The Armourer's Faith

The arms trade, militarism and corruption

Why the Arms Trade Treaty is a failure

The text of the treaty is available here, it may be helpful for keen readers to have a look through. Please do post comments or message me on twitter (@pace_nik) if I’ve missed anything or you would like to discuss anything.

This week in New York the UN General Assembly passed the Arms Trade Treaty. NGOs and countries hailed the treaty as a great step forward in the control of the “illegal” arms trade. But will the ATT actually do any good, or if it might in fact even do harm.

It’s a strange world when I am against more regulation of the arms trade but there are major concerns that a weak treaty, will lead to the justification of the status quo and entrenchment of the interests of arms exporters.

Firstly though what is good in the treaty? The completion of the treaty itself comes after over a decade of campaigning by groups such as Amnesty and Oxfam. To have mobilised a support base of citizens and states to even consider an international treaty on arms exports is impressive. The treaty does cover the basic idea that the international trade in arms should at least be controlled and that considerations of human rights, humanitarian law, organized crime and diversion are relevant.

A treaty was always likely to be one of the few ways of effectively limiting the arms trade and eliminating gaping holes in arms export control worldwide. Therefore a standardised system is the only kind that could eliminate loopholes and prevent playing one country off against another, moving arms transfers through less regulated regions or lobbying governments or creating a race to the bottom on export laws.

However a weak treaty does none of these things well, instead legalising and legitimating the awful status quo will solve nothing and could set real action back by decades.

The most important part of the ATT are the risks it assesses for prohibiting arms sales and how these risks have to be assessed to make a decision of whether or not to allow the export of arms. The ATT’s criteria that should be considered in exporting are as follows. Firstly whether they would contribute to or undermine peace and security; or could be used to commit or facilitate a serious violation of international humanitarian law, human rights law, terrorism or transnational organised crime. The risk of a contributing to or facilitating serious acts of gender based violence or violence against women or children is also included.

The standard against which these issues have to be judged to determine whether the export should not be authorized is if there is an “overriding risk” of any of the negative consequences mentioned.

Each country is left to make their own subjective judgement of where an “overriding risk” exists. Also it is left to the imagination what other factors the risk is overriding. There is no prohibition on countries considering their political, military or economic factors that might be in favour of allowing a risky arms export. Nor is the term “serious” defined anywhere. Is there such a thing as a non-serious violation of humanitarian or human rights law?

Even in cases of serious violations space is allowed for countries to argue that the risk is sufficiently mitigated to allow the exports anyway.

Whilst countries are inviting to cooperate in their assessment there is no mechanism to enforce any minimum standard and each country will almost certainly continue their current behaviour, justifying it in exactly the same way they used to, except saying that it is compliant with the ATT.

There is of course a positive bias inherent in this system, it relies on the states both knowing and appreciating the risks involved in the arms transfer in order to build a case to stop a transfer. A safer system might be to prohibit any transfer unless its safety and compliance can be proven.

There is also no mention of any end use monitoring system, where exporting states are responsible for keeping checks on where their exports are finally sent and how they are used. This would help ensure that the arms are not re-exported to another more risky country later without the original exporter knowing.

The criteria are also nearly stripped to the bone, only including humanitarian law, human rights, peace and security, and gender-based violence. No mention is made of internal repression, corruption or socio-economic development to mention a few. The arms trade kills huge numbers through these routes yet they are not even mentioned.

Key failings in the treaty also include the creation of an exemption for defence cooperation agreements, essentially allowing any arms deal to avoid the ATT if it is undertaken between states. Record keeping is not clearly set down to create a universal standard, instead the data to be kept is only suggested not enforced and there is no transparency measure in place to force states to reveal their data or their decisions on arms exports internationally or to their own citizens.

A real example of why the treaty will not work though is clearly provided by current situations. One of the major rallying calls used in campaigning for the ATT is that Russian arms export to Syria would be prevented. However Russia (if they ratify the treaty, they stood aside from the vote) would authorize the exports on the same grounds they do now. Similarly an effective ATT should prohibit UK arms exports to countries like Saudi Arabia, where an absolute authoritarian government continues to repress its own population and has likely used UK equipment for human rights violations and war crimes in Bahrain and Yemen in recent years. However there is no sign that the UK government would change its decision making following the ATT. They would argue that there is not a clear enough risk to stop exports, that economic and political considerations are more important and that in any case major arms deals to the country take place in state to state deals that are exempt. Indeed the Head of the UK Foreign Office’s Arms Export Policy Department has revealed that the Department has reassured countries in the Middle East that a treaty “would in effect implement criteria that are very similar to those we currently implement” and “would not add anything on top of that.” (Committee on Arms Export Controls, 19.12.12, Q136)

The real attitude of UK officials was also shown as when the ATT was being passed in New York, UK Ministers were in Libya – aboard a warship – promoting arms sales.

The treaty was likely always doomed to failure. There is not yet a groundswell of political opinion opposed to arms exports in the major exporting countries who have the most political clout in the first place. The consensus based process demanded by the United States meant that the treaty was also likely to be set at the lowest possible standard. The US did finally support the treaty, after the US presidential election was finished and the NRA’s conspiracy theorists were distracted by the prospect of US domestic gun controls. Indeed the US media hardly covered the ATT at all (only the New York Times and Fox News had any real coverage and the latter was almost entirely based on NRA talking points).

The major arms exporters were not about to allow any real implementation of standards higher than those they already have, the UK and US made that particular position very clear while other countries such as Russia may refuse to follow the ATT at all.

The final treaty was not passed through the consensus method after Iran, North Korea and Syria blocked the treaty, but instead through a vote at the General Assembly. The damage to the treaty had already been done, with such a weak draft being presented.

I have discussed the likely problems in the ATT before in public with colleagues I respect from Amnesty, Oxfam and IANSA as well as the UK’s former ambassador on the treaty John Duncan and I have a lot of time for the noble efforts made to try to achieve an effective treaty. The strongest argument I heard was that a decent treaty, that is reasonably strong would not work immediately but could be used to build pressure internationally to force real results in decades to come.

The passing of the treaty was met with a great deal of self-congratulation, but the support of organisations like Amnesty and Oxfam for a treaty that will rubber stamp the status quo of the appalling current system will likely disappoint or delude the activists that supporting the treaty. Some organisations such as Campaign Against Arms Trade in the UK have declined to support the treaty, their reputation may be maintained but activists and politicians are sadly more likely to ignore their arguments on the incorrect grounds that the ATT has solved the serious problems of the arms trade.

