Officer – Conflict & Insecurity

2019 was a deeply concerning year for the Sahel. Attacks by extremist groups have increased five-fold in Mali, Niger and Burkina Faso since 2016, with the UN now describing the violence as “unprecedented”. The past year was the deadliest by far with more than 4,000 deaths reported. Niger lost 89 soldiers in a single attack by Islamic State in Changodar in January, whilst two ISGS attacks in Mali in November claimed the lives of 92 soldiers. In Burkina Faso alone, 1,800 people were killed in the past year due to extremist violence. The intensification of extremist activity in the Sahel threatens to engulf West African coastal states, as already weakened national defence and security forces come under increasing pressure. Much international coverage of the developing events has focussed on the operational aspect of the crisis, from the various armed groups operating in the region to the international response, spearheaded by France’s Operation BARKHANE but also including MINUSMA, the G5 Sahel, the United States and the EU. However, one aspect that has been regularly overlooked is the poor capacity of the region’s national defence forces to respond to security threats as a result of poor defence governance, corruption and weak institutions.

Corruption and conflict go hand in hand, with corruption often fuelling violence and subsequently flourishing in afflicted regions. Because of corruption and poor governance, defence and security actors are often seen not as legitimate providers of security, but as net contributors to the dynamics of conflict; with poor training, management and institutional support leading to a downward cycle in which it is the civilians that more than often feel the brunt – as has been seen in Burkina Faso, Nigeria and Mali. When security institutions are perceived as corrupt, public confidence in government erodes further. Fragile governments that are unable to respond to the needs of citizens can exacerbate existing grievances, heightening social tensions and hastening the onset of violence. Across the Sahel, armed groups have been able to entrench themselves first and foremost in those areas which have been neglected by weakened and corrupt central authorities, often by positioning themselves as providers of security, justice and basic services. In this way, it is crucial to view corruption not just as the consequence of conflict, but more often as its root cause and therefore a critical element for any attempt at resolution to address.

Against this backdrop, research by Transparency International – Defence & Security’s Government Defence Integrity Index (GDI), highlights the deficiencies in the safeguards which should provide protection against corruption in the defence sectors of Burkina Faso, Cote d’Ivoire, Ghana, Mali, Niger and Nigeria, increasing the likelihood of defence funds and capabilities being wasted due to mismanagement of human, material and financial resources. In doing so, the GDI outlines a number of key issues which need to be addressed in order to enhance security forces’ ability to respond to threats and protect local communities:

Reinforce parliamentary oversight

Despite most countries having formal independent oversight mechanisms for defence activities, policies and procurement, our research has found that these are often only partially implemented, easily circumvented and insufficiently resourced to carry out their mandates. The result, is defence sectors which are still largely the preserve of the ruling elite and shrouded in secrecy, raising concerns over the use of vital defence funds and the management of resources and assets.

Strengthen anti-corruption measures in personnel management and military operations

Personnel management systems are also vulnerable, with inadequate or non-existent whistleblowing protections and reporting mechanisms, unclear appointment, and promotion systems open to nepotism, and codes of conduct which fail to specifically mention corruption or enforce appropriate sanctions. Equally, despite many countries in the region being actively engaged in on-going counter insurgencies, there is no evidence of Mali, Niger, Burkina Faso or Nigeria having up to date doctrine which recognises corruption as a strategic threat to operations, meaning there is little if any appropriate training on the pitfalls associated with operating in corrupt environments and little appreciation of how soldiers’ conduct might exacerbate the violence they are trying to quell.

Increase transparency and external oversight of procurement processes

Perhaps most concerning of all is that corruption risks in defence procurement remain extremely high across the region. The procurement process is opaque and largely exempt from the checks and balances which regulate other areas of public procurement in countries like Mali and Niger for instance. Across the region, the effectiveness of audit and control mechanisms over the acquisition of military goods and services is heavily restricted by blanket secrecy clauses and over-classification of defence expenditure. This raises serious concerns over the utility, relevance and value for money of purchased equipment and increases the risk of that frontline troops will not have the resources required to deliver security.

Despite these structural vulnerabilities, international assistance in the region has been heavily focussed on security assistance rather than on improving the underlying structures that govern and manage defence and security in the states that make up the region. The 13^th January summit between French President Emmanuel Macron and the leaders of the G5 Sahel countries, was emblematic of this with the meeting focussed on reaffirming France’s military presence in the region and announcing the deployment of further troops, whilst side-lining the governance deficit which underlies so much of the crisis. Programmes have tended to focus on training and equipping military and police forces in Mali and Burkina Faso for instance, or improving strike capabilities by investing in US drone bases in Niger. The concern however, is that the impact of these efforts will be blunted without a more sustained engagement in addressing the more fundamental failings that lay at the hearty of the problem. Mali’s recent announcement of a recruitment drive for 10,000 new defence and security forces personnel for example, will only be effective if it is accompanied with improvements in the way these troops are trained, led, equipped and managed and if the political and financial processes which govern them are strengthened and corruption risks reduced.

