Ethics: An appetite for change

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The arms trade, by its very nature, will always struggle to have an ethical face, but persistent headlines about investigations of bribery and corruption have not helped its cause.

Industry executives argue that many of the problems are historic and that companies in countries such Britain today operate to world-standard ethical standards. Nonetheless, they concede that corruption, whether proven or not, poses the biggest threat to the reputation of their companies.

If questions over ethical conduct will never go away, the industry hopes it has taken steps that will help put it on the front foot in countering its critics.

Over the past two years, Europe’s trade associations, under the auspices of the Aerospace and Defence Industries Association of Europe, have developed a set of industry standards. Most of the bigger groups have signed up to them, committing themselves to ensuring that no money or other gifts are illicitly channelled to a potential government customer.

Companies also need to ensure independent advisers used on foreign arms sales are properly vetted and their behaviour audited.

The pan-European initiative has the backing of Transparency International, which has, in parallel, brought defence companies together in several forums to discuss the issue.

According to Lord Robertson, former secretary general of Nato, who has chaired the meetings, the defence industry should adopt standards similar to those in the diamond industry. The Kimberly Process, established in 2002, helped stamp out the trade in “blood diamonds” from conflict zones and introduced a degree of transparency into the industry.

Lord Robertson, who was British defence secretary from 1997 to 1999, has described the industry as a “cut-throat business” where “the contracts are very, very big”, providing scope for corrupt behaviour.

Nevertheless, he said there was an appetite for change, noting: “The industry generally wants to be seen as playing by the book.”

BAE Systems is a case in point. The company, which has always denied any wrongdoing, has been dogged by allegations of corruption and bribery in relation to the 20-year-old al-Yamamah arms deal with Saudi Arabia.

An investigation into the case by Britain’s Serious Fraud Office was dropped in 2006, but the US Department of Justice continues to probe the affair. The SFO is investigating other BAE contracts.

To improve its reputation, BAE has cut the number of independent advisers it uses on foreign arms deals. In addition, in an unprecedented move, last year it hired Lord Woolf, the former UK lord chief justice, to review its business practices.

His report, published in May, said BAE must tighten its ethical code of practice or risk further damaging its reputation.

It put forward 23 recommendations, including publishing a global code of practice on ethics and implementing more robust anti-bribery measures when dealing with independent advisers.

Ian Godden, chief executive of the Society of British Aerospace Companies, says the industry’s detractors should recognise that these sorts of initiatives show progress has been made.

In a letter to the Financial Times this year, he wrote: “The industry has worked hard to create and roll out common industry standards on ethics across Europe but this seems to have passed our critics by. Non-governmental organisations such as Transparency International recognise the progress we have made, but opponents of the industry refuse to recognise how far we have come.”

The SBAC is now trying to sign up smaller and medium-sized companies to the pan-industry standards. Another key objective, and one that will be highlighted at the show, is to get the core industry standards agreed on a wider international basis, notably with the US.

Above all, most industry executives say that government support is also needed. Britain, despite being signatories to the Organisation for Economic Co-operation and Development convention on bribery, has seen no meaningful prosecutions for offences of this kind.

UK anti-bribery legislation is seen as overcomplicated and archaic. However, the effect of the BAE case is likely to accelerate introduction by the Law Commission of proposals for anti-bribery legislation more in keeping with the modern world.

However, these initiatives will be seen as window-dressing unless companies can show they are cleaning up their act. Whatever their view of ethics, it is imperative for companies to be seen to respond.

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