The pre-amble to the treaty recognises the “legitimate political, security, economic and commercial interests … in the international trade in conventional arms.” I would argue that in fact the UN’s predecessor, the League of Nations’ Covenant was closer to the truth in 1920, nearly a hundred years ago when it said “the manufacture by private enterprise of munitions and implements of war is open to grave objections.”

The victims of the arms trade are ignored so that war profiteering, power politics and corruption are allowed to thrive.

The MoD’s revolving door, part of systemic corruption in the arms trade

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A few weeks ago yet another scandal was uncovered at the Ministry of Defence. Sunday Times journalists, pretending to represent a South Korean arms company, approached a number of well known recently retired military officers and officials, asking for them to lobby on the company’s behalf in exchange for £8,000 per month.  Nearly all those approached leapt at the opportunity, promising that they had the private ear of power brokers and decision makers.

That these officials do possess the contacts and insider knowledge that could help an arms company is not in doubt. Among those caught in the sting were General Lord Richard Dannatt, former head of the army, who was quoted as saying he had engineered a seat at a formal dinner with the Ministry of Defence’s new permanent secretary, Jon Thompson, to help another company, Capital Symonds, which is bidding for a £400m contract to manage the MoD’s estates. Both Dannatt and the company deny this, Dannatt claims the reporters misunderstood him. Lieutenant General Sir John Kiszely, president of the Royal British Legion, claimed he knew the ten generals who controlled procurement and was spending Christmas with the armed forces minister. What is more with remembrance day coming, what better moment than when mourning the deaths of thousands in war, to advertise his client’s weapons with the Defence Minister, the Prime minister and royalty.

It is not only military officers who can be caught red handed attempting to profit from their former role. Only two years ago a range of former cabinet ministers, including Geoff Hoon the former defence minister and Stephen Byers, the former Transport Minister boasted to journalists of their ability to influence government policy and offering to work for a fictitious lobbying firm for £3,000 to £5,000 per day. Byers memorably described himself as a “cab for hire”. In October 2007 Lord Hoyle (a member of the house of Lords) was caught being paid a fee to introduce a lobbyist for BAE Systems, to the defence minister, Lord Drayson. The lobbyist had also a security pass as a ‘research assistant’ from another MP.

When senior officers, officials and ministers leave office they do not necessarily lose touch, nor is it easy for those left behind to refuse the requests of their former boss for a meeting, a piece of information or a good word. There is a theoretical ban on those leaving government posts from lobbying their former department for two years, however the ban does not carry legal force. As Admiral Sir Trevor Soar, commander in chief of the Royal Navy fleet until last March, caught in the most recent sting explained; all his private work had been officially approved thus far, with the term consultant being preferred; “theoretically we are banned from lobbying ministers … we call it something different”.

According to freedom of information requests, last year arms and arms-related companies gave 231 jobs to former senior officials and military personnel. Over the last sixteen years MoD senior officials and military officers have found 3,500 jobs in arms companies where their insider knowledge comes in useful. Campaign Against the Arms Trade keeps a log of high profile movements between government and the arms industry. The majority of recent defence ministers have also found themselves working for various arms companies.

However, the revolving door between the government, military and arms industry is not only a matter once out of the doors of the Ministry of Defence. Corruption is the arms trade is systemic. According to the most authoritative estimate based on the work of intelligence agencies globally the arms trade accounts for 40% of corruption in global trade[i]. Furthermore the corruption to be feared is not only where suitcases full of cash are exchanged but the more subtle and insidious corruption where decisions are biased over a long period of time.

With the promise of lucrative employment in the arms industry on their retirement from officialdom, soldiering or politics, a choice that could favour a potential employer may be slowly twisted, to the advantage of an arms company and the detriment of others.

Arms industry figures are invited into the halls of power as well, as part of a network of advisory bodies the Ministry of Defence and Business departments hear from the Defence Suppliers’ Forum, the Aerospace Business Leaders group, the Aerospace Growth Partnership and many others. These bodies, dominated by arms industry figures gives the companies inside access to senior officials and plans, for example at the June 2010 meeting of the National Defence Industries Council 13 senior arms industry figures had access to 16 top-level government people including the Defence Secretary Liam Fox and three other ministers.

Free rein is sometimes literally given to arms industry lobbyists. In 2007 it was found that 38 BAE Systems employees held passes to the Ministry of Defence, allowing them to come and go as they please. Passholders included BAE’s Julian Scopes, at the time the company’s chief lobbyist and formally private secretary to Conservative Defence minister Alan Clark, who has been implicated in BAE’s alleged bribery campaign across eastern Europe[ii].

Arms industry figures are sometimes not only invited into government buildings, but given a comfortable desk and salary as well. Up until 2008 the head of the UK arms export promotion unit was an arms company executive seconded into the role, who had his official salary topped up with income from arms companies. Alan Garwood, a senior BAE official, also interviewed by the Serious Fraud Office over BAE corruption, had his official civil service salary topped up to £400,000. Recently Garwood, back with BAE since 2007 and given a CBE that year, joined David Cameron along with five other arms company representatives on the official visit to the far east in April this year. Furthermore BAE’s Chairman Dick Olver, was reportedly offered the post of Trade Minister in 2010.

Biased decisions on military matters can cost taxpayers billions and serving soldiers their lives. The UK government plans to spend £46 billion on the military in 2013, the fourth largest military spending in the world[iii]. The power to decide the destination of this money is concentrated in relatively few very valuable deals decided by a small group of powerful decision makers whose secrecy is guaranteed by national security and commercial confidentiality. Furthermore the technical detail of so many arms deals and their complexity, together with the intimacy of buyers, sellers and brokers and the pressures of procurement especially at times of conflict makes the situation perfect for corruption.

The arms industry has become very adept at influencing the key power brokers, using promises and threats to ensure the decisions they want are made. In 2010 BAE Systems “held a gun” to the head of the Prime Minister to prevent the cancellation of the contract for two aircraft carriers for the Navy. There was only money to ever use one carrier and that carrier will not have aircraft for many years, nor as the National Security Strategy explains is there in fact any need for aircraft carriers for the UK in the foreseeable future. Yet if the government cancelled BAE threatened to sack 5,000 workers, dismantle their shipyards and bill the taxpayer nearly the same cost for zero aircraft carriers. As Robin Cook, former Foreign Secretary observed in his 2003 book “I never once knew number 10 come up with any decision that would be incommoding to British Aerospace”.

