Select Committee on International Development Eighth Report



109. One of the reasons for our examination in the last chapter is that a clear understanding of the past is helpful in establishing better future practice. In this chapter we turn from the 1970s to the current and future risk of bribery and corruption in arms export contracts.

Guidance to those dealing with exports

110. As we noted in the previous chapter, the 1976 Guidelines made no reference to the extra-territorial provisions in either the Criminal Justice Act of 1948 UK or the common law prohibiting bribery and corruption. If they had, we consider the Guidelines would have had greater force. We recommend that when it produces guidance for those handling or dealing with exports—both for civil servants and British citizens or companies—the Government set out concisely and clearly the extra-territorial provisions in statute and common law on bribery and corruption as well as the penalties for breaching the law.

Risk of bribery and corruption

111. In our Report last year we recommended that the Department for International Development (DfID) consider including an assessment in the Criterion 8 (sustainable development) methodology applied by the Government to test whether the contract behind an application for an export licence was free from bribery and corruption.[268] As the UK Working Group on Arms pointed out:

    corruption diverts public resources away from social sectors and the poor, increasing the cost and lowering the quality of public services, and often restricting access to such essential services as water, health and education. Corruption acts as a drag on the development and economic growth of a country, and perpetuates unequal distribution of power, wealth and resources. Corruption in one sector of the economy can also lead to an increase in corrupt practices across the board in the form of extortion, bribery and intimidation, many of which disproportionately affect poor people.[269]

In its oral evidence to our current inquiry Transparency International (UK) added to the list, pointing out that corruption compromised "the national security aspects of the country […] if the Defence Ministry is seen to be corrupt".[270]

112. We see no reason to change our minds about the need for the Criterion 8 assessment to test whether the contract behind an application for an export licence is free from bribery and corruption. The Government has completed its review of the methodology[271] but it has not published it, as we recommended last year.[272] We therefore do not know if it includes any assessment of the likelihood that a proposed export is tainted with bribery or corruption. We reiterate our recommendations that an assessment in the Criterion 8 methodology be applied by the Government to test whether the contract behind an application for an export licence is free from bribery and corruption, to maximise the integrity and accountability of the procurement process, and that the Government publish the methodology in the annual report on strategic export controls.

113. Corruption is not confined to those countries which qualify for consideration against Criterion 8. CAAT cited the Serious Fraud Office's current investigations into allegations of corruption in respect of BAE's deals with Chile, the Czech Republic, Qatar, Romania, South Africa and Tanzania—"countries with widely differing economic circumstances and political backgrounds"[273] and suggested that all export licence applications should "be subject to an anti-corruption assessment".[274] Transparency International (UK) also gave us evidence on the prevalence of bribery and corruption in arms exports. It stated:

    if you look at the Transparency International Bribe Payers index in 2002, it is the one that asks many thousands of businessmen "In which sectors do you find the most bribes to be paid?" and the top three sectors are public construction, then arms, then oil. That would be a fairly wide evidence base. If you look at similar surveys—the Americans have done something similar—that come up with the top three or four industries at risk, of which arms is one. One of their mechanisms is that their Commerce Department has a mechanism by which companies can register complaints about bribery. In the second half of the 1990s 50% of the complaints were about defence bribery, even though that is only about 1% of world trade. You hear the same thing borne out when you speak to either government officials or defence officials, who say that in the past, bribery has been extremely common practice. That is changing, but to us, that is enough evidence that says yes, defence is more at risk.[275]

114. We asked why these three areas were more susceptible to corruption. Transparency International (UK) considered that it was "partly the nature of the contracts" and explained that "all three of those are large, irregular contracts and that always offers more opportunity" and that in the case of arms exports, "the historical issue has been much more around secrecy, that if they are not openly competed and there is not open pressure on the contracts, it is that much easier to pay bribes or influence the outcome".[276] When we put these concerns to the Minister, Malcolm Wicks MP, he assured us that the Government was "fully signed up to fighting corruption"[277] and "where there is public knowledge, or indeed private knowledge, which suggests that there could have been bribery or corruption, we would act on that".[278]

115. Transparency International (UK) proposed that as a requirement for the granting of an export licence companies should be required to adhere to strict anti-corruption measures which included:

  • 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;
  • a commitment to undertake face-to-face due diligence before appointing an agent, adviser or other intermediary, and on a regular basis thereafter, e.g. annually or biannually;
  • a requirement that subsidiaries and joint ventures observe the same high standards of due diligence required in the UK; and
  • formal monitoring of any "offset" arrangements in connection with defence deals.[279]

116. The Minister said that the main focus of the process of licensing exports "has to be on the potential risk presented by the export, not on the general process by which the contract was won"[280] and he pointed out that the Export Control Organisation (ECO) "would not have the expertise at the moment to investigate bribery and corruption".[281] He considered that there could be "a danger of diffusing that focus" and he pointed out that companies were "subject to the law of the land and the law is clear about bribery and corruption".[282] He added that the Government did not enquire into a whole range of potential criminal activities on the part of the exporter. He was, however, willing to take the advice of the Committees on this issue.[283]

117. In our view the statistics which Transparency International (UK) produced give cause for concern and are a powerful argument for export control authorities taking steps to prevent bribery and corruption. Although we accept the Minister's point that the adoption of the package of measures proposed by Transparency International (UK) would require policing and monitoring by the ECO and therefore change the focus of its operations, we consider that, to enhance the credibility of its policy of combating bribery and corruption, the Government could use the export licensing process to combat bribery and corruption without distorting its focus. We recommend that as a first step the Export Control Organisation require those applying for export licences to provide a declaration that to the best of their knowledge the export contract has not been obtained through bribery or corruption and that where an agent has been used due diligence checks have been carried out. We recommend that those who knowingly make a false declaration be liable to prosecution and revocation of all export licences. In addition, we recommend that in a case where subsequently an exporter is convicted of corruption the Government revoke all his or her export licences. We also recommend that the Government amend the National Export Licensing Criteria to make conviction for corruption by an exporter grounds for refusing an export licence.

