Introduction to the Compendium of Arms Trade Corruption

This series of posts by World Peace Foundation details 32 cases of corruption in the international arms trade and broader military sector. It forms part of WPF’s ongoing program on the Global Arms Trade and Corruption.

The cases are also displayed on an interactive map, designed by Tufts GIS Data Lab.

The global arms business—especially the international arms trade, but also domestic military procurement—is widely seen as one of the areas of legal business that is most subject to corruption. Researcher and former oil industry executive Joe Roeber, in Parallel Markets (2005), estimated that 40% of corruption in international trade was related to the arms trade. This was based on a detailed survey of materials not in the public domain, relating to complaints of corrupt activities in international trade, to which he had access. Among recent works documenting the ubiquitous corruption that characterizes the arms business are Andrew Feinstein’s The Shadow World (2011),  Nick Gilby’s Deception in High Places (2014), focusing on the UK, and Jean Guisnel’s Armes de Corruption Massive (2011), focusing on France.

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Heckler & Koch’s G-36 Rifles in Mexico

Introduction

Since the 1990s, German authorities had concerns that German small arms could be used to commit human rights violations in Mexico. As one of the world’s leading small arms manufacturers, however, Heckler & Koch (H&K) had a different fear: falling behind its American competitors in the Mexican market. To square this circle, H&K coached the Mexican procurement agency to eliminate from its end-user certifications references to certain federal states in Mexico where the risk of human rights violations were particularly high and to promise not to transfer German rifles into those states, according to witnesses. A whistleblower brought this plan to the attention of prosecutors, but also made a more incendiary accusation: that the company had bribed German politicians and Mexican officials in order to smooth the way for the rifle exports. German prosecutors have declined to bring charges associated with domestic bribery, while the investigation into foreign bribery continues. In 2014, a number of H&K rifles were discovered and associated with the kidnapping and assassination of 43 students in Iguala, a town in Guerrero state—one of the four which Mexican officials had promised would not receive H&K weapons.

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Litton Industries contracts with Greece and Taiwan

Introduction

U.S. companies are often perceived to operate in a regulatory atmosphere less tolerant of foreign bribery than their European counterparts. Foreign bribery was criminalized far earlier than in other arms exporting countries, and commission payments must also be disclosed under export regulations. Nonetheless, U.S. firms have used agents in the past to secure business as well, and in the 1990s Litton Industries, a shipbuilding and defense electronics conglomerate, was prosecuted for failing to disclose fees to agents in both Greece and Taiwan. Paying out over USD 16 million, it won contracts to provide aircraft upgrades in both countries.

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Armor Holdings and the United Nations

Introduction

In one of the rare cases where a payer of bribes went to prison, Richard Bistrong, a vice president for international sales at Armor Holdings (acquired by BAE Systems in 2007) admitted in 2010 to paying USD 200,000 to a UN official, via intermediaries, to win contracts for body armor, helmets, and other protective equipment with the United Nations. The company paid USD 16 million in fines in a settlement, and also admitted USD 4.4 million in undisclosed commission payments, made by Bistrong and others over a period of several years. Before the plea deal, Bistrong was used by federal authorities in a corruption sting operation which led to 22 arrests, but ultimately no convictions. He has since become an anti-corruption blogger and consultant.

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CAS-Global Ltd. and the Private Nigerian Coast Guard Fleet

Introduction

The 2012 sale of seven decommissioned Norwegian naval vessels took a curious turn when a report revealed that they were serving, two years later, in the private flotilla of a former Nigerian rebel. The news about the six demilitarized missile torpedo boats and one naval support vessel, the former KNM Horten, triggered an investigation that led to the conviction in May 2017 of one Norwegian official on bribery charges and the revelation of the role played by a UK intermediary, CAS-Global Ltd. The firm applied for export licenses in Norway and for a re-export license for the Horten from the UK, telling the Norwegians that the ships would support an ECOWAS mission and the British that they were intended for use by the Nigerian government. In fact, the vessels would be passed on to Global West Vessel Specialist Ltd. (GWVSL), a private firm likely controlled by the former Nigerian rebel Government Ekpemupolo, which had obtained a maritime law enforcement contract from the Nigerian Maritime Administration and Safety Agency (NIMASA). In 2016, after a change in government in Nigeria, the GWVSL fleet was seized and its controllers charged with conspiring with NIMASA officials to embezzle funds.

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Funding the Belgian Socialist Parties

Introduction

On July 18, 1991, the retired Belgian politician André Cools, an influential Socialist figure and former deputy prime minister, was shot to death by two assailants in the Cointe neighborhood of Liège. Through a series of confessions, the investigation into his death revealed two major arms procurement scandals involving the Flemish (Dutch-speaking) Socialistische Partij (SP) and the Wallonian (French-speaking) Parti Socialiste (PS). The ensuing prosecutions established that the SP had taken donations from the Italian helicopter producer Agusta and the French military electronics firm Électronique Serge Dassault (ESD) in exchange for favorable treatment in procurement contracts; the PS was implicated in the ESD deal alone. The fallout from the scandals resulted in the resignation of a former Belgian minister of economy, Willi Claes, from the secretary-generalship of NATO in October 1995. Despite the political fallout from the Cools investigation, no firm link was ever established between the defense corruption cases and his assassination.