A similar situation prevailed in 2003 when a contract for trainer jet aircraft was gifted to BAE without any competition. BAE and its supporters in government argued that if it was not given the contract, worth £3.5bn, it would make 2,670 workers redundant as well as lose an upcoming arms deal with India. The Treasury warned that the deal cost the taxpayer £1bn more than a rival offer from an Italian company would have, had there been any competition.

The UK’s arms industry is consistently promoted, protected and subsidised by the UK government with ministers taking a personal role in promoting arms sales as well as more civil servants promoting arms sales than devoted to promoting all other British exports combined. The arms industry an annual subsidy to arms exports of at least £500 million every year. Yet the arms export industry has haemorrhaged jobs over the last three decades, only employing 55,000 people today, each being subsidised by nearly £10,000 each per year. As the Financial Time’s Alan Beattie put it “You can have as many arms export jobs as you are prepared to waste public money subsidising

The UK spends huge sums on the military procurement, with an industry known for its endemic corruption, yet there is almost never any penalty for those who break the law, where laws exist. Corruption rots away democracy. Corruption whether legal or illegal, subtle or brazen between the arms industry and government will cost taxpayers money and human lives.


[i] This figure was calculated in 2003 by Joe Roeber in work undertaken for Transparency International. Roeber, J., ‘Hard-wired for corruption: the arms trade and corruption’, Prospect, no. 113, (28 Aug. 2005)

[ii] For details see Feinstein, A., “The Shadow World: Inside the Global Arms Trade”, London: Hamish Hamilton, 2011

[iii] SIPRI Military Expenditure Database

The Saudi-GPT deal inquiry must not be another whitewash

This piece was authored by my colleague Andrew Feinstein and published originally in the Guardian yesterday. I contributed research and editing to the piece and have copied it here below.

David Green, SFO Director.

News that the Serious Fraud Office is investigating allegations of corruption in a deal between the UK government, GPT Special Project Management (a subsidiary of the arms company EADS), and Saudi Arabia is to be welcomed.

Three whistleblowers allege that, as part of the £2bn government to government deal for communication and surveillance equipment for the Saudi national guard, at least £14.5m in suspicious payments were made from 2007 and 2010 to two companies based in the Cayman Islands. The whistleblowers claim the companies received 14% of the equipment budget on the contract yet provided no goods or services.

Ministry of Defence officials learned of the payments in 2008 and, despite warning GPT that such payments would not be allowed in the future, took no action, as the disbursements continued for the next 19 months. No guilt has yet been established, and EADS says it is co-operating with the SFO.

This deal took place within the context of a global trade in weapons and defence equipment in which many laws seem not to apply. Defence companies and individual arms dealers operate largely with impunity in spite of the fact that the sector accounts for about 40% of corruption in all world trade.

The size of weapons transactions – often worth tens of billions of pounds – and the reality that these deals take place behind a veil of national security-imposed secrecy, create fertile ground for corruption.

The companies and the illicit dealers, whose operations are often closely intertwined, have strong links to ministries of defence, the military and intelligence services, as well as to political parties. There is a continuously revolving door of people moving between these entities.

The funding of the electoral campaigns of those representatives who support defence contractors in the US can seem like a system of legal bribery, while in Europe and the UK contributions to political parties by the sector have taken place for decades.

The relative immunity of the trade is illustrated by the fact that, of 502 violations of UN arms embargoes by governments, companies and individuals, only two have resulted in legal action, with just one leading to a conviction.

After being investigated for years over extensive allegations of corruption in half a dozen deals from the mid-1980s, in 2010 BAE admitted to false accounting and making misleading statements, and agreed to pay out almost £300m in penalties in the US and the UK. The company ran a global money-laundering system: a network of secret cash payments amounting to billions of pounds that went on for years with the connivance of the British government. Authorities repeatedly let the company off the hook.

First, Tony Blair forced the SFO to close down a long-term investigation into the most corrupt arms deal in history – the al-Yamamah deal between the UK and Saudi Arabia. The government claimed that national security necessitated this closure after the Saudis threatened the likely loss of “British lives on British streets” if the investigation continued.

Senior members of the intelligence services disagreed with the government’s judgment. A high court judge suggested that it was incumbent upon the executive and the SFO to ensure that no one interfered with our justice system. Even elements in the business community worried that the decision had damaged the UK’s reputation as a leading financial centre.

In early 2011, the SFO followed up this capitulation with a derisory settlement with BAE in relation to five other allegedly corrupt deals. The company was fined £500,000 for “accounting irregularities” after promising to pay damages of £30m. The US departments of justice and state fined the company almost $550m for the same transactions. The difference in settlements may be seen in the context of the views of the late foreign secretary Robin Cook, who described BAE as “having the key to the garden door of No 10”.

There is a history of defence transactions with Saudi Arabia being tarnished by corruption. An arms dealer of more than 50 years’ experience described to me how business with his Saudi clients is done, using a glass on his desk: “You always have to pay bribes. If they want to buy this glass you tell them it’s $5. They will beat you down to $1, then they will say, ‘OK, I will give you $3, but you give me $2 back!'” He claims that on his Saudi deals he gives more than half of the contract price back in bribes.

From the documentation presented to the SFO and the government concerning the allegations in the GPT contract, there appears to be prima facie evidence of bribery. Will the SFO break the trend of decades by fully investigating the allegations and, if appropriate, charge the corporate entity and the individuals responsible? Or will this be another whitewash to protect the British defence industry, the government and its munificent Saudi client?

The Idiot’s Guide to hiding bribes

This week Global Witness published the excellent “Idiot’s Guide to Money Laundering”[i], which shows just how easy it is to hide illicit money even in major banking hubs like London and the US. Indeed money laundering is so easy that Global Witness have showed that even a man who was dead for three years was apparently able to funnel $1.2bn in suspicious payments from the Kyrgyz bank, AsiaUniversialBank (AUB) through a New Zealand, British and Bulgaria companies to who knows where![ii]

In the same vein I have put together an Idiots Guide to how bribes are often hidden. I should point out that I would urge anyone and everyone to avoid paying bribes, they corrupt societies taking money away from the poor and giving it to the powerful. The reason I am writing this is in fact in my capacity as an anti-corruption professional. In order to catch or prevent bribes you have to understand the mechanisms through which they are paid and hidden.

