Introduction to the compendium of arms trade corruption

This series of posts by World Peace Foundation details 29 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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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. (ret.) 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 global bribery schemes

Introduction

Brazilian company Embraer is best known as a leading producer of civilian regional aircraft, but also builds and successfully exports military trainer/light combat and surveillance aircraft. 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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German submarine sales to Israel

Introduction

Like most submarine sales in recent years, the planned sale by German shipbuilders ThyssenKrupp of three Dolphin-2 submarines to Israel, possibly intended to carry nuclear weapons, appears to have involved substantial bribes, in this case paid to close associates of Israeli Prime Minister Binyamin Netanyahu. The sale was provisionally agreed late in 2016, against the wishes of senior military commanders and without a competition. Suspicions of corruption emerged almost immediately, and an Israeli police investigation has led to numerous arrests, with at least one key suspect becoming a state witness. The planned contract has been halted by Germany as the investigation proceeds.

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South Korea’s “Mr. German U-boat”

Introduction

South Korea has been a consistent customer of Kiel-based Howaldtswerke-Deutsche Werft (HDW), the German submarine manufacturer, for over thirty years, buying new boats from the shipyard in 1987, 1989, 1994, 2000, and 2008. In July 2015, South Korean investigators arrested Chung Eui-sung, the man responsible for brokering each of these deals, while pocketing millions of U.S. dollars in the process. At the time of his arrest, Chung was suspected of moving USD 89 million to offshore bank accounts. One of Chung’s colleagues, a reserve navy admiral, was also charged for lobbying officials on the submarine deals. As yet, however, no Korean officials involved in the decision to purchase the submarines has been identified or charged as the ultimate recipients of the bribes.

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Ericsson’s sale of radar systems to Greece

Introduction

 The economic and fiscal crisis that struck Greece in 2009 has also led to widespread corruption investigations, unearthing vast corruption by politicians and others across Greek industry that is widely seen as one of the factors behind the crisis. The military sector is certainly no exception, and whistleblowers have suggested that virtually all arms contracts signed by Greece in the 1990s and early 2000s were subject to commissions, or bribes. Former Defence Minister Akis Tsohatzopoulos is one of those who has been imprisoned as a result of the scandals (see German submarine sales to Greece).

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Brazil’s DCNS submarine contract

Introduction

Operation Car Wash (“Lava Jato”), the sprawling investigation into public-sector corruption that brought down Brazilian President Dilma Rousseff, is also threatening to tarnish a submarine contract signed in 2009 with French state-controlled shipbuilder DCNS. In addition to agreeing to provide four Scorpène diesel-powered attack submarines, the French company committed to help the Brazilian military build a new submarine construction facility and develop its first nuclear-powered submarine—the object of long-standing ambitions. Since 2015, however, Brazilian authorities have been investigating the construction firm Odebrecht S.A., DCNS’ local partner on the submarine contract, for potential corruption related to the 2009 deal. French investigators launched a parallel inquiry into DCNS’ conduct in the fall of 2016.

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