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The CDU Party Funding Scandal

Introduction

The Christian Democratic Union (CDU) party funding scandal, which erupted in 1999, tarnished the reputation of legendary Chancellor Helmut Kohl—the architect of reunification—and derailed the career of his likely successor, Wolfgang Schäuble. German investigators caught CDU officials taking payments from an agent acting for Thyssen-Henschel, the armored vehicles manufacturer, to promote sales to Saudi Arabia and Canada. These practices were part of a broader pattern of secret political finance arrangements that had supported Kohl’s 16 years in office. It was an unsurprising scandal, however, in at least two respects. First, the German center-right had already been struck by two corruption scandals tied to party finance in the prior decades, the Flick and Amigo affairs. Second, Western Europe was in the throes of a wave of similar revelations that had begun in the early 1990s, including the Tangentopoli investigations in Italy, the “retro-commissions” scandals in France, and an arms procurement and bribery scandal in Belgium that forced the resignation of NATO Secretary-General Willy Claes. The CDU party funding scandal was therefore symptomatic of both the prevalence of bribery in arms sales and the deep rot of political corruption in democratic Europe.

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Airbus, the Saudi National Guard, and a Whistleblower’s Dramatic Escape

Introduction

 If the bribery that is alleged to have taken place in the GBP 2 billion deal won by GPT Special Project Management to supply communications equipment to the Saudi Arabian National Guard (the SANGCOM deal) is fairly routine, the story of how it came to light is not. In 2010, a GPT Programme Director in Saudi Arabia, Lt. Col. (retd.) Ian Foxley, stumbled upon a chain of emails between a GPT financial controller, Michael Paterson, and his superiors, raising concerns about improper payments and gifts—concerns that were consistently dismissed at all levels of management. When Foxley brought the information to the UK Ministry of Defence (MoD) team working on the SANGCOM project, superiors at GPT threatened him with arrest for theft of company documents. He took refuge with friends in the MoD, who drove him to the airport that night to escape Saudi Arabia. The information provided by Foxley triggered a Serious Fraud Office investigation that is still ongoing—though it remains in doubt whether the UK Attorney General will allow charges to be brought, bringing further embarrassment to the UK-Saudi arms trading relationship.

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Airbus Eurofighter Sales to Austria

Introduction

Airbus’ checkered past has come under examination across a number of jurisdictions, but it may be one of the oldest allegations that brings down CEO Tom Enders. In 2003, Airbus’ defense group—headed up by Enders—sold eighteen Eurofighter Typhoon combat aircraft to Austria. Since then, prosecutors, parliamentary investigators, and the media have gradually confirmed what many suspected at the time: that Airbus distributed bribes and favors to win the contract. From the start, the case known as the “Causa Eurofighter,” or sometimes the “Causa Grasser” after the Austrian finance minister who approved the purchase, has attracted notoriety in Vienna for its implication of high-ranking ministers and businessmen. Yet in the context of newer Airbus bribery allegations ranging from Kazakhstan to Saudi Arabia, the Eurofighter story suggests a much more systemic problem within the marquee European firm.

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Embraer’s Dominican and Indian Bribery Schemes

Introduction

Brazilian company Embraer is best known as a leading producer of regional civil aircraft, but also builds and successfully exports military trainer/light combat and surveillance planes. The company’s global presence includes a U.S. subsidiary and the licensed production of the Embraer Super Tucano in the United States, from where sales are made to the U.S. government and export customers. The U.S. subsidiary was used in the 2000s to engage in bribery of foreign officials around the world, helping to secure sales of both civil and military aircraft. An investigation into this practice resulted in a USD 205 million settlement with U.S. and Brazilian authorities in 2016.

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Glenn Defense Marine Asia and the US 7th Fleet (the ‘Fat Leonard’ scandal)

Introduction

While high-value military hardware procurement programs feature most prominently as vehicles for corruption in this compendium, less visible but equally critical contracts are also susceptible to graft. A now-four-year scandal stemming from corrupt port services contracts has rocked the U.S. Navy’s Pacific operations, implicating officers and civilians up and down the ranks. Prosecutors determined that a contractor based in Singapore, Glenn Defense Marine Asia Pte. Ltd. (GDMA), which provided everything from meals to tugboat services to the U.S. 7th Fleet, had bribed more than two dozen officers, enlisted, and civilian employees to not only provide confidential information on ship movements, but to steer Navy ships toward harbors that offered a higher profit margin to GDMA. The bribes also netted the company information about its competitors’ bids and favorable recommendations within the contracting process. As a result, GDMA was able to overcharge the U.S. Navy and maintain a competitive edge in contract tenders across East Asia.

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