|The challenge of corruption in the arms trade: Experience to date and prospects for action|
Introduction by Laurence Cockcroft regarding the development of this effort from Transparency International, beginning with the interest from TI UK, the colloquium held in Stockholm in February 2000 and the follow-up conference held in Cambridge, UK, in May 2001.
Contribution by Admiral Tahiliani (abbreviated)
We need to import and we will continue to import for many years to come. Corruption in the arms trade and infrastructure are two areas where lots of money can be made from corruption because many transactions are done secretly. Unnecessarily, I must add in many cases. I imagine that the instances that have come to light in recent years from 1987 (the Bofors scandal and the subsequent HDW scandal involving naval purchases) were happening before as well, but they only emerged at that time and since then. At that time there was talk of 7 percent commissions. I believe that they have since become higher. Kickbacks were deemed by some to be necessary by some as part of political party financing to fight the political process as something that worked for democracy.
In India spending has tended to vary between 2.3-3.9 per cent of GDP. The money that is lost through kickbacks would be much better spent on development and better purchases.
Now that there is greater awareness of the scale of kickbacks and corruption in the arms trade and in March this year there was series a sting operations by Tehelka.com that offered bribes to senior officials. When they were exposed all hell broke lose. The head of the largest party in the present coalition and the defence minister were both photographed accepting money by the Tehelka journalists.
As a result of the Cargill operation in 1999, the Commission of inquiry stated that the defence operations in South Africa are defective. The politician who is politicking has no time to get involved with serious matters. These contracts were negotiated by civil servants who OK'd them. People who wear uniforms were not the ones taking kickbacks in this process. They set the terms for their requirements.
As a result of these commissions, the government has taken the decision to overhaul the defence apparatus.
I wrote an article on corruption in the arms trade in The Statesman which was approached by the Ministry of Defence, and they provided information on integrity pacts. Michael Wiehen came to India, spending three days on providing advice and at the working level advising on the implementation of such an approach. This is now going to be made a standard operating procedure in the procurement process. We do have to keep our fingers crossed - once the rules have been laid down the politicians won't be able to do anything.
I am reasonably hopeful that this might bring about a significant change. The receivers of bribes, however, are only one part of the story. What must happen now is that the buyers must change so that they don't demand, but equally important the seller must be told about the OECD convention and the laws operating both in the country of the buyers and the sellers. Taking these two together a certain amount of sanity could be brought about.
Some years ago agents in arms deals were outlawed. The fact is that they have not disappeared. They have only gone underground. If there had been official agents, an expose like Tehelka's would not have happened. They were pretending to be agents. They were also people who had influence. We must address this problem as well. Now the defence ministry will entertain agents who will be nominated by the seller companies with well defined terms and commissions.
The quality and staff requirements are being made known to the sellers, and so in fact the outside world knows. All the terms of contract should be made totally transparent. Here again I am happy to say that the future purchasing requirements are going to be put on the Internet for all to see. I often believe that things happen by accident. We remain in dialogue to continue working on this issue.
Contribution by Dominique Lamoureux (abbreviated)
Thales is now a new group with a new identity to respond to a completely new reality.
Economic change is mainly seen in the decrease in defence budgets. It is also a very competitive environment. We also need to develop this new identity because we have to develop the capacity to be open to dual use. And, we are in a new environment institutionally. Now there are three business areas where aero consists of 18 percent, defence 57 percent and IT&S accounts for 25 percent. Through acquisitions and joint ventures more than 50 percent of 65,000 employees work outside France.
The new international environment is not just the end of the Cold War but also an environment in which defence is being completely rethought by our politicians. We are also facing new customer demands. Besides, the countries that now want to buy our products want us to help them develop technology, employment, etc.
The buyer-seller relationship has thus been completely modified. There is today a new perspective and regulation which transform the level playing field. Export control is no longer just under the control of national sovereignty but is more and more internationalised. But also in the field of arms and weapons there is the influence of the European Commission, the Letter of Intent framework agreement organising the controlled export of weapons. Also, there is the new OECD convention on international bribery. We must therefore adjust our international organisation and practices.
