Theme: Procurement

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.

Last week, Transparency International Defence & Security (TI-DS) attended the Fifth Annual Conference of States Parties (CSP5) to The Arms Trade Treaty (ATT), where delegations of the 104 signatories gathered to review the status of the Treaty and set the agenda for the year ahead. 

Five years since the introduction of the Arms Trade Treaty, there are plenty of reasons for gloom. This year’s Conference focused on two topics in particular: diversion and gender-based violence. Despite being covered under the ATT – articles 7 and 11 respectively – states have been struggling to address these illicit arms flows and reduce gender-based violence. Any advances made by new states ratifying the treaty – most recently Canada and Botswana – have been countered by the lack of representation from some of the world’s largest arms exporters such as Russia, China and now the US, which withdrew its signature from the treaty.

Meanwhile transfers of weapons continue to increase, and implementation challenges are becoming obvious. However, at this point the question is not one of giving up, but rather one of what can we do to make the Treaty more effective?

The CSP is open to civil society, encouraging participation in side events and lively debates. Only one panel discussion was restricted to state signatories – out of 20 in total. While this shows the role and importance of civil society participation in the ATT process, more can be done to foster this cooperation during the rest of the year.

TI-DS has an important contribution to make to this movement. By working together with Transparency International’s national chapters and other local partners we can do more to support national adoption and implementation strategies.

What does that mean in practice? Here are five learnings from the CSP5 that point the way:

1. Provide the evidence-base for arms control decisions

When deciding whether to approve an arms export application, state licensing bodies must consider a wide range of factors about the importing country – from the internal security situation to regional stability and risk of diversion from the stated end-user. Most states will assess these factors through an in-depth risk assessment of the viability of the export, using both classified and open source information.

Research reports and studies conducted by civil society can provide valuable sources of information for states. TI’s Government Defence Anti-Corruption Index (GI) provides an analysis of the corruption risks within the defence establishments of 90 countries worldwide. Government export control agencies can use this data to consider the risk of corruption in importing countries to inform the likelihood of diversion or misuse of weapons.

2. Raise awareness of the ATT and its relevance to national governments

As organisations with a particular national, regional or thematic focus, civil society organisations (CSO) are well-placed to provide expert insight into the arms control issues facing a country. In states that have not yet adopted the ATT – or are working towards ratifying it – CSOs can work with government agencies, industry and think tanks to facilitate a national debate on the importance and benefits of compliance with the treaty. They can build coalitions of interested parties to work towards a common goal, as shown by the continued contribution made by the Control Arms Coalition.

Moreover, civil society – unlike governments, industry or think tanks – often have the grassroots networks and community buy-in needed to build pressure and hold states to account for their promises when it comes to international obligations such as the ATT.

3. Assist parliaments and governments in implementing the treaty

CSOs working on arms control issues are in general able to develop a broader knowledge base than parliamentarians and other actors whose day jobs only touch upon this complex topic. The potential for cooperation between the two was illustrated by an example presented at this year’s conference which highlighted the role of the Small Arms Survey NGO, who assisted Japan by conducting a gap analysis of its ATT implementation progress.

From giving evidence to a parliamentary committee to providing MPs with research to inform parliamentary questions, CSOs can work directly with concerned parliamentarians to maintain the political will and internal pressure needed to support proper implementation of the treaty.

4. Monitor ATT progress and violations

As third-party stakeholders, CSOs are often able to raise and address controversial topics.

CSOs working in-country may encounter evidence of a violation of treaty obligations and report it to the government. Many CSOs also have the ability and expertise to synthesise these cases into national and regional trends, thereby providing governments with a tool to develop mitigation strategies and improve their progress in implementing the ATT. 

By providing a solid evidence base with clear policy recommendations, CSOs can help states reflect on the progress they have made and highlight areas that need strengthening.

5. Achieve universalisation through improved reporting and transparency

The substantial differences in the way that states submit their ATT reporting obligations constitute a barrier to universalisation. Although 83 per cent of states used the reporting template, some are still submitted incomplete or in non-readable format or indeed in a completely different format that is difficult to consolidate. On top of this, 25 per cent of states failed to submit an annual report at all.

CSOs can work with national governments and industry to promote transparency and common reporting standards, which in turn allows for comparability and more effective implementation of treaty obligations.

The future of the ATT may be uncertain, but states can’t do it alone and nor should they. Civil society can help national governments bridge the gap between policy and practice by providing hands-on insight and analysis into arms control issues worldwide.

Ukraine’s defence sector scored a ‘D’ in the 2015 edition of Transparency International’s Government Defence Anti-Corruption Index (GI); signifying low transparency and a ‘high’ risk of corruption. Defence procurement scored even lower and was highlighted as the most opaque and corruption-prone area in the defence sector.

