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Strategic Export Controls

Evidence submitted by Transparency International

1. Executive summary

The international arms trade is among the most corruption-prone sectors. Arms deals tend to be surrounded by high levels of commercial and national security. This makes the trade particularly susceptible to the risk of corruption as a vehicle for illegal and undesirable arms transfers. Illicit arms transfers have negative consequences for international humanitarian law, human rights, and sustainable development as well as for efforts to combat violent organised crime and terrorism.

We thus recommend that the Committees on Arms Export Controls

· continue to recommend to HMG that the Export Control Organisation (BIS) test whether a licence application is free from corruption and bribery before issuing an export licence;

· insist that HMG implement the Committees’ recommendations based on Chapter 6 of the First Joint Report of the Session 2009-10;

· consider addressing corruption risks in export licensing beyond Criterion 8 of the EU and National Consolidated Criteria as corruption in the legal global arms trade is not confined to those countries qualifying for consideration under Criterion 8;

· recommend that HMG work towards a robust UN Arms Trade Treaty (ATT) with a strong anti-corruption mechanism, preferably as a stand-alone criterion;

· recommend that HMG work with other EU member states to amend the European Council Common Position defining common rules governing the controls of exports of military technology and equipment and agree a new ninth criterion whereby prospective transfers would be refused where there existed a clear risk that they might involve corrupt practices.

2. Brief introduction to the submitter

Since 2004, the Transparency International Defence and Security Programme, based in London, has become the authoritative actor on empowering civil society, defence contractors, and governments to promote greater transparency and reduce corruption in defence and security. Our role is fourfold: (1) To raise integrity in arms transfers; (2) To support counter-corruption reforms in nations; (3) To empower defence anti-corruption actors and actions by disseminating expertise; and (4) To be a strong voice in the formulation of international policy on the centrality of dealing with defence and security corruption as a key aspect of strengthening development and human security. We have found that our approach and our tools work effectively in both peacetime and in conflict environments, notably Afghanistan, where we are currently actively engaged.

FACTUAL INFORMATION

3. Corruption has long been acknowledged to have a devastating impact on the legal global arms trade: A 2006 survey by Control Risks showed that roughly one third of international defence companies felt they had lost out on a contract in the last year because of corruption by a competitor. [1] The US Department of Commerce claimed that the defence sector accounted for 50% of all bribery allegations in 1994 -1999, despite accounting for less than 1% of the world trade. [2] It has been estimated that bribes accounted for as much as 15% of the total spending on weapons acquisitions in the 1990s. [3] In 2005, the Defence and Security Programme of Transparency International estimated the global cost of corruption in the defence sector to be at a minimum of around US$20 billion per year, which equates to the global official development assistance provided to Iraq, Afghanistan, Congo (DRC), Pakistan, and Bangladesh combined or the total sum pledged by the G8 to fight world hunger in L’Aquila in 2009. This estimate is based on data from the World Bank and SIPRI and assumes that the defence sector is no more prone to corruption than other sectors – an assumption that conflicts with popular perceptions. [4]

First Joint Report of the Session 2009-10, ‘Scrutiny of Arms Export Controls’

4. The First Joint Report of Session 2009-10, "Scrutiny of Arms Export Controls", includes an entire chapter on "Challenging bribery and corruption". [5] The UK Committees on Arms Export Controls "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; test 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 (emphasis added)." [6]

5. In the First Joint Report of the Session 2009-10, the Committees on Arms Export Controls still "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 (emphasis added). [7]

United Kingdom Exports Control Annual Report 2009

6. The United Kingdom Exports Control Annual Report 2009 unfortunately fails to mention either bribery or corruption.

7. It is also notable that while the Committees on Arms Export Controls have recommended that Criterion 8 methodology be applied "to test whether a licence application is free from bribery and corruption" (First Joint Report of Session 2009-10, p. 39), according to the United Kingdom Exports Control Annual Reports 0 (zero) Standard Individual Export Licence (SIEL) and Standard Individual Trade Control Licence (SITCL) applications have been refused or revoked because of Criterion 8 ("Compatibility of the arms exports with the technical and economic capacity of the recipient country") in 2009, 2008, or 2007. [8] It is also very important to note that corruption in the legal global arms trade is not confined to those countries which qualify for consideration under Criterion 8.

