Stamp out corruption, and you tame the arms trade. That's the broad conclusion of political economist Joe Roeber, who argues
that arms sales are inflated by the trade's unique susceptibility to bribery. In recent years the UK's largest arms companies have worked hard to hamstring government anti-bribery measures. In a rare victory for commercial probity this week, they substantially failed.
First, the science bit. Roeber's argument is that the arms trade is 'hardwired for corruption'. Like other big manufacturing or infrastructure projects, arms sales consist of large, discrete, randomly separated deals that can individually make or break a company. The temptation is huge to go the extra step to seal a deal. Unlike other trades, though, arms sales usually operate behind a veil of government secrecy. In this heady environment, bribes in turn inflate demand, and the proliferation of weapons. The US Department of Commerce estimates that "half of all bribes paid between 1994 and 1999 involved defence contracts, despite the fact that arms constitute only 1% of world trade". In the blunt words of Sir Donald Stokes, the businessman employed by Harold Wilson's government in the mid-1960s to develop the British arms industry's first export strategy:
"a great many arms sales were made not because anyone wanted the arms, but because of the commission involved en route".
Stopping bribery might not stop the most dangerous arms sales, which may still be motivated by inducements other than those deposited in Swiss bank accounts - not least the terrible magnetism of a brewing conflict. But there's little doubt that robust anti-corruption measures would go a long way to ending unwanted arms sales that divert resources away from health, education and infrastructure across the global South.
In 2004, the battle against the bribe quietly entered a new chapter here in the UK. The Export Credit Guarantee Department (ECGD), a section of the Department of Trade and Industry, announced an unremarkable set of new regulations. ECGD acts as an insurer of last resort to export deals regarded as particularly important or risky. If the buyers default on their payments, ECGD coughs up instead, covering the shortfall with money borrowed on the public purse. To prevent public money from being used to underwrite corrupt activity, ECGD demanded amongst other things that companies applying for ECGD support would henceforth have to tell them the identity of agents employed to seal the deal - historically shown
to be the key conduit for bribes to be paid at arms length from companies.
Pretty reasonable, you'd think, that an insurer should be able to know (in confidence) whether questionable or notorious individuals were involved in a contract being backed by taxpayers' money. . .
Cue a closed-doors lobbying effort by major arms and aerospace companies including BAE Systems, the UK's largest arms manufacturer. After which, in late 2004 the government backed down, secretly reversing the rules back to its previous 'see no evil, hear no evil, speak no evil' attitude.
Anti-corruption campaign Corner House
then took the heroic financial risk of taking the government to court
to force a judicial review of the reversed rules. The government lost, and a further - more open - consultation was finally agreed in early 2005. And this week, after much foot-dragging, ECGD announced that it would
, after all, be demanding that companies disclose the identity of their agents as a condition of getting its financial backing.
Most striking has been the leading role of the arms industry in all this. ECGD underwrites a range of exports, only about a quarter of which are military equipment. But of the 6 submissions made by individual exporters to the most recent consultation
, 4 came from arms companies (including 3 from BAE Systems), as well as one from the civil aerospace manufacturer Airbus, in which BAE holds a 20% share (CAAT's own submission is here
The ECGD held only one face-to-face meeting during the consultation, with the Confederation of British Industry (CBI)
- the leading lobby organisation for the whole of British business. Fair enough - business carries the burden of regulation. The minutes
of this meeting, though, make interesting reading. A 3-person delegation labelled as CBI officials met the ECGD - representing, remember, all of the UK's exporters. Who were they?
Richard White I can't place. Sue Walton, also the chair of the British Exporters Association, just happens to have a day job at Rolls Royce
, a company with (in its own words) the world's
"largest military engine customer base"
, powering around a quarter of the world's military aircraft and supplying over 160 armed forces.
Admittedly Rolls Royce also has wide non-military export interests. But who's the CBI official leading the delegation? One James Caldwell, chair of the CBI's Export Finance Committee, and also an executive vice-president at. . .
. Cosily, Mr Caldwell also signed off BAE's own submission
to the consultation (this time wearing his BAE hat).
There's no denying that Mr Caldwell has frontline knowledge of the export world's business exigencies. Back in 2003 the US Assistant Secretary of State accused BAE of offering bribes in its lobbying efforts to get the Czech government to buy a batch of its Gripen fighter jets. Hours before a crucial parliamentary vote on the issue, three Czech senators allegedly received unidentified phone calls offering them inducements to back the purchase. One senator went to the Czech police. The phone calls were never traced back to BAE, who robustly denied the allegations. As a side story, though, the Guardian newspaper
that it had got hold of a leaked email from BAE's finance department detailing "corporate favours" offered to the boss of an influential but financially troubled private television station, TV Nova, with the prospect of a favourable media campaign for the Gripen sale.
Who wrote the email? Er . . . one James Caldwell.
In a leaked email, James Caldwell from BAE's finance department offered to introduce the owner of the troubled station, Vladimir Zelezny, to the bank which was financing the BAE Gripen bid.
Caldwell wrote: "Before the Czech Republic entered Nato, TV Nova produced and aired shows supporting Czech membership of the alliance, which influenced a lot of people. With regard to the current atmosphere in the Czech Republic, where the fighter issue is being actively discussed, we should not underestimate the seriousness and value of Mr Zelezny to our campaign."
BAE said: "Mr Zelezny asked us to help to arrange a meeting. We were never going to be party to the meeting or any financing for Mr Zelezny."
BAE was also fined $10,000 (£6,000) by the Czech authorities for illegally buying newspaper space to promote the arms deal.
Of course, there's no suggestion that Caldwell did anything illegal. But lobbying efforts surrounding arms deals evidently involve activities that are - at the very least - grey. Disclosing minimal details of the people involved - even confidentially to a UK government agency - is clearly a major problem. As the CBI themselves told the ECGD
there were occasions where a customer legitimately wanted the agent’s profile to remain low. Insensitive enquiries may upset a customer.
Quite. And the more these low-profile agents and anonymous middle-men are brought out into the open, the more we're likely to see the real motivations behind many of the UK's largest export deals. The ECGD's decision is a small but significant victory in this direction.