Enforce bribery convention to stop defence impunity

Enforce bribery convention to stop defence impunity

Revelations last December that top officials in Greece received millions of dollars in kickbacks and bribes from defence contracts with companies in five different countries exposes systemic corruption in that country and highlights that regulations banning bribery elsewhere are not being enforced.

The list of bribes made to a top Greek defence ministry official, Antonios Kantas, who was arrested in mid-December, contained the names of arms firms from Brazil, France, Germany, Russia, Sweden and the United States.

Kantas alleges that he received a total of US$20.4 million (€15 million) in bribes over a decade. In a separate investigation, a submarine deal allegedly netted another Greek businessman US$31.3 million (€23 million) from a German manufacturer.

Corruption has high costs for economic development: it decreases competitiveness and ultimately diverts spending on other services, including health and education. In a country such as Greece, where basic services are woefully underfinanced in the wake of the economic downturn, this has pushed thousands in to poverty.

Corruption in defence spending also increases security risks, for example, when products purchased are either not up to standard or not fit-for-purpose.

In the past six months Greek prosecutors have stepped up their investigations and arrests in connection with major bribery allegations, even among senior members of the Greek military. German investigators are also reportedly closing in on some German companies allegedly implicated in dealings with Kantas.

In the recently published 2013 Exporting Corruption report, Transparency International classified 40 countries according to their performance in enforcing the OECD Anti-Bribery Convention and found that only four countries are actively investigating and pursuing foreign bribery cases.

Transparency International recommends taking priority actions to fight foreign bribery in all the countries on the list provided by Kantas, including Germany and the United States, which are actively enforcing the OECD Anti-Bribery Convention.

It is clear that more needs to be done to ensure an end to impunity for both the bribe-givers and the bribe-takers, who are often doing deals across borders. Prosecutors in all the countries named should access Kantas’ list. He has helpfully supplied both the details of amounts received and the equipment bought.

Beefing up legislation to deter corruption

Deterring corruption in defence should be a top priority. Defence spending is often a significant portion of government budgets and yet it is an area that lacks transparency, oversight and accountability.

The Government Defence Anti-Corruption Index 2013 (GI), published by Transparency International UK’s Defence and Security Programme, found that 70 per cent of countries studied fell into the category of having a high, very high, or critical risk of defence corruption. This detailed research showed how excessive secrecy, poor accountability, and inadequate oversight can lead to heightened corruption risk in the defence sector.

The GI ranked national defence operations on the measures they take to fight against corruption, and whether those measures are enforced in practice. It identified problem areas of defence procurement and processes.

The index is a tool that governments can use to identify weaknesses and then strengthen their systems to prevent corruption.

The following recommendations based on the Exporting Corruption report and the GI index apply to the countries where the companies that allegedly offered bribes to Antonios Kantas are based.

Brazil has recently passed new and improved legislation in 2013 on foreign bribery. It should now implement the legislation and improve the organisation and resourcing of foreign bribery enforcement.

Brazil’s score of C (on a scale from A to F, where A is least corrupt and F most corrupt) in the GI reflects a moderate corruption risk, though there are several positive anti-corruption mechanisms: the defence budget and procurement process are fairly transparent, there is a code of ethical conduct in place for defence personnel that is enforced by the prosecutor’s office, and agents and intermediaries are barred from the defence procurement process. But Brazil should place stronger demands that companies bidding for defence deals, as well as their subsidiaries and sub-contractors, have strong anti-corruption mechanisms in place.

France should strengthen its legislation and its anti-bribery enforcement system, toughen its sanctions for companies involved in bribery cases, increase the independence of prosecutors and invest more resources in investigations.

France also fell into band C in the GI, indicating a moderate corruption risk in defence. There are some strong controls in place to regulate procurement, found in the Public Procurement Code — but challenges remain with regard to the lack of transparency in financing packages for defence deals, and the control of sub-contractors and intermediaries. The research also indicates that the government does not demand a high anti-corruption standard from companies bidding for defence deals.

Germany was one of just two countries to fall in the top band of the GI. However, the study found that there is more to do to keep the German defence sector free of corruption. For example, the arms export control system should be more transparent about its operations and decision-making process when approving sales abroad, and more complete and timely information should be made available to the public and legislature.

To comply with the OECD Anti-Bribery Convention, Germany should introduce criminal liability for corporations and increase sanctions available against legal persons. It should also ratify the UN Convention against Corruption, which would facilitate its foreign bribery enforcement.

Greece also scores C in the GI, indicating a risk of corruption borne out by the recent revelation. The research shows that there is little transparency in the country’s defence procurement policies.

In addition, there is little enforcement of the OECD Anti-Bribery convention in Greece.

Russia scores a D- in the GI, indicating a high corruption risk. Legislative oversight of the defence budget and procurement exists in theory, but is not enforced in practice. Nearly half of the defence budget is secret, and the Ministry of Defence’s procurement is often carried out by military-owned businesses that operate without scrutiny.

Russia has little or no enforcement of the OECD anti-bribery convention due to a range of deficiencies in its legal framework and enforcement system. There are no known prosecutions of foreign bribery in Russia.

Sweden should start to investigate foreign bribery offences and introduce more effective provisions on liability of companies and heavier fines for legal persons to deter bribery.

Sweden’s score of B in the GI indicates a low corruption risk overall, but there is a need for greater transparency of the defence budget. Anti-corruption and bribery regulations for personnel were found to be enforced, though they lack whistleblower protections. Strict regulations apply to bidding companies, including sanctions and potential bans, and companies that have witnessed bribery or corruption can report it to the Parliamentary Ombudsman.

United States has actively enforced against foreign bribery over a period of years, imposing record fines. To bolster this, the US should also prohibit facilitation payments or “grease” payments, which remain exempted under the Foreign Corrupt Practices Act.

In the GI, the US was in band B, showing mostly strong systems but also areas that are in need of improvement, such as auditing. Military expenditure in Iraq and Afghanistan, classified as emergency spending, has been kept off-budget. More positively, US procurement legislation places a high standard of anti-corruption policy for the companies bidding on Pentagon contracts.

For any press enquiries please contact press@transparency.org

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