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Method one: Cash

While there are all sorts of complex ways to hide the flow of money one of the most untraceable is still cash. It’s a lesson drug dealers learned many years ago, if you can get hold of cash in the first place there is no record of where that cash has gone. The tricky part is the quantity required and generating that cash in the first place, especially when dealing with large amounts, but other than in the unlikely event the cash is marked, or the serial numbers have been logged then the cash is virtually untraceable. The way most bribes are still paid is in wads or briefcases full of cash.

Method two: Gifts

There are all sorts of valuable objects that can be used as bribe payments. The obvious kind are items like tickets to sports matches, an expensive watch etc. The advantage of this kind of gift to the briber and bribee is that there will not be any records in a bank account or anything necessarily with the recipients name on it. Gifts are in some places a customary part of doing business, just like taking a client out to dinner and it does not always constitute bribery. However a gift does become bribery when it’s intended to influence the bribee improperly. It’s very pleasant to do contract negotiations over a steak dinner but the question to be asked is why do you have to and is it meant to sway the recipient? The threat to hospitality customs caused uproar in the UK while the introduction of the Bribery Act was being debated, possibly because the British business culture frankly is overly lavish and in that way dishonest. But as a rule nobody is going to jail for buying someone a steak, but taking an official’s whole family on holiday and buying them steak dinners for a week is certainly bribery.

Method three: Precious Resources

Cash is not the only thing of value, nor only tickets to Wimbledon, there are all sorts of commodities and precious items that can be sold. Perhaps the most iconic of these resources are diamonds, which are extremely easy to smuggle and virtually untraceable. The Kimberly process was set up to help regulate the flow of diamonds from the mine to your jeweler and prevent the sale of blood diamonds, diamonds mined in conflict zones used to fund wars or enrich the powerful. The Kimberly process has worked to some extent, reducing the flows of untraced diamonds, but the process is now falling apart with Global Witness withdrawing in protest over allowing of Zimbabwean military controlled mines to export their diamonds, possibly funding state theft, arms purchases and repression.

The other well-known commodity bribes have been hidden through is oil. Oil was the commodity used to fund the Al Yamamah arms deal, probably the single largest and most corrupt transaction of all time, with over £6 billion going missing according to police estimates[iii]. The deal was arranged between the UK and Saudi governments as an oil for arms bartering deal. The Saudi government sold the oil to companies, who in turn passed the proceeds of oil sales to the UK government’s Bank of England account, from which bribes flowed back to decision makers, such as £1 billion to the Saudi super envoy Prince Bandar bin Sultan[iv]. By tapping a couple of thousand barrels worth of oil out a flow money can quickly be made with little record of its origin, ideal for funneling bribes. Of course the other point to be learned from Al Yamamah’s bribery is that one of the most effective way to stop bribery coming to light is to do it with state complicity.

Diagram of the flow of money in the Al Yamamah arms deal from Phythian, 2000, “The Politics for British Arms Sales since 1964”, pp.220

Method four: Fake consultants or Suppliers

A common red flag for a company bidding for a contract would be being told that they have won a preliminary contest, but they have to hire a particular consultant or agent to ensure they get the deal. This consultant, will likely do little to no work, but demand a sizeable commission, the lion’s share of which will likely flow back to the decision maker. On the books this is accounted for as consultancy fees, but there was never any real consulting.

Fake suppliers, or suppliers purposely inflating the prices of their goods are another simple way to hide bribes. This is allegedly the suspected method of illicit payments in the ongoing SANGCOM/ GPT case, where two unknown suppliers based in tax havens were being paid substantial sums without ever producing any goods[v]. This money again is hidden as a legitimate supplier when in fact the business is owned by either a decision maker or a close contact of one.

Method five: Commissions and agents

Commissions are ubiquitous in many industries and when used properly they can be a useful way of rewarding success. However too often they are used a convenient ways to hide a bribe through a third party. Similarly the use of agents is often necessary in some parts of the world to walk companies through foreign languages, customs are legal systems. However when agents are paid in large commissions, anywhere from 1% to 40% of the contract price as is common for some industries, then there is no check on how that agent has ensured success and what that money is used for. It is only too easy when you’ve promised an agent a commission worth 5% of the contract in the case of success that he goes away and offers the decision maker a 4% commission, with the agent keeping 1%. This is well known by everyone in the system but the principal employing the agent is able to turn a blind eye and claim ignorance. The safest method for the honest business is to always pay a set, modest retainer to any agent and demand complete transparency on their payments. Urgent requests for money, or hiring an agent because of their connections should be major red flags.

Method six: Offsets

Offset agreements are in fact banned by the World Trade Organization and the European Union for nearly all deals, except for the very notable exception when it comes to the arms trade[vi]. Offsets are a rather bogus economic tool where in the example of say a major international arms deal the selling company or country promises to invest a substantial amount of money, say 150% of the contract value in the host country’s economy. This might take the form of investing in businesses, either related to the contract, perhaps investing in a potential supplier, or completely unrelated to the business at hand. However there is little to stop the offset money flowing to businesses connected to decision makers. Indeed this is suspected to be the case in the ongoing scandal around the major South African arms deal signed shortly after apartheid fell that seems to have been the moral death of the ANC and the corruption of their young democracy[vii]. Offset agreements are often kept secret out of a supposed commercial confidentiality and they rarely live up to their hype of jobs and economic stimuli which are so often used to justify arms deals. Indeed in many cases the penalties are so small for not fulfilling offset agreements that they are reneged upon as being the cheaper option.

Method seven: Subcontracts

Few companies operate alone and their business, especially on a major deal, is likely underpinned by the operations of a range of subcontractors as well. Let us suppose the main contractor on a deal has offered a bribe to the minister in charge of deciding the contract. But the minister has indicated that his junior minister, his son and his mistress all have to be paid as well. He might demand that the subcontractors on the deal all each pay these people in addition to paying him. In turn the Junior Minister might demand that his family all get paid off as well by the subcontractor’s subcontractor. Essentially corruption is not necessarily limited to the top level of any given deal, instead each subcontractor may be paying bribes as well. This means that whilst the headline bribes on the main contractor might amount to 10% of the total contract, the subcontractor is also paying 10% of their smaller subcontract, as is their subcontractor and so on and so on. The compounding of this corruption could in fact amount to a bribe much higher it than just the headline 10% by the main contractor.

