Anti-Corruption Index in the Defense Industry and Recommendation
You Han-Beom, Board Member, TI-Korea
Recognizing the problems of the corruptive practices in the defense industry
The defense industry has a high risk of corruption due to its huge size and high level of secrecy in the decision-making process. Transparency International estimates that annually US$20 billion (equivalent to W20 trillion) disappears in this sector due to the corruptive practices. The nature of secrecy and national security has been used as a means of avoiding the information disclosure. The wasted money due to corruption will be used neither on the improvement of education and welfare nor on purchasing necessary military equipment. The corruption in the defense industry will lead to public losing confidence in the military and will threaten the lives of soldiers.
All citizens pay for corruption in the defense sector. When the military leader receives bribes and favors to purchase weapons, soldiers are left on the battlefield with bad guns or unsuitable protective equipment. Soldiers exist to protect civilians, but the government has a duty to protect these soldiers and to buy weapons from defense companies. After all, corruption only protects corruption.
TI’s suggestion to resolve the corruption in the defense industry
TI’s basic guidelines to the corruption in the defense industry
First, a certain level of confidentiality is essential to the defense sector, but defense policy, budget, and procurement should be more open to prevent corruption. Will this disclosure of information jeopardize national security? No. The experience of many countries suggests that the increased level of transparency, in fact, helps to strengthen the defense sector. Transparency prevents international arms trade, arms contracts, and corruption by security agencies, thereby preventing enormous damage to corruption in this area.
Second, in order to prevent corruption, a joint approach by the government, the defense industry, military, defense agencies, and civil society is essential. The defense industry has begun to introduce basic codes of conduct but there is still a long way to go. Military companies should monitor their compliance with these standards. The government should not only help companies by requiring these standards to be introduced to defense companies, but also to develop the right processes so that companies can continue to reduce the risk of corruption.
The activities of the Transparency International for Defense Corruption are largely divided into four areas. ① Research of corruption in the defense and security sector ② Support for national defense – security reform in each country ③ Influence on the increase of transparency of the defense policy ④ Improvement of the integrity standards of defense companies. As a global project, the Government Defense Anti-Corruption Index (GI) and the Defense Companies Anti-Corruption Index (CI) are developed and regularly announced to contribute to the enhancement of transparency in the defense sector. In this article, I will focus mainly on the anti-corruption index of defense Industry Corporation.
2015 evaluation of Korean companies in the CI
In April 2015, Transparency International announced the anti-corruption index of 163 defense companies in 47 countries around the world. This index is based on open data about 34 questions measuring the level and transparency (disclosure) of ethical and anti-corruption programs that each company stands for. The evaluation results were expressed in six stages: A (best), B (good), C (normal), D (limited), E (very limited), and F (almost none). As a result, there were 4 companies in A group, 23 companies in B group, 29 companies in C group, 31 companies in D group, 19 companies in E group, and 57 companies in F group respectively.
According to the results of this survey, the integrity of defense companies in Korea is very low. There were 6 Korean defense companies included in the survey. Among them, ‘DSME’ – Daewoo Shipbuilding & Marine Engineering Co. – was the only C defense company in Korea. In addition, ‘Samsung TechOne’ was evaluated as ‘D’, ‘Doosan DST’ and ‘LiG Nex1’ as E, and ‘Korea Aerospace Industry’ (KAI) and ‘Poongsan’ as F. The evaluation report disclosed the evaluation results for the five evaluation items, however, there were no individual recommendations for each company. The results for Korean defense companies are as follows:
| Company Name | 2012 Result | 2015 Result | Leadership
Governance Organization |
Risk Mgt | Anti-corruption Policy | Education
& Training |
Human Resource Whistle-Blowing |
| Daewoo Shipbldg
& Marine Eng. Co |
D | C | 75 | 29 | 75 | 80 | 64 |
| Samsung
TechnOne |
E | D | 40 | 14 | 63 | 50 | 7 |
| Doosan
DST |
F | E | 35 | 29 | 58 | 60 | 50 |
| LiG Nex1 | F | E | 5 | 0 | 33 | 30 | 21 |
| KAI | – | F | 0 | 0 | 38 | 10 | 21 |
| PoongSan | F | F | 0 | 0 | 0 | 0 | 0 |
2019 Research Plan for Defense Industry Anti-Corruption Index
Following the 2015 report, Transparency International plans to announce the anti-corruption index of 145 companies in 35 countries by 2019. The methodology is disclosed in a report called ‘Out of the Shadows: Promoting Openness and Accountability in the Global Arms Trade’ (http://ti-defence.org/publications/out-of-the-shadows/). Survey questionnaires and model answers can be found at www.ti-defence.org/dci
The most significant change in the 2019 survey is that companies will be evaluated based on the disclosed published materials. The internal information will be excluded from the assessment, reflecting the growing interest in transparency, information disclosure, incident response, and the practical implementation of anti-bribery and anti-corruption programs.
