The fight against corruption 'is not going to be an overnight victory'

29 October 2012

While the big firms 'get it' and governments are legislating, the fight against defence industry corruption continues, as Brinley Salzmann, from defence industry body ADS, tells editor Joel Shenton

A Transparency International (TI) report on defence industry corruption earlier this month estimated that corrupt practices in defence cost governments worldwide around $20bn a year. Thats nearly enough to call defence corruption a sector in itself, but the picture has been changing in recent years and there is momentum to suggest the defence industry is looking to clean up altogether.

Some portions of big business were criticised by TI for failing to make clear what they do to fight corruption. But Transparency International's report contained encouraging words. The number of firms revealing their anti-corruption procedures was said to be much higher than it was just a decade ago, and "industry is changing", as TI's Mark Pyman put it. Fighting corruption is increasingly high on the agenda.

Governments, aware of the cost of bribery and corruption, are legislating against it - the costs of inaction are undoubtedly going to be passed on to governments when it comes to buying defence euqipment - but the advantages of ethical business are apparent to those within the defence industry too.

"I think the perception across the whole of industry - that these are issues which they have to take a keen interest in and pay attention to - has been very self-evident," says Brinley Salzmann, Overseas and Exports Director of defence industry body ADS. "And of course the UK's new Bribery Act 2010 has reinforced that hugely and has now set a new benchmark in the international scene against bribery and corruption issues."

The Bribery Act in question replaced existing UK anti-bribery legislation and made bribery and being bribed in order to "obtain or retain" business, or business advantage criminal offences punishable by up to 10 years in jail and an unlimited fine. Crucially, businesses are also able to be held liable if somebody offers bribes on their behalf, and the act also sets out penalties for the bribery of foreign public officials.

The act even supersedes a previous anti-corruption benchmark, America's Foreign and Corrupt Practices Act (FCPA), Salzmann says, but he insists the fight against corruption is not primarily driven by legislators.

ADS began looking at the corruption issue seriously in 2005, he says, after Transparency International lobbied "very effectively" behind the scenes. A series of meetings led to the creation of an industry, government and NGO (non-governmental organisation) forum, which meets twice a year to discuss the issue. "This pre-dated the new legislation by a long way, but thanks to Transparency International's efforts, the issue of bribery and corruption has been a very hot one, certainly for companies in the UK."

Salzmann says the hope is that defence customers will "want to be seen to be procuring their equipment legally and without being tainted in any way, shape or form with the brush of bribery and corruption".

"It is all down to whether we can establish this as a norm in as many countries as possible," he says. "You can try to encourage other countries who aren't part of that to want to become part of the fold. At the end of the day if there's any corruption, governments will have to pay for it. If the companies pay a bribe to acquire a procurement project, that money's got to come from somewhere. It's not going to come out of somebody's own funds; it will come out of the profits that they make from the sale. So therefore it's in the government's own best interests because this is simply distorting the market and it is inefficient use of taxpayers' money."

The future

The challenges ahead in the fight against corruption do not so much involve persuading the larger defence firms, the majority of whom are already on board, says Salzmann, but are instead focused on involving more small and medium-sized enterprises (SMEs). Ones which might assume low-level corruption is impossible to detect.

"The big companies get it," says Salzmann. "The BAE Systems, Rolls-Royces, Thales of this world - they get it and they're putting major efforts and resources into not only trying to put into place effective codes of conduct but to be seen to be putting them into place.

"The big problem is the smaller companies who seem to think that they are too small to come to the attention of the regulatory authorities and think 'that is a problem for BAE Systems, it's not for me at Bloggs and Sons, I'll carry on doing what I'm doing because I'll never come on to the authorities' radar screens'. And that is a complete misunderstanding of the situation.

"We know for a fact the Serious Fraud Office is actively conducting over 50 investigations into bribery and corruption issues, at least half of which are joint investigations with the US Department of Justice. Most of the companies involved, from the little that has leaked out to me, are the small companies rather than the bigger companies.

"Our perception is that the small companies will only really wake up to the dangers that they are in when there have been some test cases in the courts. Our perception and certainly that of leading consultancies in this area is that we've done all we can to try and wake up businesses. We are now waiting for government to do its bit by robustly going after some of the other companies in the SME sector and then they will wake up to it and that will act as the most effective recruitment sergeant for us."

Overseas

While the corruption fight is serious business in the UK and US, Salzmann acknowledges that newer markets, where British businesses will seek export trade in coming years, might prove difficult to persuade.

"As you can see from TI's report, there's a big difference between the Western European companies and the American companies and the companies from other parts of the world," says Salzmann. "That's a generic statement, so it's not totally 100 per cent watertight, but there is a difference between the perceptions of the two.

"I know that efforts are being made to try to get the buy-in for some of these initiatives amongst international companies. So for example the International Forum on Business Ethical Conduct, IFBEC, has been talking about how it can try to extend its reach into some of these other countries which at the moment are perceived not to be as receptive to this message.

"We are acting in cooperation with TI which is also trying to achieve the same thing. If we can work in unison we've got the potential to win over some of these other countries. For instance if TI can do a hearts and minds lobbying campaign, both with the government and with the general public, we can try to counterbalance that with a lobby of industry and again the government.

"I think everyone knows that it is not going to be an overnight victory," he says. "'Slowly, slowly, catchy monkey'; it is something that is going to gradually evolve. Therefore IFBEC and Transparency International are talking about trying to undertake missionary-type work in some of these countries.

"It's going to take a while because it is against their nature, it's against the way that they are currently doing business. Therefore you've got to try to counterbalance their naturally negative reception to such messages and try to demonstrate to them the potential commercial advantages which would result from higher ethical standards in their business operations."