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Andrew Feinstein was elected an ANC MP in South Africa in 1994. He resigned in 2001 in protest at the government's refusal to allow an unfettered investigation into a £5bn arms deal. He chairs the Aids charity Friends of the Treatment Action Campaign, and is a director of the anti-corruption organisation Corruption Watch. He is the author of After the Party: A Personal and Political Journey Inside the ANC; and an updated edition of his book The Shadow World: Inside the Global Arms Trade was published on 25 October 2012.
A large part of the reason for this is the extremely close and complex relationships weapons manufacturers, perhaps more than in any other sector, have with their governments and intelligence agencies. This is a consequence of their role in foreign policy, national security and their ability to collect intelligence wherever they operate. They often have close links to political parties too, especially in Germany, as a result of their generous donations. These roles afford them proximity to those at the apex of power. Relationships are reinforced by the revolving door for personnel between corporations and government.
As a result, defence companies are insulated from the cold winds of market competition. We can see this not only in the extent of subsidies doled out to the industry globally, but also in the fact that most arms companies fail miserably when attempting to operate outside the confines of multibillion-pound state contracts with guaranteed profits. And in an industry that accounts for about 40% of all corruption in world trade, defence companies are often protected from the full legal consequences of their sometimes nefarious actions by their home governments.
BAE was spared the massive legal fallout from paying about £6bn in "commissions" on the al-Yamamah deal with Saudi Arabia by the direct personal intervention of Tony Blair in the dying days of his premiership. The company was then fined a derisory £500,000 for "accounting irregularities" on one transaction, in return for which the Serious Fraud Office dropped advanced investigations into corruption in five highly controversial arms deals.
EADS has also faced its share of corruption investigations. An EADS subsidiary, GPT Special Projects, is alleged to have made £14.5m in suspicious payments to two Cayman Islands-based entities as part of a £2bn military communications contract between the UK and Saudi Arabia. The recipients received 14% of the equipment budget on the contract, yet appear to have provided no equipment or services.
Had the merger talks between BAE and EADS continued it would have been interesting to see how BAE approached these allegations. The company's settlement with US authorities means it is obliged to hand over to the US department of justice any information that it comes across relating to possible corruption. BAE could hardly have undertaken meaningful due diligence without being made aware of details of the GPT case.