Why did you do this index?
Because corruption in the defence sector matters. It’s not just a reputational risk issue for companies, it wastes taxpayer funds, it is important that the equipment is effective, and ultimately such corruption can put lives at risk. So it is important to know what companies are doing to protect against the risk of corruption. The index also allows governments, shareholders, civil society and other companies to put pressure on those that have weak anti-corruption programmes to improve.
How does this index compare with other TI indices?
TI has a variety of tools designed to measure corruption and transparency across industries and countries. The best-known one is the Corruptions Perceptions Index but there are others that are based on technical questions, like a survey of the 105 largest publicly listed companies (TRAC). This index is different – it’s the first index which specifically examines companies in the defence sector. It is also unique because it looks at internal company information to get the fullest picture of their anti-corruption and ethics programmes. It is one of a pair from TI-DSP. The other is the Government Defence Anti-Corruption index (the GI) which measures how well government defence ministries and militaries are protecting against corruption threats.
How does corruption manifest itself in defence?
Corruption in defence is not just about commissions on sales. Corruption can mean soldiers operating with equipment that doesn’t work, or with no equipment at all.
One important area is procurement, where corruption can happen in a variety of ways. An agent may pay bribes on behalf of a company to win a deal, for example. But it can be more subtle: a procurement official might draft a call for tender in a way that preferences a certain company. Or corruption may be hidden in less-scrutinised offset contracts, side contracts to defence deals that require the company to reinvest in the local economy.
But it’s not just about buying and selling arms. Corruption also happens within military operations, can take the form of nepotism within defence institutions, or can occur when the military improperly use their power to exploit natural resources.
For more information, refer to our typologies of defence corruption here.
What has changed from the previous index?
The good news is that there have been improvement in some important areas: there is more evidence that Boards of Directors are reviewing anti-corruption programmes, more evidence of anti-corruption training, and a third of companies we looked at in 2012 improved overall. However, two-thirds still lack strong and transparency anti-corruption programmes and a large number of these companies are from major arms-exporting nations.
What does the research indicate in terms of broader trends in the industry?
a. Increasing transparency. There is much more public disclosure by defence companies than three years ago
b. Improvement in all regions of the world. This year’s index documents improvement in companies from Asia, the Middle East and Latin America.
c. Offset contracts is still an area of minimal transparency. Few companies provide public information, even though at least 82 are involved in offset programmes. And it was surprisingly difficult to find out if a company was involved in offset contracting at all.
d. Whistleblowing – most companies have hotline mechanisms in place but very few act to encourage the practice.
e. Agents – many companies provided evidence of due diligence but few discuss how often they refresh it.
What is a good basic anti-corruption system?
There are five pillars to a comprehensive anti-corruption system
a. Leadership, governance and organisation – the ‘tone at the top’ or extent to which leadership promotes an ethical work environment, as well as the management structure that oversees and implements the anti-corruption programme.
b. Risk management – the company’s approach to assessing corruption risk and preventing corruption in the supply chain;
c. Company policies and codes –including gifts & hospitality, and conflicts of interest;
d. Training & Personnel –how the company educates its employees on its policies and codes;
e. Personnel & Helplines.
Is this about transparency or anti-corruption practices?
It’s about improving industry practices. We do this by looking at both the transparency and quality of anti-corruption practices. Transparency is an important mechanism for companies to show the public, their customers, and their stakeholders what they do. Transparency International encourages companies to disclose publicly their ethics and anti-corruption practices.
Will having policies and procedures in place prevent corruption?
Policies and procedures are the first step and a company that improves its systems has a better chance of effective prevention of corruption. But even in companies with strong policies and procedures in place, corruption-related scandals can still happen. So governments and tax-payers need to make clear that effective implementation of these systems matter, and companies which put good policies in place still need to remain vigilant.
Do you use confidential data?
The index is based on publicly available data. For 63 companies we show how it would change if the companies also disclose the internal processes they have in place. This gives further insight into the quality of the systems that the companies have in place. This internal information includes documents such as: training materials, handbooks and risk assessment methodologies and results, codes of conduct for suppliers, terms and conditions for agents, due diligence questionnaires, internal compliance auditing procedures and plans, board minutes, CEO and leadership speeches, press extracts, internal videos, newsletters and emails.
Which companies are the least/ most corrupt?
This index does not measure corruption. It assesses companies based disclosure of ethics and anti-corruption practices.
What countries do the highest and lowest scoring companies come from?
Companies score in bands A and B are from countries spread across the globe, including those in North America, Europe, Asia, and the Middle East.
Unfortunately, companies from all major arms-exporting countries score poorly on the index. Most of these companies should be complying with international anti-corruption laws which have extra-territorial reach, such as the US-based Foreign Corrupt Practices Act and the UK Bribery Act, and many companies are headquartered in countries that are UN Global Compact signatories, OECD members or affiliates: memberships that carry obligations for good anti-corruption practices.
How big is the defence industry?
World military expenditure totalled $1.8 trillion in 2014, according to data of world military expenditure (SIPRI).
What is the cost of corruption in the defence sector?
No one really knows. We only know that it is very high. The cost is not just in monetary terms, but also in the loss of life that it brings about; for example, when soldiers are poorly equipped because of corrupt leadership or a corrupt procurement deal, it can lead to a loss of their lives, and those they’re in place to protect.