To help improve this, NAKO has studied the phenomenon and identified “red flags” i.e. the most common indicators of corruption in defence procurement. NAKO researchers interviewed 35 well-placed sources and analysed over 47 incidences of alleged or confirmed cases of corruption in Ukrainian military purchases between 2014-2018. The report summarises the red flag categories, along with the possible cases and specific recommendations on how to prevent and detect the corruption risks. This report provides valuable information to those interested in defence procurement reforms including government officials, business representatives, as well as Ukrainian MPs, journalists, NGOs and law enforcement officials tasked with oversight.

11^th June 2018, London – Today, NGOs in France, Indonesia, Sri Lanka, Tunisia, the UK and the US are calling upon the agencies investigating Airbus to ensure that the company and its senior executives are properly held to account.

Airbus is under investigation in several jurisdictions for allegedly paying bribes in order to win billions of dollars of contracts. The allegations are egregious and widespread, covering multiple countries and involving several divisions within Airbus including commercial aircraft, helicopters and aerospace and defence.

In February 2018, Airbus reached a €81.25million settlement in Germany to end a corruption investigation into the 2003 Eurofighter deal with Austria. Over the coming months, prosecutors will be weighing up their options, with more settlements as one possible outcome, allowing the company to continue winning government contracts without prosecution.

Today the NGOs in a letter to the heads of the Serious Fraud Office, Parque National Financier and Department of Justice urged the authorities to ensure that:

• National economic interest, relations with foreign states or the importance of Airbus as a national industry must not affect the investigation or prosecution of alleged bribery by the company;
• Individuals responsible for the wrongdoing must face prosecution including those at senior levels;
• No immunity deals should be included in any action taken against Airbus;
• A settlement should only be given if prosecutors have high confidence that Airbus has fully cooperated and revealed the full extent of wrongdoing, and if it has fully signed up to genuine corporate change including through disciplining of employees responsible for wrongdoing;
• Countries where it is proven that Airbus has paid bribes must be fully compensated for harm caused; and
• Any enforcement action must be fully transparent with details of the wrongdoing made publicly available.

Susan Hawley, Director of Policy at Corruption Watch, said:

“The Airbus case is a test of the resolve and independence of the prosecuting bodies and their ability to bring widespread and egregious wrongdoing to justice. Airbus and individuals implicated must not be let off lightly if these global allegations are confirmed by law enforcement investigations.”

Andrew Watson, Head of Industry Integrity at Transparency International Defence and Security said:

“If proven, these extensive cases of corruption will have had a significant impact on the public, state institutions and the industry. With such wide-ranging and complex allegations, it will be will be vital for prosecutors to co-ordinate closely if they are to account for the full scale of alleged offending; because individual cases, serious as they may be, won’t tell the whole story.”

“For the punishment to be proportionate to the crime, prosecutors should consider the full range of offending across all jurisdictions when reaching their decisions.” (more…)

View letter

Dear Director

Ensuring any enforcement action against Airbus meets fair justice standards

We are writing as concerned anti-corruption organisations that have seen the effect of corporate bribery on democracy, good governance, economic progress and security across the world.

We are aware of extensive media coverage about allegations of bribery involving Airbus. The allegations are egregious. They span over a decade and include at least 14 countries including Sri Lanka, Kazakhstan, Austria, Tunisia, India, Poland, China, Greece, Saudi Arabia, Turkey, Indonesia, Kuwait, Mauritius and Mali as well as implicating all business segments within Airbus, including aerospace and defence, commercial aerospace and helicopters. The media coverage has indicated that the SFO, PNF and DOJ are all investigating alleged wrongdoing. Other authorities around the world are also investigating these allegations, including in Austria, Kuwait, Poland and Sri Lanka.

We welcome the fact that the SFO and the PNF have set up a joint investigation team in this case with close coordination with the DOJ. The co-ordination of law enforcement activities in such cross-border and global alleged wrongdoing is essential. It helps to maximise use of law enforcement resources and ensure that investigators and prosecutors are aware of the full facts of potential wrongdoing when making enforcement decisions.

We are writing to ask you to ensure that any enforcement action against Airbus, whether a settlement or other form of action, meets standards that would ensure justice is achieved and that the harm caused by any wrongdoing is properly assessed and compensated for. We would encourage you to give careful consideration to the full range of enforcement options available, including prosecution. In particular, we ask you to ensure that: (more…)

6th June 2018, London – New allegations made by Corruption Watch U.K.  that British intermediaries took corrupt payments from an Italian defence company, to secure defence contracts in South Korea, must be fully examined by the UK’s  Serious Fraud Office and where wrong-doing is established prosecutions should follow.