A successful response, at the national, regional and international levels, to the violence cannot be just security focussed. Poor defence governance and corruption risks will continue to hamper national forces’ operations and will hinder the impact of international efforts which support them. A more comprehensive approach is needed which addresses the underlying corruption risks which permeate the region’s defence sectors.  Improving oversight, transparency and accountability is a critical step in securing a sustainable peace in the region and ensuring that defence and security apparatuses do what they should, which is to further the human security of populations that they should be serving.

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

Corruption is widely recognized as one the major stumbling blocks in US government efforts to improve the capacity of foreign defense forces to address shared international security threats over the past 15 years.

This report assesses the current state of US arms export controls to identify and curb corruption in US arms sales. It first highlights critical corruption risk factors the United States should consider in order to help prevent corruption and fraud in its arms sales. The report then assesses US laws, policies, and regulations aimed at identifying and mitigating corruption and fraud risks in US arms sales.

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

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

November 19, London – Corruption is being harnessed by authoritarian regimes as a foreign policy tool, research by Transparency International – Defence & Security warns – and the West could be at risk unless action is taken to address vulnerabilities in key institutions.

Corrupt practices like bribery and embezzlement of public funds have traditionally been viewed as a means of personal enrichment for individuals and networks, but new research published today reveals how policymakers have overlooked a key issue: corruption can be weaponised to achieve foreign policy goals and could potentially become a tool of hybrid warfare.

Corruption as Statecraft details how ‘corruption with intent’ schemes have already been used as part of the foreign policy arsenal of authoritarian states like Russia. They are often based on a dependence in a strategic sector, such as energy exports or infrastructure investments.

Those dependencies, based on a real need and combined with opaque governance and economic arrangements, can enable cross-border schemes where money is funnelled to decision makers in one country with a view to ensuring foreign policy decisions favourable to another country.

Dr Karolina MacLachlan, Regional Programme Manager for Transparency International – Defence and Security, said:

“Typically practices like bribery, money laundering and embezzlement of state funds are used by a corrupt elite for economic gain, but ‘corruption with intent’ schemes are far more insidious. These strategies are not aimed at making money, but are instead focussed on corrupting decision makers and public institutions in other countries in the pursuit of foreign policy goals.

“The damage corruption causes to individuals, communities and entire countries is well documented – and the poorest in society are inevitably left to suffer the brunt of the impact. This indiscriminate ‘collateral damage’ is what needs to make policy makes pay attention.”

Corruption as a tool of foreign policy can be deployed anywhere there is opaque company and government contracting structures, bribery, lack of oversight, and loopholes in key regulations. This means Europe and the United States are both at risk.

The Parliamentary Assembly of the Council of Europe has already been targeted by a corruption with intent scheme – and its ethics watchdog initially failed to stop it. The European Parliament, unable to fully account for MEPs’ external employment and outside income, is also at risk.

Dr Karolina MacLachlan said:

“While it would be tempting to assume that this weaponising of corruption is only a threat to emerging democracies such as Ukraine or Armenia, our research also highlights a vulnerability at the heart of the Europe Union which malign actors have already exploited – and others that can be exploited in the future.

“Worryingly, there are vulnerabilities in European energy trade and infrastructure investment carried out as part of China’s trillion-dollar Belt and Road Initiative. Large-sale commitments made by a number of countries, alongside limited transparency in international contracts and with legal loopholes, limit countries’ room for manoeuvre and open them up to external pressures and corrupt schemes.

“Despite the warning signs, there is still time for policymakers to address these chinks in the armour. The link between corruption with intent and strategic dependence means that European countries and the US not only need to pay far more attention to their own vulnerabilities and treat corruption as the strategic threat it can be, but also reconsider how they can help other countries fight corruption. Anti-corruption programmes need to be joined with wider political and economic considerations to manage the dependence that corruption schemes can be based on.”