The Salam project

118. Transparency International (UK) also raised the al-Salam arms contract between the UK and Saudi Arabia. The Ministry of Defence (MoD) explained that in December 2005 the Government had signed an "Understanding Document" which established a partnership to modernise the Saudi Arabian Armed Forces and to develop closer service-to-service contacts. Under the terms it was also agreed that Typhoon aircraft would replace Tornado ADV aircraft and others currently in service with the Royal Saudi Air Force. Following detailed discussions between the governments on the commercial arrangements, the Saudi Arabian Government had announced on 17 September 2007 that agreement had been reached to purchase 72 Typhoon aircraft for the Saudi Armed Forces at a cost of £4.4 billion. The Government hoped that this new defence programme, known as "the Salam Project" and separate from the former Al Yamamah deal, would eventually include weapons, logistical and training packages, and provide an opportunity for RAF and Royal Saudi Air Force aircrews and ground technicians to train alongside each other in the UK. The MoD also explained that the Project included a commitment to a substantial programme of inward investment in the Saudi aerospace industry, including technology transfer and training for Saudi nationals that would provide thousands of skilled jobs in Saudi Arabia.[284]

119. Transparency International (UK) said that the conditions surrounding the Salam contract would be a "litmus test of the Government's commitment to fighting bribery"[285] and that it was greatly in the interests of both governments to show beyond doubt that the new contract was consistent with current recognised standards of corporate and public integrity.[286] Transparency International (UK) believed that 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".[287] It argued that such an arrangement would "demonstrate their commitment to showing that the contract was consistent with recognised standards of corporate integrity" and it believed 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".[288]

120. The Secretary of State for Defence told us that the Salam Project was "a perfectly proper contract in which there is no impropriety associated with this negotiation at all".[289] The Foreign and Commonwealth Office (FCO) told us that the "Saudi Government would not agree to any arrangement that would result in the release of sensitive information relating to their defence capability, which they would consider to be against their national interest".[290] The Secretary of State also said that, if the Government were to accede to Transparency International (UK)'s request to set up joint monitoring, "the next claim would be that it is not independent because the governments set it up even if it was in response to a suggestion from Transparency International. There is a perfectly good, independent body in the [National Audit office] that reports to Parliament that does this job."[291] In a rejoinder, Transparency International (UK) said that the Secretary of State was "underestimating the damage that has been done to the UK's previously good reputation in anti-corruption by the fall-out from Al Yamamah".[292] It said that large UK companies, many of whom had worked hard at putting in place an anti-bribery practice, had been dismayed by the negative perception of UK companies overseas. In Transparency International (UK)'s view there was now "an opportunity to restore the UK's reputation by making the new Al Salam contract fully transparent and an exemplar of good practice".[293]

121. We consider that the Salam Project provides the opportunity to begin a new chapter in relations between the UK and Saudi Arabia and for a fresh start for both governments to demonstrate that they are prepared to put in place greater transparency to tackle bribery and corruption. We recommend that the UK Government consider how to improve the transparency of the Salam Project. We also recommend that the Public Accounts Committee gives consideration to publishing all reports to it from the National Audit Office in respect of the Salam Project.


122. On enforcement, the Government pointed out that the UK had:

123. We accept the Government's assurance that it has strengthened its systems to combat bribery and we note that a number of investigations are underway. We accept that such investigations may require assistance from authorities overseas and thus may take some time. We recommend that the Government provide in its response to this Report a statement setting out the progress made by government departments and agencies investigating current allegations of bribery in relation to arms exports.

268   HC (2006-07) 117, para 122 Back

269   Ev 57, para 27 Back

270   Q 107 Back

271   Ev 86, para 5 Back

272   HC (2006-07) 117, para 119; the Government indicated in Ev 97, at para 7, that it would publish the methodology in the 2007 Annual Report on Strategic Export Controls. Back

273   Ev 80, para 20 Back

274   Ev 80, para 21 Back

275   Q 104 Back

276   Q 105 Back

277   Q 136 Back

278   Q 137 Back

279   Ev 53, para 8 Back

280   Q 139 Back

281   Q 140 Back

282   Q 139 Back

283   Ibid. Back

284   Ev 42 Back

285   Ev 49, para 8 Back

286   Ev 49, para 9 Back

287   Ev 49, para 10 Back

288   Ev 49, para 11 Back

289   Q 27 Back

290   Ev 93, Q 11 Back

291   Q 27; see also Q 26. Back

292   Ev 52, para 6 Back

293   Ibid. Back

294   Ev 93, Q 9 Back

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