Disarmament Insight


Thursday, 23 April 2009

A corrupt trade

Yesterday, South Africans headed to the polls to elect their national and provincial leaders in the fourth democratic elections since the end of Apartheid. In spite of bad weather conditions and various other difficulties that have beleaguered these elections, the leader of the African National Congress (ANC), Jakob Zuma is widely expected to take over as South Africa’s next President.

Until recently, Zuma faced charges of corruption relating to a massive arms deal signed in 1999 to modernize the South African defence force. The procurement package comprised the acquisition of aircraft, helicopters, submarines and ships at a cost of 29 billion Rand (then 4.8 billion USD). Evidence supporting allegations that Zuma had accepted bribes came to light in 2005 during the trial of his former financial advisor Shabir Shaik, who was convicted for his role in the deal. But earlier this month, the National Prosecuting Authority dropped the charges against Zuma on procedural grounds.

Zuma is by no means the only high ranking government official to be implicated in a defence-related corruption scandal, nor is it the first time that an investigation into such a scandal has been called off before it could unearth the whole truth. According to Transparency International, a leading civil society organization in the fight against corruption, the defence sector is among the top three sectors for bribery and corruption. The industry’s share of corruption is grossly disproportionate to its share of trade. Arguably, corruption in the arms trade accounts for about half of all corrupt transactions globally.

The controversial South African arms deal involved companies from Germany, Italy, Sweden, Britain, France and South Africa. The French arms manufacturer Thales, for instance, allegedly paid Zuma 500’000 Rand a year (about 85’000 USD in 1999) as an incentive to sign a 400 million USD contract for South Africa’s new warships and in exchange for protecting Thales against an investigation into the arms deal. The French police raided Thales’ headquarters in Paris, but the case was allowed to go cold after a visit by former South African President Mbeki to France. Thales has been the subject of several other judicial inquiries, including its 1991 sale of six La Fayette frigates to Taiwan. French industrialists are suspected of having paid hefty commissions to politicians in Taiwan and of having organized a system of payback of money to French politicians. In 2003 Taiwan sued Thales to recover 590 million USD in kickbacks deposited in Swiss banks.

Also involved in the South African arms deal was the British arms manufacturer BAE and its Swedish partner Saab. According to the British Guardian newspaper, BAE paid more than 100 million GBP in commissions through various secret routes, including Swiss bank accounts and a Swiss-based off-shore company, to win a contract to supply fighter jets to South Africa. BAE has also been the subject of investigations by British and foreign authorities regarding its activities in Bosnia, Nigeria, Zambia, Costa Rica and Egypt, Tanzania, Romania, Chile, the Czech Republic, Qatar and Saudi Arabia. The investigation by the British Serious Fraud Office (SFO) into the Saudi arms deals was stopped after threats from the Saudi ruling family and the intervention of then British Prime Minister Tony Blair (read all about it here). This caused international uproar and Britain was severely criticised by the OECD in a 2008 report. A month ago, the British government finally acted on one of the OECD’s demands and submitted a draft bribery bill to Parliament.

Corruption, it appears, is not peripheral to the arms trade, it is at the centre of procurement decision-making. But why is the international arms trade so prone to corruption? Among the factors that contribute to this sordid state of affairs, Transparency International lists excessive secrecy invoked in the name of national security, the technical complexity of arms deals and the high value of products, widespread use of off-sets in the form of investments in the local economy by the company winning the contract, widespread use of agents and embedded networks of intermediaries, extensive use of single source bidding, use of military expenditures not approved by Parliament, and lack of implementation of the OECD Anti-Bribery Convention by States Parties.

The payment of huge bribes and corruption in the arms trade distorts and inflates the prices. It leads to unnecessary spending and waste of resources in both, importing and exporting countries and hampers economic development. In exporting countries tax payers’ money is used to pay massive subsidies to the indigenous arms industry and for export credit guarantees. Governments thereby become complicit in defence companies’ bribery. Corruption scandals can seriously undermine public confidence in democratic institutions, as a German case demonstrates, where some of the profits from an arms deal with Saudi Arabia in the early 1990s flowed back to Germany in the form of party donations to the Christian Democrats.

As roughly two thirds of arms transfers are to developing countries, corruption in the arms trade diverts colossal sums away from much needed investment in public health, education and infrastructure projects. This represents a huge opportunity cost for the citizens of these countries. In addition, the supply of arms can contribute to the destabilization of regions, exacerbate arms races and increases the global burden of armed violence.

Some believe that if the international legal arms trade ‘ceased to be a honey-pot for the enrichment of the well-connected, it would dwindle into an irreducible strategic reality.’ Consequently ‘removing or even significantly reducing corruption would do more to reform the trade than any other single act.’ Transparency International and other NGOs have undertaken important initiatives to that effect. Their recommendations include the creation of industry consortia against corruption, integrity pacts, the development of good practices, the strengthening of national and international instruments against bribery in the defence sector and their effective application, increased civil oversight into the defence establishment, democratic control of the procurement sector and parliamentary oversight over all military expenditures, as well as procurement reforms and external periodic procurement reviews as part of broader security sector reform.

Military procurement has always been an intensely political activity, but today, it is perhaps ‘realistic - and increasingly possible - for civil society organizations to play an active and critical role in defence governance’.

Maya Brehm


Photo Credit: 'South Africa's Latest Fighter - Gripen from Sweden' by DanieVDM on Flickr.