Consolidated EU and National Arms Export Licensing Criteria

8. The User Guide to European Council Common Position defining common rules governing the controls of exports of military technology and equipment considers best practice to include assessing corruption risks for Criterion 2 (3.2.12), Criterion 5 (3.5.4) and Criterion 7 (3.7.3). Unlike the 0 (zero) licences revoked based on Criterion 8, the UK has revoked or refused 61 SIEL and SITCL applications based on Criterion 2 and 43 SIEL and SITCL applications based on Criterion 7 in 2009 alone. [9]

9. This further underlines that corruption is a cross-cutting risk, affecting all eight criteria of the European Council Common Position defining common rules governing the controls of exports of military technology and equipment. Corruption facilitates the diversion of arms (Criterion 7) to regions for which UN sanctions are in place (Criterion 1) and where they threaten international (humanitarian as well as human rights) law (Criteria 6 and 2), hence posing a serious risk to "regional peace, security, and stability" (Criterion 4) and facilitating "the existence of tensions or armed conflicts" (Criterion 3). In the past, this has often also meant that states have not "achieve[d] their legitimate needs of security and defence with the least diversion for armaments of human and economic resources" (Criterion 8).

10. EU Member States, including the United Kingdom, have expressed themselves anxious to stamp out corruption wherever possible, including in the context of arms transfers, and have signed up to various anti-corruption agreements (such as the UN Convention Against Corruption; the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; and the Council of Europe Criminal Law Convention Against Corruption). It would therefore be consistent with this stance for Member States to amend the Common Position and agree a new ninth criterion whereby prospective transfers would be refused where there existed a clear risk that they might involve corrupt practices.

UK Bribery Act and UK Foreign Bribery Strategy

11. After campaigning for many years for the reform of UK anti-bribery law, Transparency International UK has welcomed the 2010 Bribery Act, which was passed into the statute book on 8th April 2010. When in force, it will make the UK fully compliant with the OECD Anti-Bribery Convention as well as the UN Convention Against Corruption, and will provide prosecutors with an effective legal framework to prosecute bribery. From a corporate perspective, the Bribery Act is one of the best anti-bribery laws in the world. The Act was the product of lengthy and conscientious public consultation and parliamentary scrutiny. It represents the best consensus that can be attained among all stakeholders. It acknowledges that the UK must play its part in helping to combat one of the world’s most pernicious evils.

12. HM Government’s UK Foreign Bribery Strategy (January 2010) also reminds us that "the fight against bribery can not be an optional extra or a luxury to be dispensed with in testing economic ties" (section 1.2). [10]

Anti-corruption in the UN Arms Trade Treaty (ATT)

13. While the First Joint Report of the Session 2009-10 also discusses the UN Arms Trade Treaty (ATT), [11] it unfortunately fails to link the ATT to the strong recommendations on addressing corruption and bribery when issuing arms export licenses. [12]

14. UN members agreed in 2006 to create a legally binding multilateral arrangement to regulate the legal international trade of conventional weapons, the ATT. The ATT will summarise and combine the current arms trading obligations of states under international law to ensure that the same strong standards are obeyed by all arms importers and exporters. The process of negotiating commenced at the first and second back-to-back ATT Preparatory Committee (PrepCom) in New York in July 2010 and is scheduled to conclude at the UN Conference on the ATT in 2012. The next PrepCom is scheduled for 28 February to 04 March 2011. Without anti-corruption previsions in the ATT, bringing arms trading under closer control will create new incentives and opportunities for those who, either as suppliers or customers, would want to avoid or circumvent those proper controls. It will, in short, offer new opportunities for corruption.

15. At the first two back-to-back PrepComs in July 2010, the argument that a robust ATT needs an anti-corruption mechanism was emphasised by the European Union, Colombia, Costa Rica, India, France, Mexico, Morocco, South Africa, and Sweden.