How ‘corruption with intent’ schemes can work:

1. There is a real or perceived need: infrastructure investment, energy, arms imports
2. The need is met by an entity from another country (government, state-owned enterprise, a private company linked to government)
3. The contracting and mode of implementation of the project(s) are opaque, involve intermediaries, are based on unfavourable terms, and create dependence. They are facilitated by local loopholes
4. Opacity is used to funnel money to elites in the recipient country to secure favourable foreign policy outcomes

Contact:

Harvey Gavin
harvey.gavin@transparency.org.uk
+44 (0)20 3096 7695
+44 (0)79 6456 0340

By Dr Karolina MacLachlan

States and corrupt elite are turning to corruption to achieve foreign policy goals and a way to carry out hybrid warfare.

This kind of corruption is not aimed at economic benefit: rather, it relies on a willingness to forgo economic gains in favour of increased influence, desired political outcomes, and an ability to spread political norms and practices.

If successful, the use of corruption within a foreign policy arsenal can enable elites in one country to hold whole political classes in other countries to ransom, to undermine government institutions and exert illegitimate influence in the target state, and sow insecurity and instability.

In their most dangerous and durable form, these ‘corruption as statecraft’ schemes are built on political and economic dependence, usually in key sectors such as energy, defence and military equipment or even infrastructure projects.

Russia’s attempts to shape the domestic and foreign policy decisions of Ukraine over the last two decades, for example, reportedly utilised corrupt schemes in the energy sector. These schemes capitalized on Ukraine’s dependence on Russia’s state-owned energy giant, Gazprom, for gas imports to strengthen and leverage corrupt networks in Ukraine to help achieve foreign policy goals. The fluctuations in gas prices, often orchestrated by Gazprom’s political masters; threats of supplies being held up; and the use of opaque, anonymously owned intermediaries between Gazprom and Ukrainian state-owned energy company Naftogaz to redirect profits to oligarchs and political parties enabled a combination of pressure and bribery that helped further Russia’s foreign policy interests.

Corruption can also be a tool of hybrid warfare, alongside disinformation and cyber-attacks. Electoral campaign contributions could be traded for political influence or promises of decisions favourable to individuals. For example, Former Lithuanian President Rolandas Paksas was accused of having received campaign financing from individuals suspected to be linked to Russian organised crime, in exchange for granting them Lithuanian citizenship and for divulging classified information on investigations into their business dealings. While Paksas was eventually cleared of the charges of divulging state secrets to his campaign contributors, similar schemes could be employed to undermine institutions managing crucial infrastructure or those responsible for deterring aggression and providing security.

‘Corruption as statecraft’ is hard to detect and difficult to prove because it is often intertwined with complex, opaque corruption and criminal networks, both in the state employing corruption and in the target state. Where governing elites have extensive links to organised crime and where the distinction between public and private is blurred, criminal networks can be harnessed by the state to exercise influence, thereby turning corruption into a weapon

The ‘Azerbaijani Laundromat’, a money-laundering scheme transferred a total of $2.9 billion USD from Azerbaijani companies and government departments through four UK-based shell companies. This money bankrolled both private enrichment and foreign policy schemes aimed at improving the country’s international reputation. Azerbaijani officials appear to have used funds passed through the ‘Laundromat’ to bribe members of the Parliamentary Assembly of the Council of Europe in order to water down official criticism of Azerbaijan’s human rights record; at the same time, top officials used it as a slush fund to pay for luxury goods and services.

Schemes like these also pose significant problems in mature democracies. Authoritarian, kleptocratic elites from across the globe use financial channels that enable opacity and anonymity, but also offer political stability and protection of the rule of law not only to hide and legitimise wealth, but to export their way of doing business.

Unless countered, practices ranging from the illegal (bribery and tax evasion) to the unethical (such as tax avoidance through offshore banking) will weaken institutions and laws across multiple states in which corrupt networks operate. Ultimately, the use of corruption to undermine national and international institutions threatens upon which many societies are based.

The links between corruption and insecurity have already been recognised in the US, with calls for Congress to take action to block financial flows which can not only undermine allies, but also influence the US political system. In the EU there has been even more progress in addressing the prevalence of anonymous companies and reporting financial flows, but verifying data, monitoring financial flows, and understanding their purpose pose ongoing challenges.

Only by understanding and addressing the strategic dependence that often underpins these schemes can we begin to attempt to dismantle them effectively. Even a robust anti-corruption effort will only have limited effects if it’s not combined with efforts to address the underlying issues. Whether it is a crucial resource such as energy, a key state asset such as defence and military power, or investment in important infrastructure projects, these dependencies have to be tackled if countries are to have a chance of dismantling the schemes that grow out of them, and to maintain independence and freedom of manoeuvre on the international scene.

This article is based on Corruption as Statecraft, a new report by Transparency International – Defence and Security, available here.