Scrutiny of Arms Export Controls (2010): UK Strategic Export Controls Annual Report 2008, Quarterly Reports for 2009, licensing policy and review of export control legislation - Committees on Arms Export Controls Contents

6  Challenging bribery and corruption


101. In our 2008 Report we held an examination of allegations of corruption in defence contracts in the 1970s, and the challenges of bribery and corruption in the present day. As we have previously reported, bribery remains a major problem globally. According to the World Bank approximately US$1 trillion (£5,000 million) is paid in bribes each year, representing 10% extra on the cost of doing business and up to 25% on procurement contracts in developing countries.[161] Transparency International gave evidence to us in 2008 and told us that the arms sector was one of the top three sectors in which bribes are paid.[162]

102. The UK now ranks 17th of the least corrupt countries in the world according to Transparency International's annual corruption perceptions index.[163] Transparency International's 2009 Progress Report on Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions found that there were great disparities in levels of enforcement among the largest exporting countries. The UK was one of the countries with a "moderate" level of enforcement that was not considered enough to provide effective deterrence against foreign bribery.[164] As reported by Transparency International, four foreign bribery cases were concluded in the past year in the UK, two of them major and with sanctions imposed, and about 20 investigations were currently underway.[165]

103. The UK's decision to halt the investigation into Al Yamamah defence contracts with Saudi Arabia was described as a "grave blow" to the OECD Convention. This was because the UK's claim that national security concerns overrode the commitment to stop foreign bribery was considered to have opened up a loophole for other governments to exploit.[166]

104. We note that it was recently announced that the Serious Fraud Office (SFO) had reached an agreement with BAE Systems that the company would plead guilty in the Crown Court to an offence under section 221 of the Companies Act 1985 of failing to keep reasonably accurate accounting records in relation to its activities in Tanzania. The company will pay £30 million comprising a financial order to be determined by a Crown Court judge with the balance paid as an ex gratia payment for the benefit of the people of Tanzania. No further prosecutions will be brought against BAE Systems in relation to the matters that have been under investigation by the SFO.[167] The company will also plead guilty to one charge of conspiring to make false statements to the U.S. Government in connection with certain regulatory filings and undertakings. The Company will pay a fine of $400 million to the US Department of Justice and make additional commitments concerning its ongoing compliance.[168]

105. The responsibility for anti-corruption has moved in recent years from the FCO to BERR and DfID respectively and, since October 2008, to the Ministry of Justice, where the Secretary of State for Justice was appointed the Government's Anti-Corruption Champion.[169] In our last Report we concluded that this shifting of responsibility for anti-corruption from one Department to another raised questions over whether there was a sufficiently vigorous anti-corruption culture across Whitehall.[170]

Tackling bribery through the licensing process

106. In our 2008 Report we acknowledged that the Export Control Organisation (ECO) did not have the expertise to investigate bribery and corruption at present without distorting its focus on the potential risk presented by the export. However, we made a series of recommendations relating to: the application of the Criterion 8 methodology to test whether the contract behind a licence application is free from bribery and corruption; the creation of a requirement for those seeking export licences to produce a declaration that the export contract has not been obtained through bribery or corruption; the revocation of licences where an exporter had been convicted of corruption; and the amendment of the National Export Licensing Criteria to make conviction for corruption by an exporter grounds for refusing an export licence.[171]

107. The Government Response to our 2008 Report stated that it would not consider our recommendations further until the defence sector's Common Industry Standards Initiative had been introduced and the report of the Export Credits Guarantee Department (ECGD) on its anti-bribery and corruption procedures had been published.[172]

108. Lord Davies of Abersoch, Minister for Trade, Investment and Small Business, UK Trade and Investment, wrote to us on 3 December to inform us of the publication of the anti-bribery policies and procedures review by ECGD.[173] This review had taken our 2008 Report into account.[174]

109. The Secretary of State for Justice published his UK Foreign Bribery Strategy on 19 January 2010.[175] It has four objectives: strengthening the law; supporting ethical business; enforcing the law; and international cooperation and capacity building. The strategy, the result of collaboration across Whitehall, industry, civil society and international partners, including the OECD Working Group on Bribery and the UN Global Compact, states that it aims to set out how the Government will:

    [...] address and manage the evolving challenges and establish a clear legal, regulatory and policy framework for action against foreign bribery. Law reform through the new Bribery Bill will be the keystone of this approach but the strategy also reinforces links to the wider international anti-corruption agenda—reflecting our commitment to focus on the causal drivers of foreign bribery and deepen our collaboration with international partners.[176]

110. As part of its objective to support ethical business, the Government states that it "supports business anti-corruption initiatives and the development of industry sector codes of conduct." It provided the following example of this support:

    [...] the Government has encouraged all UK aerospace and defence companies to participate in the Common Industry Standards, an anti-corruption code of conduct for the Aerospace and Defence Industries Association of Europe (ASD). The Common Industry Standards were initially developed through Chatham House discussions in London chaired by Lord Robertson and have led to an agreement between UK and US aerospace and defence leaders, the Global Principles of Business Ethics, which was formally launched on 13 January 2010.[177]

111. The review of the anti-bribery policies and procedures of Export Credits Guarantee Department has now been published and the Global Principles of Business Ethics for the Aerospace and Defence Industry were launched on 13 January 2010. We adhere to the recommendations on bribery and corruption made in our 2008 Report and we recommend that the Government consider them further with a view to implementing the recommendations or explaining why there is no need to do so.

112. Key to the Government's UK Foreign Bribery Strategy is reform of bribery law. As noted in our last Report, the existing law of bribery, has been criticised both domestically and internationally since at least 1976 when the Royal Commission, chaired by Lord Salmon, recommended changes to the law relating to bribery.[178] At the time of publication of our last Report, pre-legislative scrutiny of the draft Bribery Bill was being conducted by a Joint Committee.[179] The primary aim of the draft Bill was to modernise and simplify the existing law of bribery and provide for a new consolidated scheme of bribery offences to cover bribery both in the United Kingdom and abroad.[180] The Joint Committee supported the draft Bill in principle and made a number of recommendations, many of which were reflected in the Bribery Bill as introduced in the House of Lords in November 2009. At the time of agreement of this Report, the Bill had been referred to a Public Bill Committee in the House of Commons.

113. We conclude that the introduction of a Government strategy on UK Foreign Bribery is a welcome development. We recommend that the Government in its Response to this Report provide information on how the strategic export control system is working to support the new strategy.

161   Ministry of Justice, Impact Assessment of draft bill on reform of the law on bribery, February 2009, p 3; "New draft Bribery Bill to support international fair trade", Department for International Development press release, 26 March 2009,  Back

162   HC (2007-08) 254, Q 104 Back

163   See the annual perceptions of corruption index published by Transparency International, available at  Back

164   Transparency International, Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 23 June 2009,, pp 8 and 51 Back

165   Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, p 51 Back

166   Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, p 8 Back

167   "BAE Systems Plc", Serious Fraud Office Press Notice, 5 February 2010, Back

168   "BAE Systems PLC announces global settlement with United States Department of Justice and United Kingdom Serious Fraud Office", BAE Systems Plc Press Release 014/2010, 5 February 2010, Back

169   Department for Business, Enterprise and Regulatory Reform, Corporate Responsibility Report, February 2009,; "Anti corruption champion", Ministry of Justice press release, 15 October 2008, Back

170   HC (2008-09) 178, para 97 Back

171   HC (2007-08) 254, paras 112-117 Back

172   Cm 7485, p 18 Back

173   Letter not printed. Back

174   Export Credit Guarantee Department, Review of ECGD's anti-bribery and corruption procedures, 3 December 2009,, para 6 Back

175   Ministry of Justice, UK Foreign Bribery Strategy, Cm 7791, January 2010 Back

176   UK Foreign Bribery Strategy, para 1.4 Back

177   UK Foreign Bribery Strategy, para 3.1 Back

178   Royal Commission on Standards in Public Life, Cm 6524, 1976 Back

179   Joint Committee on the Draft Bribery Bill, First Report of Session 2008-09, Draft Bribery Bill, HC 430 and HL Paper 115 Back

180   Explanatory Notes to the Bribery Bill [Lords] [Bill 69 (2008-09)-EN] Back

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