Further memorandum from Transparency International
(UK)
1. See Appendix 1 for background on Transparency
International (UK) and its work in the defence sector.
BACKGROUND
2. Transparency International (UK) submitted
written evidence to the "Quadripartite Committee" in
December 2007, in advance of the Committee's inquiry into export
controls (17 January 2008).
3. Transparency International (UK) welcomes
the Quadripartite Committee's receptiveness to our proposals,
as put by the Committee to the Secretary of State Des Browne on
17 January. Transparency International (UK) is disappointed with
the Secretary of State's response.
4. Transparency International (UK) is pleased
to have this opportunity to present to the Quadripartite Committee.
Our submission consists of the following:
— Clarifications in response to
the Secretary of State's objections to our "Al Salaam"
contract monitoring proposals (as outlined on 17 January).
— Other proposals to enhance anti-corruption
controls in the UK, building on the recommendations of the last
Strategic Export Controls Review of 2007.
ENHANCED MONITORING
OF AL
SALAM CONTRACT:
SECRETARY OF
STATE'S
COMMENTS
5. The Quadripartite Committee made proposals
to Secretary of State for Defence Des Browne on January 17, based
on the last TI (UK) submission,[3]
for enhanced monitoring of the new Al Salam contract. In the transcript
of the proceedings the issue of corruption in arms deals with
Saudi Arabia comes up in Questions 15 to 27, principally Q26.
The Secretary of State was not supportive of pursuing the TI (UK)
proposal. His main objections were:
(a) "There is a perfectly good, independent
body in the NAO that reports to Parliament that does this job,
why do we need another one?"
(b) "The fundamental problem is that
this is a government-to-government contract. The Saudi Government's
view—and we respect this—is that the financial arrangements
in relation to such contracting are confidential."
(c) "This is a perfectly proper contract
in which there is no impropriety associated with this negotiation
at all."
6. Transparency International (UK) believes
the Secretary of State is underestimating the damage that has
been done to the UK's previously good reputation in anti-corruption
by the fall-out from Al Yamamah. Large UK companies, many of whom
have worked hard at putting in place a good anti-bribery practice,
tell us how dismayed they are by the negative perception of UK
companies overseas. There is now an opportunity to restore the
UK's reputation by making the new Al Salam contract fully transparent
and an exemplar of good practice.
7. TI (UK)'s response to the Secretary of
State's objections are as follows:
— NAO: The NAO is a very
competent body. However, its report on the Al Yamamah contract
was never published. If the public is to have any confidence this
time, it is vital that the NAO's views should be published.
— Government-to-Government
contract: This does not need to be an insurmountable barrier.
There will be a body of opinion in Saudi Arabia that will welcome
higher confidence in the integrity of this contract, given the
damage and embarrassment caused by "Al Yamamah". There
is no reason why both Governments cannot agree on measures to
show Al Salam is a "perfectly proper contract". This
will require a degree of independent verification. We urge the
Committee to impress upon the Government the importance of working
pro-actively with their Saudi counterparts to agree such measures.
EXPORT LICENCING
8. As a requirement for the granting of
an export licence, companies should be required to adhere to strict
anti-corruption measures, including:
— publication of the names of
intermediaries and advisers utilised by UK defence companies,
and publication of all fees paid to them and the services they
provide;
— commitment to undertaking face
to face due diligence before appointing an agent, adviser or other
intermediary, and on a regular basis thereafter, eg annually or
biannually;
— a requirement that subsidiaries
and joint ventures observe the same high standards of due diligence
required in the UK;
— formal monitoring of any "offset"
arrangements in connection with defence deals. Because of their
opacity, offsets are vulnerable to bribery and corruption. TI(UK)
is happy to provide more details on this subject; and
— a register of brokers: TI (UK)
welcomes the Quadripartite Committee's recommendation that the
Government "follow best practice to establish a register
of arms brokers". Registered brokers should be required to
disclose to all payments made to them for publication by the central
registry. Further, TI (UK) proposes the obligatory vetting of
registered brokers by an agency such as TRACE International,[4]
a non-profit membership association specialising in anti-bribery
due diligence reviews and compliance training.
9. Post-hoc checking: The present export
control system is based on a strong set of criteria in advance
of approval of the export. There is very little scrutiny of exports
after shipment, and virtually no data to confirm whether or not
shipments have proceeded as stated. The issues uncovered by the
AQ Khan saga show how the lack of post-hoc checking can lead to
a dangerous complacency about export controls. TI (UK) recommends
that the Government initiate a system of more rigorous post-hoc
checking of arms exports. We also recommend that the Government
champions this for incorporation in the proposed Arms Trade Treaty.
Post-hoc checking of a random sample of arms exports once completed
would help to identify weak spots, act as a deterrent for those
intent on flouting controls, and provide much needed data on the
extent of diversion. Post-hoc checking should be conducted by
a properly resourced and mandated team, which should aim to:
— assess whether the export reached
the intended recipient;
— scrutinise all payments associated
with the export, in particular those made through third parties;
and
— assess whether enhanced anti-corruption
procedures were adopted once red flags had been raised.
INTERNATIONAL ARMS
TRADE TREATY
10. TI (UK) welcomes the Quadripartite committee's
recommendation that "the Government press for the inclusion
of provisions in the arms trade treaty to promote good governance
and combat bribery and corruption in arms transfers".
11. Corruption greases the circumvention
of export controls. Anti-corruption principles and measures therefore
should constitute a central part of the export control regime.
This would correct one of the major weaknesses of the EU Code
on Arms Exports (the Code treats anti-corruption as a footnote
rather than a central "principle").
12. TI (UK) proposes that the Government
makes the case for the proposed anti-corruption provisions to
require presentation by exporting companies of rigorous contract-specific
no-bribery warranties, best practice compliance systems, as well
as a system for initiating enhanced controls when "red flags"
are raised in relation to the proposed recipient. A template system
is presented in Appendix 2.
13. The Treaty should require the provision
of detailed, comprehensive, and publicly available information
on the supply and receipt of exports—in particular the value
of the exports and the entities involved. Such data should be
collected and hosted centrally by the UN. States that do not provide
timely and complete data should be debarred from future transfers
for an appropriate period of time.
DESO
14. DESO's incorporation into BERR presents
the Government with an opportunity to enhance its anti-corruption
safeguards. As a requirement for DESO support, companies should
be required to adhere to strict anti-corruption measures. TI (UK)
looks forward to continued engagement with BERR in this respect.
March 2008
3 "A litmus test of the Government's commitment
to fighting bribery will be the conditions surrounding the new
"Al Salam" contract for the sale of military aircraft
and related services to Saudi Arabia. It is greatly in the interests
of both Governments to show beyond doubt that the new contract
is consistent with current recognised standards of corporate and
public integrity. Transparency International (UK) would like to
learn what proposals the Secretary of State may have for restoring
confidence in these major transactions. Transparency International
(UK) believes a powerful, visible way to do this would be to set
up a body comprised of respected institutions from both countries
that would monitor the financial, equipment and associated support
areas during the whole life of the contract. This would be set
up by the two Governments to demonstrate their commitment to showing
that the contract is consistent with recognized standards of corporate
integrity. We believe that such a positive initiative will improve
the image of the UK and Saudi Arabia after the Al Yamamah saga
and go a long way towards restoring faith in the UK's anti-corruption
efforts. Transparency International (UK) has written to the Prime
Minister, the former Secretary of State for Trade & Industry,
the Secretary of State for Defence, and the Head of the FCO Middle
East Desk, commending this proposal to them, and would be happy
to discuss this matter further with Secretary of State for Defence." Back
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