16. At the end of the second PrepCom in July 2010, ‘corruption’ was included in the Chairman’s Draft Paper, and the Facilitator’s Summary on Parameters mentions as a ‘specific parameter’ the "Consideration of other issues such as the proliferation record and other patterns of behavior of the actors involved, the risk of corruption associated with the transfer, and the potential of transit of the arms through or to zones of conflict" (emphasis added).

17. In their 2007 replies pursuant to paragraph 1 of General Assembly resolution 61/89 to the UN Open-Ended Working Group, the following states included corruption as a factor to be considered when issuing an export licence: Bangladesh, Bosnia and Herzegovina, Burkina-Faso, Chile, Côte d’Ivoire, France, Iceland, Japan, Liberia, Mali, the Netherlands, Niger, Norway, Spain, Sweden, Togo, the UK, and Zambia.

18. Existing legally binding regional arms treaties with an anti-corruption mechanism include the ECOWAS (Economic Community of West African States) Convention on Small Arms and Light Weapons (incorporating corruption prevention measures "at any stage – from the supplier, through any middlemen or brokers, to the recipient") as well as the Nairobi Protocol. The politically binding UN Disarmament Commission Guidelines on Arms Transfers and OSCE Document on Small Arms and Light Weapons also feature anti-corruption provisions, as does the UN Guide to SALW legislation.

19. Rees Ward, the Chief Executive of the the UK’s AeroSpace, Defence and Security trade organisation (A|D|S), has stressed that "the UK’s aerospace, defence and security industries support the Bribery Act and its aims" (emphasis added), adding that their "sectors have developed ethics policies that are an example to any other area of business in Britain". [13] Tim Williams, Policy Adviser of the Society of British Aerospace Companies (SBAC) Aerospace Defence and Homeland Security Society, by now merged into A|D|S, pointed out that "[t]he Arms Trade Treaty is an important initiative and one that is wholeheartedly supported by industry in the UK" (emphasis added) as "[t]he prospect of a global standard for defence exports was quickly and warmly welcomed by British defence firms". [14]

20. A strong anti-corruption provision in the ATT would not create additional burdens for UK industry. The UK Bribery Act as well as the US Foreign Corrupt Practices Act (as well as additional laws in many other countries) require UK industry to take steps to eradicate corruption in their own business transactions. A strong anti-corruption mechanism in the ATT will encourage other exporting countries to put in place similar measurements and legislations, ultimately creating a level playing field for UK firms who may currently be somewhat disadvantaged by other countries. This is in line with UK industry who "will also be making it clear to the Government that they must do everything possible to ensure a level playing field in global markets by ensuring that other governments clamp down on unfair competition and extortion in their markets." [15] A strong anti-corruption mechanism will, over time, also encourage importing countries to implement stronger anti-corruption measures.

21. Considering the risk of corruption during the licensing process in the UK will only require some additional scrutiny of some licenses. The corresponding risk management models could readily be included into SPIRE, the export licensing IT system, so as to flag up those license applications requiring closer scrutiny.

22. While exporting states have a clear duty to eradicate corruption in arms trading, importing states want to be sure that they can secure the weapons they want at a fair (uninflated) price, to secure the adequate equipment they actually need, and particularly in developing countries, to not waste funding that could be invested in other crucial areas, including sustainable development. Victims, many of which are the most needy developing countries, also have a very strong interest that corruption is tackled, both in their own countries and also (often even more so) in neighbouring countries from which arms are smuggled.

Pre-licence registration of brokers

23. We fully agree with the Committee on Arms Export Controls’ recommendation in the First Joint Report of the Session 2009-10, which the Committees had already made previously, "that the Government establish a pre-licensing register of brokers in order to reduce the possibility of undesirable entities trading in arms overseas". This would indeed be a major step to "reduce the possibility of undesirable entities trading in arms overseas". [16] It would also be in line with the EU Common Position on the control of arms brokering adopted on 23 June 2003 as well as brokering registration requirements in Bulgaria, the Czech Republic, Estonia, Lithuania, Portugal, Romania, and Spain. A pre-licensing register would furthermore make it more difficult for brass plate companies to register in the UK and to trade arms without the appropriate licences from the Export Control Organisation.

