Red flag alert: When defense buys don't make sense
Monday, November 2, 2015 at 10:28AM
Richard Bistrong in MENA Government Defence Anti-Corruption Index, Transparency International

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.

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