How can these new concerns regarding bribery and corruption be implemented? I don't think we live in a world where we can continue to manage by directives. You need to ensure that what you want is bought and owned by staff. You need to be innovative to remain competitive and must develop what we call collective intelligence and confidence. We are using the following tools:
Shared confidence based on The Thales Compliance Strategy
Corporate commitment at the highest level
Centralised organisation to manage questions related to international environment: Thales International
Contractual relations with operating units
Rigorous procedures for the selection of agents
Strict oversight and auditing
Internal control programmes
Launch of ISO 9001/2000 programme within Thales International
Code of Ethics
We need equivalent conditions to those of our competitors in order to motivate staff.
Coherent process to ensure compliance with multiple initiatives (OECD convention, Council of Europe conventions, European Union convention, Palermo Convention, the UN Universal Convention Against Corruption, signed by all industrialised countries including OECD countries.
Passive corruption, private corruption, functional equivalence, concept of advocacy, credible standards, discussion of new paradigm.
I will quote from a French law on new economic regulations (NRE): "The annual report indicates how the company's foreign subsidiaries ensure that they uphold the human rights of people affected by their business activities. It also mentions the internal provisions in place to combat money laundering and bribery."
This should go further to subcontractors and go in the direction of a kind of extra territoriality.
Question from the auditory:
Why should we believe you?
Contribution by Anne Charlotte Wetterwik (abbreviated)
As to the export of conventional arms: one of the achievements of the COARM process is the group within the European system to promote responsibility within arms transfers, and during the Swedish EU presidency earlier in 2001 there was an attempt to introduce a code. It became apparent that COARM would be the only group within the European system to address this problem.
Corruption in the official arms trade is not a disarmament issue. The plague of corruption should be seen as an economic and social concern both for the exporting businesses and the purchasing governments.
The Integrity Pact is applicable to this trade. It does need to be adapted to the requirements of national security and some fine tuning. What we hope to achieve in the future can be summarised as the following:
Working on the IP within the EU - we are giving them a tool that promotes trust both on the importing and exporting side. We cannot, however, force the importers to use this unless we are willing to apply it ourselves. We are hoping to apply these rules within the EU. This may be in the distant future. In Sweden we are going to work on this issue to present it to our EU colleagues and to start acting on a global scale. We also need to spread the message in other international forums and more broadly within the EU framework.
Contribution by Colm Allan (abbreviated)
I will start with the introduction of the South African arms trade. Agusta, Daimler Chrysler, Thyssen, Ferrostahl and HDW are among the companies that won this contract. The cost of the deal represented approx. Rand 30 bn (until recently the exchange rate was R8 = $1). It was justified on the basis of the R 110 bn that the ministers said would return to the country and the creation of 65,000 jobs through counter trade offsets, etc.
The project included a deep water port and an industrial development zone, the promises that were made sounded alluring and made many people support the idea. Two years down the line, not a cent of foreign investment has found its way into the Eastern Cape and none of the successful consortia have invested in the Cape or in the planned industrialised zone. Now the contract has increased to R 66.7 bn, increasing very significantly.
The South African government has now decided to proceed with the construction of the deep water harbour. The infrastructure for this project is being paid for from public funds, not through the private investors and would cost an additional R 4.65 bn of state funds. The terms of awarding the deal to the successful suppliers were never made public.
Questions and answers section
Can there be complete transparency in arms procurement?
Lamoureux: We will follow whatever laws are made. More transparency is only an advantage for companies.
Wetterwik: There could be more but there are limitations.
Arms procurement is not a business decision; it is also matter of geopolitical, political, technology, and security concerns. Value for money is not the only factor that can go into understanding corruption.
Lamoureux: There is no market for specific types of weapons like cars and other products which are well established. But we can make a difference between the concerns of governments that are specific to this issue and the economic aspect of the deal where there can be much more transparency.
Callan: The process itself should be transparent. We face no military threat on the continent. The one threat that we do face is that we have the highest AIDS rate in the world.
We don't even have the basic data and figures on the arms trade. Two thirds of the world's governments don't publish their defence budgets. What can we do to improve that?
Sweden publishes its trade and sales information and has started the process to increase the flow of information within the EU. There has been progress made on tracking and marking small arms recently.
Tahiliani: This information should come from the supplier countries. The vast majority comes from the industrialised world. OECD signatory states could have a convention on this to force this to be more open.