Some of these methods are to do with the physical transfer and hiding of the bribe, others are to do with hiding the bribe on the books of a business, all could be present in a single deal in fact. But only by understanding the methods used by the corrupt can anyone detect and stop the plague of bribery in our world.


[i] Global Witness’ Idiot’s Guide to money laundering can be read at http://www.globalwitness.org/campaigns/corruption/hidden-company-ownership

[ii] Global Witness’ Grave Secrecy report can be found at http://www.globalwitness.org/library/grave-secrecy

[iii] Guardian, “Secrets of Al Yamamah”, http://www.guardian.co.uk/baefiles/page/0,,2095831,00.html

[iv] Guardian, 7/6/2007, Rob Evans and David Leigh, “BAE accused of secretly paying £1bn to Saudi prince”, http://www.guardian.co.uk/world/2007/jun/07/bae1

[v] Exaro, 15/5/2012, Frederika Whitehead, Mark Watts, Guy Eaton and Andrew Bousfield, Offshore payments linked to Saudi defence dealhttp://www.exaronews.com/articles/4381/offshore-payments-linked-to-saudi-defence-deal#.T-b1haD3Bok

[vi] Transparency International have published work on corruption in arms trade offsets which you can see at http://www.ti-defence.org/focus-areas/offsets, the other excellent source on the matter is the work of Paul Dunne, an academic economist currently teaching at the University of Cape Town.

[vii] For an excellent analysis of the South African arms deal, including alleged corruption through offsets I recommend Paul Holden & Hennie Van Vuuran’s “Devil in the Detail”, 2011, Jonathan Ball Publishers.


SANGCOM and how to bribe a Saudi Prince

In the past few weeks substantial bribery allegations have surfaced regarding another UK/ Saudi government to government arms deals. The £2 billion SANGCOM deal between the UK and Saudi governments was intended to upgrade the communications technology used by the Saudi National Guard. The company the UK government outsourced the work to was a subsidiary of the European arms maker EADS.

It appears that the company in question, call GPT Special Project Management, paid £14.5 million, in 28 payments to two mysterious companies in the Cayman Islands. A financial officer for the company has leaked the details regarding the payments and told Exaro that the payments are “irregular” because the offshore companies are not suppliers in the contract.

Further to this the company’s former programme director Ian Foxley, a former lieutenant colonel in the British Military has also blown the whistle on the project, taking the case to the Serious Fraud Office (SFO). The case is very sensitive, the Saudi royal family (who are also the government) are prickly about in their ranks and the case would almost certainly have to involved some level of complicity by the British MoD and possible the government.

The SFO is apparently conducting a ‘preliminary investigation’ which will be closely watched after the last major investigation into corruption in UK-Saudi arms deals was shut in 2006 for reasons of “national security” after Tony Blair personally intervened in the case. Only time will tell whether the SFO and the Government back a full scale investigation into this shadowy arms deal.

Adnan Khashoggi, one of the best known and most successful fixers

With Saudi corruption back in the news it may be useful to appreciate who the key players are in bribing a Saudi. In the next few weeks I may also address the common ways in which bribes are hidden and the relationship between the Saudi National Guard and Saudi Military.

A constant factor in every deal to Saudi Arabia is that of the fixer, the intermediary between a foreign company and the buyer. A fixer is required even if the foreign company is already in situ and has contacts in the government. The Arabic term is normally a wasta[i]. The fixer’s job is to both bridge the cultural divide between the foreign business and the Saudis and more importantly to find a way to influence the decisions of the government to favour their client over their competitors. Each fixer, in order to carry out their role, will have a sponsor, usually a prince of the Royal Family, the fixer and the prince would share the profits of any commission between themselves and any other figures that might have to be appeased such as officials, military officers etc.

In order to attract clients a fixer relies on his reputation and on the power of their sponsor. It is for this reason that the most powerful and successful fixers are so successful. For example Adnan Khashoggi, who at one time styled himself as possibly the richest man in the world, was closely allied both to Prince Sultan and King Fahd and built up a record of successful contracts for numerous corporations[ii].

There is also the person Said Aburish calls a skimmer. The skimmer is the final decision maker on the deal, the person whose demands must therefore be met to gain the contract. The skimmer is most often a senior prince, possibly in the cabinet or head of a ministry, a province emir, head of a branch of the armed forces or the head of a royal commission in charge of a certain project or development scheme. The skimmer, the corrupt decision maker for the contract cannot lose and is therefore in the position where all fixers and sponsors must appease him and compete to offer the largest bribe. The leading world example of the skimmer was Prince Sultan, who as Minister for Defence and Aviation for almost fifty years and Crown Prince had a huge budget at his control, the secretive and corrupt arms trade trying to sell to him and enough power that even King Abdullah could not afford to go against him too often. Prince Sultan as both policy maker and beneficiary decided what the country needed, how the budget is to be divided and awarded the contracts himself[iii].

This is lesson one in how Saudis are bribed, with some determination by the current government and SFO we may yet discover who played these parts in the SANGCOM deal and move a step closer to showing that nobody can take part in corruption with impunity.


[i] Said Aburish, 2005, “The Rise, Corruption and Coming Fall of The House of Saud”, London: Bloomsbury Publishing p194

[ii] Ronald Kessler, 1987, “Khashoggi”, London: Corgi Books, p56

[iii] The mechanics of intermeddling and the assertion of Prince Sultan being the greatest example are put forward by Aburish in Said Aburish, 2005, “The Rise, Corruption and Coming Fall of The House of Saud”, London: Bloomsbury Publishing p195

The arms trade, national security and freedom of information

I’m posting here some work I did for the Budapest Principles, a framework of how national security and freedom of security should interact. My paper was entitled The UK Arms Trade Complex and Freedom of Information – A case for an enhanced presumption of transparency in the case of corruption in arms deals, not very snappy I know. Its more academic and legalistic than what I would normally post on this blog but it may interest some readers here. Information on the Budapest Principles and my paper can be found at http://www.right2info.org/exceptions-to-access/national-security

I’ve copied the abstract from my paper below so you can see what its all about.