RECOMMENDATIONS FOR ACTION

24. Because of the devastating impact that corruption continues to have on the licit global arms trade it is vital that the Committees on Arms Export Controls continue to recommend to HMG that the Export Control Organisation (BIS) test whether a licence application is free from corruption and bribery before issuing an export licence and that the Committees on Arms Export Controls insist that HMG implement their recommendations based on Chapter 6 of the First Joint Report of the Session 2009-10.

25. Due to the cross-cutting nature of corruption risks in the arms trade, we furthermore recommend that the Committees on Arms Export Controls considers addressing corruption risks also beyond Criterion 8 of the EU and National Consolidated Criteria, as corruption in the legal global arms trade is not confined to those countries which qualify for consideration under Criterion 8. This would also be in line with the User Guide to European Council Common Position defining common rules governing the controls of exports of military technology and equipment as well as Transparency International’s recommendation for EU Member States to amend the Common Position and agree a new ninth criterion whereby prospective transfers would be refused where there existed a clear risk that they might involve corrupt practices.

26. We congratulate the Committees on Arms Export Controls on acknowledging the devastating impact of corruption on the legal arms trade, and we recommend that the Committees also extend their recommendations made in Chapter 6 of the First Joint Report of the Session 2009-10 to the UN Arms Trade Treaty (ATT).

27. Based on the evidence provided above, we believe that there cannot be a robust ATT without a strong anti-corruption mechanism. It is therefore vital that corruption continues to be high on the agenda in preparation for the next PrepCom in February/March 2011.

28. We are furthermore convinced that a robust ATT would ideally include ‘corruption’ as a stand-alone criterion/parameter. The inclusion of corruption within only one parameter risks ignoring the important cross-cutting role that corruption plays both in influencing procurement decisions (of particular importance to any sustainable development criterion) and in diversion (itself likely to be a criterion which cuts across many other criteria). Given the pervasive and insidious affect of corruption on a wide range of individual criteria, it makes good sense for it to be incorporated as a separate criterion in its own right.

29. We fully agree with the Committee on Arms Export Controls’ recommendation in the First Joint Report of the Session 2009-10, which the Committees had already made previously, "that the Government establish a pre-licensing register of brokers in order to reduce the possibility of undesirable entities trading in arms overseas".

22 November 2010


[1] Control Risks / Simmons&Simmons, International business attitudes to corruption – survey 2006, p. 5

[2] US Department of Commerce Trade Promotion Co -ordinating Committee Report (March 2000).

[3] Tanzi, V., Corruption around the world: causes, consequences, scope, and cures. IMF Staff papers 45, pp. 559-594.

[4] The World Bank estimated that more than US$1 trillion dollars (US$ 1,000 billion) is paid globally in bribes each year (2004). The World Bank also put World GDP at US$41.5 trillion (current prices, 2004). Global military expenditure in 2004 was approximately US$1 trillion (current prices, SIPRI). If $1 in every US$41.5 is misappropriated globally each year, then for the defence sector, worth approximately US$1 trillion, the cost of corruption each year is about US$20 billion. This assumes that the defence sector is no more prone to corruption than other sectors – an assumption that conflicts with popular perceptions.

[5] First Joint Report of the Session 2009-10, Chapter 6, pp. 38-41.

[6] First Joint Report of the Session 2009-10, p. 39.

[7] First Joint Report of the Session 2009-10, p. 40.

[8] Annual Report 2009, p. 2 3; Annual Report 2008, p. 23; and Annual Report 2009, p. 27.

[9] United Kingdom Exports Control Annual Report 2009, p. 43.

[10] HM Government’s UK Foreign Bribery Strategy, January 2010, section 1.2.

[11] First Joint Report of the Session 2009-10, Chapter 7, pp. 42-45.

[12] First Joint Report of the Session 2009-10, Chapter 6, pp. 38-41.

[13] A|D|S News Release PR 2010 075, 8 November 2010.

[14] The Scope of the Arms Trade Treaty, speech delivered at the 888 th Wilton Park Conference, 7-10 D e cember 2007.

[15] A|D|S News Release PR 2010 075, 8 November 2010.

[16] First Joint Report of the Session 2009-10, p. 20.