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Monday
Nov022015

Red flag alert: When defense buys don't make sense

The just released Transparency International Middle East & North Africa, Government Defense Anti-Corruption Index is exhaustive and thorough, and from my experience well represents the real-world risk which exists in the region.

What caught my eye was the finding “that because of corruption, nepotism, and lack of transparency, rising defense budgets in the region are not being spent on arms and equipment that actually meet countries’ strategic security needs.”

Adding to that peril was the conclusion that “poor controls over personnel” are undermining “operational effectiveness.” As the Report says, defense agencies “may procure equipment that is unsuitable or that they cannot properly man, or acquire multiple platforms that serve the same purpose.”

When defense suppliers receive orders that don't make sense -- perhaps the quantities are out of line with internal or external needs, the products do not appear well suited to local defense interests, or maybe the pricing is too high given the quantities -- is anyone asking how was this order developed?

Is anyone pressing the pause button to get those questions answered before processing, or is it all high fives upon receipt? After all, who wants to refuse an order where pricing is too high?

I remember one case in a country from the region where I had a meeting with a public official from procurement. It was before a large tender for defense products. I asked for the meeting and traveled a great distance because I had significant technical questions that needed to be addressed before I could prepare a response.

As I was asking those questions, I noticed on his desk the end-user paperwork needed for an export license, signed and stamped, made out to my competitor in the same quantities and product class as the tender, and at what might be considered  "retail" pricing. This was a done deal, but not my done deal.

I shouldn't have been reading upside down paperwork of a public official. I get that. But after I did read it, I didn't make a scene. I didn’t even raise an objection after the tender was awarded to the competitor whose name I read on the paperwork. I figured in this region, sometimes you win by corruption and sometime you lose by corruption.

My attitude was sad and shameful, but for the country the outcome was even sadder and more shameful.

I'm grateful to Transparency International for talking about the defense industry, and the “pivotal role of the international community" in addressing the supply side of graft.

_______

Richard Bistrong is a contributing editor of the FCPA Blog and CEO of Front-Line Anti-Bribery LLC. He consults, writes and speaks about compliance issues. He can be contacted here.

Reader Comments (3)

Richard, thanks for your comments. As a Trustee of TI-UK, I Chair the Defense and Security Programme and this report is one amongst several that will show the state of corruption in the defence world. I attempted to do this years ago in my book "Last Line of Defense" http://www.amazon.co.uk/Last-Line-Defense-Jeff-Kaye-ebook/dp/B007ECLVWI/ref=sr_1_1?ie=UTF8&qid=1446485455&sr=8-1&keywords=%22Jeff+Kaye%22+%22Last+Line+of+Defense%22
which showed many examples of thew type you describe from my own involvement in the industry going back to the early eighties. It seems that not enough has changed although we now know more and see how security is badly damaged when corruption sucks the life out of the people, processes and kit that citizens expected would be used for their benefit - not for the benefit of just a few.
November 2, 2015 | Unregistered CommenterJeff Kaye
Jeff, many thanks for your comments and sharing your perspective. I think the timing is quite appropriate for this work. Given how western defense contractors are now looking to these frontier markets for growth opportunities, where western forces have slowed down major procurement programs, the pressure to develop business on forward positioned business teams is going to be significant. If the exigencies of sales growth start to drown out the "how we get there" voice via anti-bribery compliance programs, then I can see a return to more troubled times. Thank you again to TI for demonstrating that the real-world risk, and the implications upon security interests as well as local populations remain great.
November 2, 2015 | Unregistered CommenterRichard Bistrong
It is not only defense but all most all Sovereign Governmental departments have same or similar behaviors. I have seen, experienced, suffered losses whilst bidding for industrial maintenance contracts from State Owned Companies. Even though they crow about their independent and autonomous status, there is always a key holder that lurks in the pipe line of process to do everything and any thing that bidding process is not you and I think. But it is always what they think and what makes them to think, has to be done.
November 2, 2015 | Unregistered CommenterSubash Murray
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