The company’s assessment of individual bribery prevention and corruption records will be based entirely on public information. In particular, it will check the evidence of anti-corruption system from the company’s website and hyperlink with the online data for the related information. In addition, while reviewing company data, the completeness and accessibility of information will also be evaluated. Opinions and feedback on the methodology of the target companies were received until November 2, 2018. After the deadline, companies will have time for improvement and the real evaluation will start from February 2019.
In the 2019 survey, Daewoo Shipbuilding & Marine Engineering Co., Hanwha, Hyundai Rotem, KAI, LIG Nex1, and Poongsan Co. will be included for the evaluation. Major evaluation measures include: ① disclosure of company information on internal anti-corruption programs, incident response systems, and third-party management ② the evidence of the provision and use of the system by employees ③ the companies’ monitoring and review of the anti-bribery and anti-corruption process.
Measures for the anti-corruption index of defense industry in 2019 consist of 61 items from 10 different areas and include ① Leadership and organizational culture (4 items) ② Internal control (7 items) ③ Training and education for employees (7 items) ④ Conflicts of interest (3 items) ⑤ Customer engagement (9 items) ⑥ Supply Chain Management (7 items) ⑦ Third Party Management (10 items) ⑧ Settlement Trade (4 items) ⑨ High Risk Market (5 items) ⑩ State Enterprises (5 items, invalid if not a state-enterprise).
Recommendation to increase the integrity of defense industry companies
TI’s responsive methods to the corruption emphasize two ways: Holistic Approach (simultaneous and collective application of three methods: rigorous detection and punishment of corruption problem, improvement of law and system, change of consciousness) and The Coalition Building, which points out that the solution of corruption problem is impossible at the national level by the power of the public sector or the private sector alone, and emphasizes the establishment of a cooperative system of all subjects such as public-private-civil society.
In order to promote the integrity of defense industry companies based on this methodology, the government and companies should cooperate with the private sector stakeholders in the defense sector, establishing the integrity system of the domestic defense companies and the integrity education.
In addition, TI has proposed a “comprehensive corruption risk assessment” to the Korean government, which needs to be conducted by defense industry companies. Even a single case of corruption can destroy a company’s image and it takes a long time to fix the damage done by the corruption. It is necessary to utilize the evaluation of international standards and to cooperate with the international community to verify the validity of the efforts for the integrity of Korea’s defense industry and confirm its effectiveness and restore the public’s trust.
You Han-Beom
2011.9 – Present – Transparency International-Korea Board Member/Executive Director
2011.9 – Present – Kyung Hee University, Humanitas College Lecturer
2006.3 – 2010.12 – Truth and Reconciliation Commission, Director of International Cooperation Division
2005.4 – 2006.3 – Korean Pact on Anti-Corruption and Transparency (KPACT), Team Leader
2002.4 – 2004.12 – Presidential Truth Commission on Suspicious Deaths, Director of Public Relations Team