The arms trade accounts for about 40% of corruption in all world trade. ‘National security’ is not a good enough defence
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?