It’s notoriously hard to look inside the murky world of large-scale government arms dealings. And it’s even harder to separate the legal from the illegal in a world where lobbying, networks and secrecy are part of the job.
A new document leaked by whistleblowing website Wikileaks has once again shown that those involved in arms dealings have little or no concern about whether their dealings constitute corruption until there are legal repercussions.
The leaked document is the summary of proceedings of an extraordinary tribunal session overseen by the International Chamber of Commerce (ICC). It details a case heard before the tribunal in 2009 and 2010, which was to settle a dispute between the French arms contractor GIAT Systems SA (which has since become Nexter Systems) and am Emirati businessman named Abbas Ibrahim Yousef Al Yousef.
In 1993, GIAT was attempting to sell the UAE government 388 Leclerc combat tanks, 46 armoured vehicles, 2 training tanks, spare parts and ammunition. A deal was signed, and the expected date for completion was 2008. And as part of this contract, Al Yousef was to be paid an astonishing commissioning fee of $235 million - six percent of the value of the $3.6 billion deal. The money was transferred in pro-rata payments from GIAT to Al Yousef’s company, Kenoza Consulting & Management Inc., which is registered in the British Virgin Islands.
However, it seems that eventually, GIAT decided to cease paying Al Yousef. Having paid him $195 million of the agreed total, they stopped payments to Kenoza Consulting shortly after a piece of anti-corruption legislation was passed in France in 2000. After Al Yousef demanded the remaining $39 million, GIAT’s lawyers said that they were no longer legally able to pay him, since he and his business intended to “commit corrupt acts”. It seems that Al Yousef and Kenzoa Consulting eventually filed a complaint with the tribunal.
This story is hardly the first of its kind. “Commission fees”, “administration fees” and so on are the language of brokerage in many Gulf states, where a complex state bureaucracy leaves foreign businesses dependent on the services of intermediaries. Dr. Andreas Krieg, an expert in Middle Eastern security and defence at Kings College London told Al Bawaba:
“In the UAE it is quite common to pay local officials to speed up procurement processes. These payments are usually not given as hand money directly but are spend on local companies that belong to local officials or members of the armed forces. For example, as some of the contracts to procure hardware include maintenance contracts, a Western defence company would contract out some of the maintenance work to a local company, which is owned by someone in the armed forces or working in the Ministry of Defence. Thereby, local officials benefit from the arms deal directly.”
It’s thus often hard to distinguish outright corruption from typical business proceedings. But what’s striking about this case is how corruption is being used as a defence. According to the tribunal’s summary of proceedings, GIAT’s lawyers admit that they knew the original deal they made with Al Youssef to be corrupt, but that they only took steps to cease payments to him after it became legally impossible not to. GIAT’s legal position, summarised in the Post-Hearing Reply Brief reads:
“…prior to the entry into force of Act no. 200-595 of June 30, 2000, corruption of foreign public officials was not a criminal offence under French law, but justified the annulment of any contracts whereby one party intended to commit such acts insofar as their cause was contrary to morality and public policy. In other words, prior to July 1, 2000, corruption of foreign public officials was only punished under French civil law, but not under French criminal law.”
In this paragraph, GIAT concedes that the contract they struck with Al Yousef was “contrary to morality and public policy”, and yet so long as it carried no criminal legal repercussions, that was of no concern to them. Elsewhere, GIAT claimed that “Kenoza intended to commit and indeed committed corruption acts." Specifically, GIAT’s lawyers declared that Al Yousef intended to use his commissioning fee to bribe government officials in order to secure all aspects of the deal – only such “services” could have justified a fee that high. Essentially, GIAT’s defence hung on proving the illegality of its own deal with Al Yousef.
It’s thus clear that a criminal legal barrier is essential to preventing corruption in arms dealings. However, the strength of regulation in arms dealins varies from country to country. Dr. Krieg continued:
“It is quite common for defence companies, particularly in France, to use lobbyists and facilitators on the ground to sign deals. While in Germany and Britain anti-bribery laws are quite stringent and tend to be enforced, in France corrupt practises seem to persist. Especially in the Gulf I have seen how French companies set aside quite a lot of their budget for ‘facilitation’ and ‘lobbying’, which would fall into the category of bribery.”
Certainly the astonishingly high commission fee made the tribunal suspicious of what Al Yousef might have been doing with the money. What exactly he spent the fees he received on was never established, but the tribunal’s suspicion zeroed in on Al Yousef’s involvement in influencing German officials.
Leclerc tanks contain German-made engines. However, at the time Germany had a policy of not selling arms to governments without a strong human rights record, meaning it would not generally sell weapons to the United Arab Emirates. The tribunal found that Al Yousef was instrumental in obtaining a waiver from German officials for this particular deal. Al Yousef denied any wrongdoing and insisted he used lobbyists to influence German decision-makers, although he could not name any officials he might have influenced.
The tribunal eventually ruled that Al Yousef’s commission fee was unjustifiably high, and that there was no good reason for him to receive this much money if he was not engaging in corruption. But the tribunal did not, it ruled, have enough evidence to charge him or GIAT with corruption. Their conclusion makes for strange reading. They write:
“…if the excessive nature of the compensation for the Claimant’s (Al Yousef’s) services must be taken as evidence of a corrupt purpose by the Agency Agreement, this purpose must have been known and intended by both Parties to the agreement…. finding that the Agreement has its purpose the corruption of civil servants and is therefore illegal, as the Respondent (GIAT) wishes the Tribunal to conclude, has far reaching implications… The Tribunal, which has no powers of making its own enquiries and depends on the evidence produced to it by the Parties, is reluctant to make such far reaching conclusions.”
The oddities of this case make clear the need for far-reaching legal measures to regulate high value arms deals. The patterns in this story are all too similar to some of the best known corruption scandals in the defence industry.
The Al-Yamamah deal of the 1980s and 1990s is the most famous example of corruption in the defence sector. It was filled with colourful details involving British contractor BAE Systems subsidizing the staggeringly expensive lifestyles of the Saudi princes who were acting as intermediaries for the company. Anti-corruption measures have improved across the board since then, but that does not mean the practice is entirely gone. Dr. Steffen Hertog, an expert in Gulf political economy at the London School of Economics told Al Bawaba:
“As the documents show, this is a historical case and since then it has become more difficult for Western companies to pay commissions either directly or indirectly because of OECD anti-corruption agreements as well as the American Foreign Corrupt Practices Act, which has also been used against non-US companies.
This doesn’t mean that brokerage or corruption have disappeared, but they have become more subtle, for example through sub-contracting arrangements. As defense matters are usually under the direct control of senior members of the ruling family, contract volumes are large, and because it is by nature a secret and sensitive subject, the opportunities for rent-seeking are considerable.”
It’s not an easy world to regulate, but cases such as this are a reminder that corruption has many guises, and they all need watching. And the consequences of letting these deals happen are long reaching. Those same Leclerc tanks that Al Yousef’s dealings allowed the UAE to purchase are now rolling down highways in Yemen, in a war where human rights atrocities are uncountable.
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