Transparency – the beginning of anti-corruption in the defense industry
What is the first thing that comes to mind when you think about the defense industry? The state-of-the-art technology that will be responsible for national security and future growth? Unfortunately, however, most people will think of the “defense industry corruption scandals.”
The issue of corruption in the defense industry applies not only to Korea. According to Joe Roeber, the defense industry is one of the most vulnerable to corruption with approximately 40% of world trade corruption cases occurring in arms deals. There are several factors rendering the industry prone to corruption: due to the nature of the industry, information is highly specialized; a large number of contracts deal with astronomical sums; the lack of transparency due to confidentiality.
In order to draw lessons from UK’s experience with similar issues, UN Global Compact Korea Network and British Standards Institution Korean branch, together with external experts including civil society and legal specialists, visited Britain in April. Through visits to UK’s leading defense companies (Rolls Royce, Leonardo, Babcock, Oxley), government agencies (Defense Procurement Support Center, Audit Commission), Aerospace, Defence, Security & Space organization (ADS Group) and non-profit organizations (Transparency International UK, PCAW) we understood that the UK defense industry’s competitiveness lies in government’s strong anti-corruption policies and companies’ efforts to build effective compliance and ethical management systems.
Why the United Kingdom?
The UK is one of the countries with the most dramatic growth in the Corruption Perception Index (CPI) in recent years. The UK showed a steady rise from the CPI ranking of 17 in 2012 to 8 in 2017. This is an envy for Korea, which has not escaped the 40th to 50th place since 2010. In addition, the UK has demonstrated its global anti-corruption leadership by leading the anti-corruption agenda in the 2016 London Anti-Corruption Summit. However, how did the UK manage to become a leading country in fighting corruption?
The UK is the country with the most powerful anti-corruption laws in the world. Bribery Act 2010 imposes strong penalties on companies ranging from 10 years’ imprisonment, an unlimited fine, and the potential for the confiscation of property. Following the enactment of the legislation, the UK announced appropriate procedures and implementation guidelines for the prevention of bribery and corruption in the private sector. However, if the company has implemented sufficient anti-corruption systems, it may be granted corporate immunity. The case of the UK, which not only enacts the law but also actively enforces it and uses “carrots and sticks” method to fight corruption, has great implications for Korea.
The need for such powerful bribery laws came from a corruption scandal in the defense industry. In the mid-2000s, the BAE Systems bribery and corruption scandal shocked the British society. This case aroused media and citizens’ interest in corruption in the defense industry. This led to the enactment of strong anti-corruption laws and demands for corporate transparency and integrity.
Anti-corruption efforts in the defense industry – Integrity as a competitive advantage
The defense industry is one of the major industries in the UK. Thus, in order to secure its competitiveness, the establishment of an anti-corruption culture is seen as an important step. The anti-corruption strategy, announced by the British government in November 2017, also emphasized strategies and performance indicators to reduce corruption risks in the defense industry as a priority task. Such efforts have made the UK one of the two A-rated countries (UK, New Zealand) in the 2015 Government Defense Anti-Corruption Index.
In addition, most of the UK defense companies, including the companies we visited, were in the top of the Defense Companies Anti-Corruption Index. These companies emphasized the risk of corruption from the third parties and stressed that only organizations with the right methods could have long-term competitiveness. They also implemented various programs to help create a culture of anti-corruption, such as ‘Win Right.’ All the companies emphasized that by establishing an anti-corruption system, they can reduce legal and economic risks, as well as reduce the costs created by corruption and establish a fair competition.
In addition, the media and civil society have been working as ‘watchdogs’ – advising governments and corporations how to better combat corruption, as well as monitoring and preventing corruption. Through the efforts of various stakeholders, an anti-corruption system was built.
Anti-corruption keywords – ‘transparency’ and ‘joint effort’
The UK government, companies, and civil society – all of them emphasized that ‘transparency enhancement’ is the keyword for anti-corruption. Although the defense industry has a high level of confidentiality, it should establish an independent organization monitoring system, raise the level of information disclosure, strengthen communication with external stakeholders, and create an anti-corruption environment by promoting transparency.
In addition, the joint anti-corruption efforts of various stakeholders such as the government, companies, civil society and media will be able to effectively create an anti-corruption environment in the industry. UN Global Compact Korea Network and Transparency International-Korea provide a platform for joint anti-corruption efforts. They also produce tools and guidelines intended for anti-corruption policy proposals and system strengthening. The interest and support of the government and industrial associations are required to promote joint anti-corruption efforts.
Given Britain’s experience, the creation of an integrity system in the defense industry will serve as a foundation for restoring confidence and strengthening the global competitiveness of our defense companies. We expect that anti-corruption efforts of the Korean government and corporations will be reflected in the defense companies’ anti-corruption index surveys released by Transparency International-UK in the first half of 2019. We hope that the Korean defense industry will gain global competitiveness based on integrity, through strengthened transparency and joint efforts to combat corruption.
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Kwak Geul
- UN Global Compact Network Korea, Senior Research Fellow
- Participated in: UK government prosperity fund anti-corruption project, UK defense industry anti-corruption benchmarking, Corporate anti-corruption joint effort project, etc.
- Participated as a researcher and seminar operator in World Bank-Siemens Integrity Initiative: Korea Anti-Corruption Project
- Conducted research and seminars on corporate sustainability and anti-corruption issues