The trade in arms is thought of by many states as a key factor in the maintenance of their national security. This is true in either selling arms abroad or procuring weapons and equipment for use by national forces.  Sadly however, the arms trade is one of the most corrupt businesses on earth, accounting for forty percent of all corruption worldwide according to one estimate. The purpose of the arms trade is to create weapons with the power to kill and maim, and with this the consequences of corruption are especially destructive.

The prevalence and extreme danger of corruption in the arms trade justifies a greater level of transparency and accountability. However governments have long considered the arms trade to be essential to national security and too often regard anti-corruption efforts as a threat not only to their arms production capacity but also their security and international relations. This threat to international relations is itself premised on the perception of national security being dependent on military or intelligence co-operation with other countries, which may be founded on arms deals. Arms deals have become seen as a legitimate and unquestionable diplomatic tool whether the arms are sold corruptly or not.

This paper examines three disputed cases around the British governmental involvement in the sale of arms and associated services to the Kingdom of Saudi Arabia. The sale of arms to Saudi Arabia has long been associated with deep systemic corruption and the support of an oppressive dangerous regime. In all three cases campaigners against the arms trade and corruption attempted to reveal information potentially implicating the UK government in support for corruption in Saudi arms deals over the last 40 years. The results of these cases varied but arguments of national security deployed by the government allowed the case for an overriding public interest in transparency to be put forward. I argue that there is a compelling case for a principle of presumptive disclosure of information regarding corruption in the arms trade.

Voodoo economics and arms trade jobs

Patriotism is the last refuge of a scoundrel, as Samuel Johnson famously said, a phrase that seems very apt for arguments around the arms trade, but the go-to argument every arms company PR officer has on standby is how many jobs they are saving. However disgusting the behaviour in question; shutting down hospitals to fund making nuclear bombs, massive corruption or arming repressive dictatorships the jobs argument is never far away.

Most recently the argument was made this week to justify the controversial arms sales from the UK government and BAE Systems to the Saudi regime, of 22 Hawk jets and a substantial amount of other equipment. The deal is worth an estimated £1.9bn and is a continuation of the most corrupt arms deal of all time, the Al Yamamah deal, from which an estimated £6bn has gone missing in illicit payments[i]. This deal worth billions, has saved 218 jobs. These 218 jobs apparently justify our ignoring the repressive of democracy protests, the Saudi use of UK warplanes to indiscriminately bomb civilians in alleged war crimes and the support of a kleptocratic, totalitarian state that bans political parties, discriminates severely against women and engages in systematic torture and keeps Freedom of expression, religion, association and assembly remained tightly restricted[ii]. When the Serious Fraud Office’s investigation into the Al Yamamah deal was under attack in the media, the number of jobs supposedly at stake was inflated to up to 100,000 in the UK, when the manufacturer’s own study could only identify 5,000 jobs[iii].

The repetition ad nauseum of however many crucial jobs an arms company is preserving has certainly had an effect, there is a general perception that the UK’s arms trade must be an enormous employer.

However the argument, whilst it is believed, it is fatally flawed… by not being true.

The UK’s arms export business sustains 55,000 jobs, a substantial number but not truly that huge, representing only 2% of the UK’s manufacturing jobs or 0.2% of the UK’s workforce and accounts for 1.5% of the UK’s exports. Even more to the point the UK state subsidises these jobs by around £700m per year, making the subsidy around £12,000 per job, per year[iv].

The UK Government’s studies agree with this reading, a report jointly written by MoD economists with a York University academic concluded that:

the economic costs of reducing defence exports are relatively small and largely one off” and that “the balance of an argument about defence exports should depend mainly on non-economic considerations”[v].

At one point the UK even acknowledged this in their Defence Industrial Strategy. But evidence has never gotten in the way of arms companies and politicians using jobs to justify arms exports at every opportunity.

The UK’s arms export industry has haemorrhaged jobs over the last few decades, with no truly noticeable effect on the wider UK job situation or economy. When it comes to job creation the arms industry is truly useless, largely because of the capital intensive nature of the UK arms trade. US research shows that $1 billion spent on defence creates 8,555 jobs, but the same amount of money would create 10,779 jobs in healthcare, 17,689 jobs in education or 19,795 jobs in public transport. Indeed a tax cut would create more jobs that investing in the arms industry[vi].

UK Jobs (in thousands) DASA, UK Defence Statistics, 2008, Table 1.10 and previous Defence Statistics

Arguably the worst part of the subsidies for arms company jobs is that the workers at the companies are often very skilled, and that other UK industries are crying out for engineers and scientists and other sectors, key to the UK’s economic and security are starved of funding and resources, especially for research and development. The most obvious area is that of renewable energy, which in 2007 received £43m in government funded R&D[vii], yet arms had £2,598m in government R&D[viii]. For example 80% of BAE’s R&D is state funded[ix]. There are relatively few examples of technology spun off into the civil sector, especially given the public good that could be done with public funding for civil research. Indeed even the arms industry realises this, a conference run by Jane’s, the arms industry’s best known journal, said in their introductory speech:

“The defense market worldwide is worth a trillion dollars annually. The energy and environmental market is worth at least eight times this amount. The former is set to contract as governments address the economic realities of the coming decade; the latter is set to expand exponentially, especially in the renewables arena.”[x]

Encouragingly the skills set for the arms industry and renewables are very similar, Barry Warburton, the CEO of the West of England Aerospace Forum, said of last year’s MoD budget cuts,

 “This is a perfect opportunity for diversification and renewable energy presents a massive new market ” and “A turbine blade is not dissimilar to a helicopter blade. It’s electrical and mechanical engineering… What is an aircraft made of? What are components of a vehicle made of? When you think about it the technology in the defence industry is very value added and is very flexible.”[xi]

In fact arms industry figures are worried that if they lay off their workers, other industries will snap them up. The President of General Dynamics UK (also Vice President-Defence of the UK arms industry’s trade association) was trying to make the case for continued high spending on arms in September 2010. He told the parliamentary Defence Committee that

 “… the skills that might be divested of a reducing defence industry do not just sit there waiting to come back. They will be mopped up by other industries that need such skills. We are talking about high-level systems engineering skills, which are often described as hen’s teeth. It is an area in which the country generally needs to invest more. You can think of the upsurge in nuclear and alternative energy as being two areas that would mop up those people almost immediately.”[xii]

The bottom line is, as the Financial Times’ Alan Beattie put it succinctly

“You can have as many arms export jobs as you are prepared to waste public money subsidising.[xiii]

The jobs argument for the arms trade is based purely on myth. Diverting money and twisting policies for arms trade jobs is counterproductive not only to our security but to the real long term jobs and economic hopes of the UK. Patriotism is certainly for scoundrels, and the jobs argument is for arms trade profiteers.


