Corruption

The arms trade is one of the most corrupt businesses in the world. One researcher estimated that 40% of all corruption cases in international trade are linked to arms deals - even though the arms trade only accounts for about half a percent of global trade.

Last updated: 16/07/2020

A corrupt business

Several factors make the arms trade, and especially major arms deals, likely to be corrupt:

  • The secrecy surrounding the trade;
  • The huge value of individual deals, providing opportunities for enormous bribes for individual decision-makers, even on just a few percent of the deal’s value;
  • The technical complexity of major arms deals, making it easy to hide corrupt payments in the deal’s value, and corrupt motivations in the selection process;
  • The desperate competition to make big sales by different arms exports;
  • The willingness of exporting governments to turn a blind eye to corruption, or even actively support it, to help their arms industry’s make the sale;
  • The close connection of the arms trade to top politicians in both buyer and seller countries also opens the way to the use of arms deals and the bribes that go with them for political gain, to fund election campaigns or line the pockets of key allies.

The UK has been involved in a large number of major arms trade corruption cases, many involving BAE Systems, the UK’s largest arms company, but also Rolls Royce, Airbus, and others. The UK government has often failed to take action in such cases, or even actively obstructed them.

Not a victimless crime

Corruption is not victimless. It undermines democratic accountability and drains resources away from health care or education. Projects involving bribes are often over-priced to allow the companies to recoup the money spent on bribes, and these costs can be passed on to the consumer or taxpayer in some form.

When South Africa signed deals worth $5 billion for arms it didn’t need in 1999, it was in the midst of the horrific HIV/AIDS epidemic, yet the government claimed it could not afford life-saving anti-retroviral drugs for its citizens. The arms deals, with arms companies from five European countries, including BAE Systems in the UK, were motivated by at least £300 million worth of bribes paid by the companies to key decision-makers in the South African government.

Opinion has moved strongly in the direction of seeing corruption as a wrong which distorts trade, and in 1997 the Organisation for Economic Cooperation and Development (OECD) adopted an Anti-Bribery Convention. In the UK, a clause in the Anti-terrorism, Crime and Security Act 2001 made bribing a foreign official a criminal offence from 2002. Dedicated anti-corruption legislation came with the Bribery Act 2010, which came into force in July 2011.

Further reading

Book cover "The Shadow World: inside the global arms trade", author Andrew Feinstein. Image of children with guns.

The Shadow World: Inside the Global Arms Trade

The Shadow World by Andrew Feinstein, 2011: Pulling back the curtain on the secretive world of the global arms trade, Andrew Feinstein reveals the corruption and the cover-ups behind weapons deals around the world.

BAE allegations

Rumours of corruption around the BAE Systems Al Yamamah deal with Saudi Arabia – the UK’s biggest ever arms deal, worth tens of billions of pounds, including Tornado fighter and Hawk trainer aircraft, started almost as soon as the contract was signed in 1985.

By 2004, after allegations about the company’s deals in a number of countries, the Serious Fraud Office opened an investigation. They are believed to have found evidence of as much as £6 billion of bribes paid to members of the Saudi Royal Family and other key individuals, including over £1 billion paid to Prince Bandar bin Sultan.

However, Prime Minister Tony Blair ordered a halt to the investigation in December 2006 to protect relations with Saudi Arabia and ensure that the huge Al Salam arms deal for Typhoon fighters, the successor to Al Yamamah, went through in 2007.

In response to the many allegations, in June 2007 the BAE Board asked the former Lord Chief Justice, Lord Woolf, to review and evaluate the Company’s policies and processes relating to ethics and business conduct. The Woolf Committee, whose remit did not extend either to the nature of the company’s business nor to past allegations, reported in May 2008. The company said it would implement the recommendations.

Several other major arms deals by BAE Systems have involved large scale corruption. In 2010, BAE Systems were fined $400 million by US authorities in relation to these corrupt deals, including Al Yamamah.

“…deception, duplicity and knowing violations of the law, I think it’s fair to say, on an enormous scale”.

– US District Judge John Bates on BAE’s actions in the corruption cases

CAAT reports on corruption

UK Export Credits Guarantee Department

UK Export Finance (formerly and still legally known as the Export Credits Guarantee Department) insures UK export deals, including arms deals, which are too risky for the private market to touch, reporting to the Secretary of State for Business, Innovation and Skills. It is subsidised, so while companies pay premiums, the UK taxpayer would pay for any corrupt deal.

In May 2004, the Export Credits Guarantee Department introduced tough anti-bribery procedures in an attempt to make sure that projects it supported were not tainted by corruption. However, following lobbying by BAE and engine maker Rolls-Royce, these were weakened in December 2004.

After a legal challenge by anti-corruption group, The Corner House, the Government agreed in January 2005 to hold a public consultation over the proposals. As a result, the Export Credits Guarantee Department reintroduced key anti-corruption measures in July 2006, including a requirement on exporters to name agents involved in the transaction.

However, in 2010 at the end of the Labour government, the department weakened its anti-corruption procedures for projects where an overseas export credit agency might also be involved.

SANGCOM allegations

Following allegations by whistleblowers, the Serious Fraud Office (SFO) began a criminal investigation in August 2012 into GPT Special Project Management – a subsidiary of Airbus UK – with respect to the Saudi Arabia National Guard Communications Project (SANGCOM), through which GPT, working with the UK Ministry of Defence, provides ongoing communication equipment and services to the Saudi National Guard.

The GPT whistleblower, who had to flee Saudi Arabia by night to avoid arrest, provided evidence of large bribes paid to Saudi decision makers. The SFO requested permission from the Attorney General to launch a prosecution in March 2018. After over two years of procrastination by successive Attorney Generals, the SFO finally announced charges against GPT and three individuals, including the former GPT Managing Director, in July 2020.

OECD criticism

The UK came in for considerable criticism in an OECD Anti-Bribery Working Party report (PDF) in October 2008, which followed from the decision to stop the SFO inquiry BAE’s Saudi deals. The damning report highlighted the lack of progress on anti-corruption legislation, the failure to consider alternatives to pulling the investigation and the delay in responding to the United States’ request for Mutual Legal Assistance with regard to its Department of Justice investigation into Al Yamamah.

The Export Credits Guarantee Department also came in for strong criticism. The SFO gave the department evidence regarding allegations involving misrepresentations made when the insurance cover was obtained. The report expressed serious concern that nothing was done to follow this up.

See also

Eurofighter Typhoon large outdoor poster captioned Effective, proven, trusted. Flats behind include German, Spain, Italy UK

Export Credits

One important way in which the government supports the arms trade is by providing insurance for arms deals. UK Export Finance (UKEF) guarantees that companies and banks involved in an export deal will not lose out if the overseas buyer does not pay, or makes late payments.

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