Robert Barrington, Executive Director Transparency International UK, said:

“’These are strong and long standing allegations about significant crimes having been committed, and need to be properly examined by the authorities in the jurisdictions concerned, which means the Serious Fraud Office in the UK.  We also encourage UK MoD to fully consider the use of their procurement exclusion powers and whether the company should be temporarily suspended from MoD bidding while these matters are investigated. If wrongdoing is found to have occurred, the full weight of the law should be used against the individuals involved, any senior officers of the company who were complicit, and the company itself.”

“The use of third parties in defence deals has long presented a significant corruption risk and this case demonstrates the need for more consistent transparency requirements in export policies around the use of payment of agents.” 

Transparency International’s. “Licence to Bribe? Reducing corruption risks around the use of agents in defence procurement” highlighted the profound risks of using middlemen in defence deals and showed that 90% of companies assessed by TI, fail to provide evidence of regular due diligence over the use of agents.

***ENDS***

Contact:
Dominic Kavakeb
+44 20 3096 7695
+44 79 6456 0340
Dominic.kavakeb@transparency.org.uk

 20^th March 2018, London – The re-opening of corruption charges against former South African President  Jacob Zuma, relating to a 1999 arms deal, are a welcome step and should mark the beginning of justice finally being served, according to Transparency International Defence & Security.

Research from Corruption Watch UK into the scandal known as the ‘Arms Deal’ suggests billions of taxpayers money was squandered – at a time when the South African government claimed that there were insufficient funds to treat thousands of citizens for AIDS.

Andrew Watson, Head of Industry Integrity at Transparency International Defence & Security, said:

“We warmly welcome the news that Jacob Zuma may now finally face justice for his crimes. It’s a shame that these charges took him to leave office for a prosecution to take place – but it is encouraging that his crimes may now finally be catching up with him.”

“Jacob Zuma and the companies alleged to have paid bribes to him have escaped justice for many years. These charges must now finally shed some light on one of the largest defence corruption scandals ever seen and result in robust prison sentences for those found to have been involved.”

***ENDS***

Contact:

Dominic Kavakeb
020 3096 7695
079 6456 0340
dominic.kavakeb@transparency.org.uk

19^th January 2018, London – Commenting on an announcement by the Serious Fraud Office that it is investigating Chemring Group PLC, a British Defence Company, for corruption, money laundering and bribery, Andrew Watson, Head of Industry Integrity at Transparency International Defence and Security, said:

“It is disappointing to see another British defence company facing fresh allegations of systemic and widespread corruption, highlighting the very real challenges facing this unique sector.”

“Once again, intermediaries – long established as one of the highest corruption risks in defence commerce – are at the heart of these allegations.”

“Whilst it is encouraging that the company reportedly discovered the allegations themselves during an internal audit and that it was then self-reported to the SFO, we call for the company to fully cooperate with investigators and conduct an internal review of its anti-bribery procedures to discover what went wrong and why it wasn’t discovered before now. It’s vital that this investigation is thorough and perpetrators are brought to justice, no matter how high-up in the company they may be.”

Chemring scored a C in the Transparency Internationals most recent Defence Companies Anti-Corruption Index, meaning there is “moderate evidence” that they have anti-corruption measures.

Transparency International’s 2016 report “License to Bribe” identified the significant risks in the use of third parties and agents in arms deals, one area reported to be the subject of this investigation.

***ENDS***

Contact:

Dominic Kavakeb
020 3096 7695
079 6456 0340
dominic.kavakeb@transparency.org.uk

Weaponising Transparency has found that unpublished defence budgets and arms procurements are still open to abuse by corrupt officials seeking to benefit from the conflict with Boko Haram and launder stolen money abroad. Many deaths in the conflict have occurred while the military lacks vital equipment, critical training, and morale.

Since 2011, 50,000 people have lost their lives in the conflict with Boko Haram, while millions have been displaced. An estimated US $15bn has been stolen from the defence sector and billions of Naira spent annually without clear rationale. While President Buhari has made significant moves to take on the secretive and powerful defence sector, the pace of reform in the MOD is too slow and lacks any strategy.

This evaluation is based on a review of 8 indicators in Transparency International’s (TI) unique dataset, the Government Defence Anti-Corruption Index, analysing procurement control mechanisms, policies and procedures from 20 European government defence ministries collected during 2014 and 2015.

The paper identifies positive and negative practices across countries, as well as the overarching trends analysed in three areas; namely, the use of the essential security interest exemption, procurement transparency and competition.

Drawing on this analysis, the paper contains a series of recommendations to European governments and the Commission concerning the factors affecting the implementation of the Directive in these areas, and the issues that continue to require action at EU level.

Agents have played a key role in defence procurement for decades and many cases of procurement corruption have involved agents. They are widely recognised as one of the highest risk factors for corruption across the sector but, despite recent changes to the regulatory environment, the risks are as difficult to manage as ever.