[i] Guardian, “Secret’s of Al Yamamah”, http://www.guardian.co.uk/baefiles/page/0,,2095831,00.html

[ii] Amnesty International, Report 2009 – Saudi Arabia, http://thereport.amnesty.org/en/regions/middle-east-north-africa/saudi-arabia

[iii] Guardian, 16/12/2006, David Leigh & Rob Evans, “Brutal politics lesson for corruption investigators”, http://www.guardian.co.uk/uk/2006/dec/16/armstrade.saudiarabia2

[iv] Stockholm International Peace Research Institute, ”Assessment of UK arms export subsidies , May 2011, http://www.caat.org.uk/resources/publications/economics/subsidies-sipri-2011.pdf

[v] Chalmers, M., N.V. Davies, K. Hartley and C. Wilkinson, The Economic Costs and Benefits of UK Defence Exports, University of York, November 2001

[vi] Pollin R, Garrett-Peltier H, October 2007, The U.S. employment effects of military and domestic spending priorities, International Journal of Health Services, www.comw.org/pda/fulltext/Pollin-Garrett-Peltier.pdf

[vii] International Energy Agency online database

[viii] Department for Business Innovation and Skills, Science, Engineering and Technology Statistics file: 48-08-I_on).

[ix] BAE’s 2010 R&D expenditure was £1,298 million of which £270 million was funded by the Group (BAE Annual Report 2010, p.35)

[x] Jane’s Online, “Energy, Environment, Defense and Security 2011”, http://home.janes.com/events/conferences/e2ds2011/

[xii] Hansard, 8 September 2010, Evidence to the Defence Committtee, HC 451-I, http://www.publications.parliament.uk/pa/cm201011/cmselect/cmdfence/c451-i/c45101.htm

[xiii] Financial Times, 10 August 2010, Alan Beattie, “Promoting exports full of risk for world economy”, http://www.ft.com/cms/s/0/2b8b272e-a4b4-11df-8c9f-00144feabdc0.html

Pomp and Ceremony

Last Saturday the Armed Forces Tribute for the Diamond Jubilee graced our screens. The Queen, in this her 60th year of ruling over the UK and being the head of the military, had a parade of 3,000 soldiers, sailors and airmen at Windsor Palace. The event involved the troops marching through the palace itself, through the town of Windsor and into an arena to hear a brief religious service, be addressed very briefly by the Queen have a flypast of 78 aircraft[i].

The two hour spectacular hosted by Fiona Bruce on BBC One seemed more akin to a broadcast from North Korea than anything else. Personally I’m deeply uncomfortable with both institutions of the military and monarchy. I abhor violence, including state-sponsored violence, and I do not much like the idea of someone who rules over us and is of a higher class or state of being by virtue of being born to a particular family.

What I found most remarkable about the coverage by the BBC was that there was no real addressing of what these institutions mean in real life. The conflicts in Iraq and Afghanistan were mentioned in passing or alluded to only a few times in two hours talking about the military.

When soldiers were mentioned as engaging in warfare it was largely in the context of heroes. Of the soldiers interviewed four out of five had been awarded a high medal, including two Victoria crosses and a George cross awardee. This is not to denigrate these people, whose actions are truly remarkable, but the exclusive portrayal of soldiering as adventurous and heroic constrains criticism and gives an unrealistic understanding of the reality of the horror of war. Similarly during the fly past of helicopters, fast jets and WW2 aircraft the commentary resembled that of a BAE salesperson saying how amazingly useful and effective the aircraft are.

The narration of the Queen’s perspective on the event and the armed forces in general was in the tone of the all-knowing, loving, and matriarchal leader. Stories were told of all the familial connections to the armed forces and the Queen’s elevation to Colonel of the Grenadiers aged sixteen. It was felt that this meant she really could uniquely understand the plight of the soldier, but I would question whether it really enables her to understand the sixteen year old with no better options on the horizon than to risk being shot at by joining the military.

If the Queen really did take an active interest in the military, then I would have hoped that, for example, she would be dealing with the shockingly high level of sexual abuse against women in the military. 15% of women in the military experience “particularly upsetting” sexual harassment, the figure rising to 25% for female recruits between the ages of 16 and 18[ii].

However none of this was presented, no hint that the Queen is a largely irrelevant figurehead, perhaps good for tourism and opening new hospitals but little else in a democratic state. Or that the military’s role is complex and political and at its heart it is about killing other people who we’ve decided shouldn’t be alive. The parading and drilling of soldiers speaks only of pomp and ceremony, glorifying the institutions of monarchy and military without addressing the substance of either.

Sport as War

The UK security response to the Olympic Games is becoming more alarming by the day. Barely a week seems to go by without another weapon system being deployed in London to protect this long awaited exhibition of sporting prowess.

The latest addition in the “golf bag” of armaments being deployed against any possible threats is a long range acoustic device (LRAD), a sound weapon invented by the US military to deafen Iraqi crowds. The weapon is sinister enough in itself, using unfamiliar technology to cause pain to a likely unarmed foe. But its introduction to the generally peaceful river Thames seems positively alarming. The MoD quote accompanying the story in today’s Guardian was less than reassuring; “This includes the LRAD which will be deployed during the Olympic Games primarily to be used in the loud hailer mode as part of the measures to achieve a maritime stop on the Thames.” I find the term primarily rather problematic in that sentence, in the same way that nuclear bombers primarily sit in hangers, not excusing other possible activities.

The influx of weaponry and 13,500 soldiers into the nation’s capital for a short sporting event is creating an increasingly militarised atmosphere. It is hard to say whether this response is justified or not without our hands on the MI5 risk assessment, however the deployment of warzone equipment like Typhoon jets and surface to air missiles on rooftops seems more appropriate for an armada of MiG fighters jets than any terrorist threat.

