Sunday, April 21, 2013

Pushing for More Transparency and Accountability in Defense Industry

Transparency International UK published its first International Defence and Security Corruption Index in October 2012. Index measured anti-corruption measures and transparency of 82 national governments and 129 defense companies separately. Governments were assessed on their policies and legislation aiming at reducing the risk of corruption in defense procurements, management in the armed forces, external and internal audits, and other areas. Consequently countries were ranked according to their level of risk of corruption. 82 nations included in the study accounted for about 94% of global military expenditure ($1.6 trillion) in 2011. Defense companies from 31 largest arms exporting nations were measured by their anti-corruption policies and public disclosure of internal strategies and efforts for fighting corruption within. Some of the major findings of the study are nicely summarized in this video below. Detailed reports can be found here: Government Index, Company Index.

Unsurprisingly, 70% of countries have very limited legislative and public scrutiny. Only Australia and Germany ended up in the top Band of countries with very robust oversight system. Company results were not unexpected either – 2/3 of the world’s biggest defense companies do not provide public evidence on how they counter corruption within their ranks and many of them are from relatively well-ranked countries like the US, France, UK, and others. All nine Russian and three Chinese companies included in the study were placed in the lowest (E and F) bands. Only Flour Corporation headquartered in Texas, US was placed in the top (A) band, while ThyssenKrupp AG (Germany) and BAE Systems (UK) were named among the few who conduct regular external audits and publicize the results.

129 companies included in the study are the ones whose revenues are estimated to be at least $100 million annually. 100 of them are from the top global arms-exporters listing. The index includes traditional arms manufacturers as well as consultants, technology providers, logistics specialists, and construction firms.  Companies were assessed on how they evaluate the risk of corruption, how they train staff on ethics and anti-corruption measures, company leadership practices, codes and policies, and personnel practices.  As was expected, publicly owned companies performed better than privately owned and private companies did better than the state owned ones.

The purpose of the study is to increase transparency of this extremely lucrative sector because corruption in defense and security system is not only wasteful, but also very dangerous and harmful for national as well as international security. As a result of the study TI-UK provided a number of recommendations to the defense ministries, military industry, investors, and the civil society on how to improve accountability in the field. Authors recommend company CEO’s to develop and publicize clearly articulated and simple “red flags” that the company would not tolerate; promote good practices among their employees and on global level using platforms such as IFBEC (International Forum on Business Ethical Conduct for the Aerospace and Defense Industry) or Davos. Constantly reminding their employees of ethics of business behavior is a strong signal to the employees as well as to investors, potential buyers and government officials. Some may argue that all of this is superficial, that companies can easily take the “box-ticking” approach –publish 50 page codes of conduct but never really implement them. But drafting key principles company wants to commit to is a good starting point. At least it provides certain baseline to contrast company’s actions against and makes the company management to acknowledge and commit to basic international norms. For those who already meet this basic requirement, TI-UK conducted more in-depth assessment of the quality and relevance of the policies, codes of conducts, annual reports and other public documents and provided recommendations for improving them. 

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