The enormous cost of what is the largest peacetime military operation conducted in Britain is obviously a concern especially in a time of cuts and austerity for essential public services. But in addition the militarised response to this situation seems intended to normalise presence of the military on the streets of London. It seems that there is an opinion in some quarters that this presence will be reassuring, my personal opinion is that more weapons on the streets is an alarming prospect, whether the people holding the guns are in uniform  or not.

Even if there is not the slightest sinister intention to the military presence, once equipment has been bought it stays. So the sonic weapons stationed on the Thames are going to stay in the military and policing armoury for years to come, how long after the next riot will it take for someone to suggest using it on rioters next time and then merely rowdy demonstrators and so on. Similarly once its discovered that missiles can be stationed in London for the Olympics, what happens when politicians get the jitters and want them there all the time?

Similarly the Olympics has spurred a wave of new policing tactics and equipment, already previewed at various anti-cuts marches and in and about the west end. This equipment, purchased in large and expensive quantities is not likely to be disposed of after the games, but may become a normal part of our ever more securitised lives. Similarly new crackdowns on protest have already previewed in the extreme police response to a few activist performing street theatre on the opposite side of London to the royal wedding last year. Any possible perceived embarrassment to another even more major event is likely to receive an even more severe response.

Both public and policy makers should be aware of the paranoia that a showcasing event such as the Olympics engenders in security services as well as the mission creep that so often sets in after men in uniform are given new toys, even if their uses are controversial at first.

Arms companies “outsourcing” bribery to the UK

Recent discoveries reveal that two German companies find the UK a particularly convenient place to make highly questionable deals.

The arms trade is thought to be responsible for 40% of all corruption in world trade[i]. This shocking figure has been brought home with news that two German arms companies moved their suspicious operations to the UK to avoid bribery investigations. In a leaked internal report, the companies’ lawyers explicitly analysed the UK’s “treatment of bribes… by tax authorities and prosecutors” comparing it to what they saw as Germany’s “overzealous” and “unwelcome” investigations. This development comes at a time when the Coalition Government has been accused of watering down the new Bribery Act to restrict its enforcement against overseas corruption.

In 2003 the German arms firms Ferrostaal and HDW, created a joint venture called MarineForce International (MFI) based in London. According to the leaked report, this was so that they could “insulate themselves from potential tax and prosecutorial investigations in Germany”, and was designed for “outsourcing commission payments”- a vehicle often used to conceal bribes in arms deals. The report also found numerous “red flags” regarding the company’s agents and questionable payments for arms deals in South Korea, Greece, Turkey, Italy, Egypt, Croatia and Indonesia. One MFI agent in Indonesia asked MFI for more money telling the company “I will be putting “grease” in to my buddies pockets”. MFI made no attempt to question the use of the money and paid the agent what he had asked. Other worrying findings included an MFI payment of €42.9 million to their agent in South Korea, who had prior convictions for bribery. The company avoided asking questions on paper regarding his use of the money in a submarine deal which is rumoured to have been corrupt.

MFI is not an abnormal example of the arms industry’s usual attitude to corruption. The company employs several sets of high powered lawyers and has policies that are supposed to ensure compliance with the law. However in reality the internal report paints a picture of a company with “a potential attitude of wilful blindness”. Most notably when interviewing a MFI sales executive responsible for Pakistan he indicated that “he had no interest in knowing what a consultant did with his fees – even if there were positive indications that the consultant intended to make payments to public officials”.

MFI’s parent company, Ferrostaal, has faced some penalties after the “overzealous” German authorities fined the company €149 million over a bribery case regarding a Greek submarine deal.  German authorities also continue to investigate two Ferrostaal employees over bribing Greek and Portuguese officials with more than €62 million. Yet the company’s internal report identified €1.18 billion in questionable payments, making the fine seem little more than a business expense, not a true penalty. The companies’ outsourcing of its most suspicious activities to the UK, is therefore highly questionable, and has not even been investigated by British authorities.

What does this say about the UK? That MFI’s conclusion that they were safe from “unwelcome” investigations is entirely justified because the UK’s track record on arms trade corruption is abysmal. It has become notorious on the issue since a scandal over the Al Yamamah arms deal between the British Government, Saudi Arabia and BAE Systems. The deal was massive, worth over £43bn and was estimated to include over £6bn in corrupt commissions making it possibly the single most corrupt transaction ever. The deal was being investigated by the Serious Fraud Office until Tony Blair personally intervened to shut down the investigation. As could have been predicted, the deal would prove to be directly lethal; the equipment sold has been used by the Saudi regime in possible war crimes against Yemeni civilians.

The scandal of Al Yamamah and the international condemnation it received lead to Parliament passing the Bribery Act last year; a powerful legal tool to enable law enforcement to tackle corruption effectively. However the potential for enforcement of the act has been crippled by the Coalition Government who, under pressure from the business lobby, opened several huge loopholes for overseas bribes. As the Director of Transparency International UK has stated this decision “undermines the act and will limit its effectiveness. There is now a significant risk that bribery will go unpunished”.

The arms trade is “hard wired for corruption”. It operates in a market with a few huge deals, managed by small groups of decision makers who work intimately with suppliers and often in secret behind the cloak of ‘National Security’ or ‘Commercial Confidentiality’. The profits are enormous and yet there are few risks; offenders are rarely caught.  It seems like too obvious a point that the arms trade’s very purpose is to produce and sell the world’s most dangerous goods; weapons designed to maim and kill, and yet unlike other dangerous industries, such as tobacco or alcohol, it is barely regulated. Where regulation does exist it is often ignored, as exemplified in the UK where sensible arms export legislation is ignored in arms deals with the violent regimes in Saudi Arabia, Libya or Egypt. A bullet does not need to be fired to cost lives in corrupt arms deals. Bribery means that weapons are bought that would not have been bought otherwise, money that should have been spent on education, healthcare or infrastructure is wasted, often on useless armaments, threatening lives and human security of citizens.

Exactly what the true human costs of MFI’s behaviour may have been is impossible to know, but if the UK Government continues to prevent effective investigation and prosecution of suspected corruption, the lives of many will be destroyed with impunity.


[i] This figure was calculated in 2003 by Joe Roeber in work undertaken for Transparency International. Roeber, J., “Hard-wired for corruption: the arms trade and corruption”, Prospect, no.113 (28. Aug. 2005).