Presentation to NGO Seminar on Export Credit Reform, House of Commons

The ECGD (Export Credits Guarantee Department) has a duty to combat corruption more effectively, as a public institution backed by tax payers money. Its current measures are a significant step but fall far short of what is needed.

The ECGD should tighten its vetting procedures of companies and be more rigorous in its risk assessment of companies, including requiring companies to declare any investigations they are under for corruption.

The ECGD boasts that in the first nine months of 2001 they have processed more projects through the new risk management system and project impact questionnaire than in the whole of 2000. This is not entirely encouraging. Indeed from a brief look at the list of buyer credits and the 2000/01 report, it is clear that the ECGD has backed applications where either the companies or the buyer institutions or both are linked to allegations of corruption or have a history of such an association. In some cases, the parties or individuals associated with them are the subject of court proceedings or of official investigations. Nonetheless, the decision by the ECGD to support credits where the parties involved are associated with corruption allegations - even if unsubstantiated - inevitably incurs a reputational risk. Given the possible damage that this may entail for UK exporters as a whole, the ECGD has an obligation to demonstrate that the thoroughness of its due diligence investigations and the basis of its assessment as to reputational risk.

Below we consider the allegations that have been associated with a number of companies and buyers which benefited from ECGD support in 2000. We would stress that, for the most part, the allegations have either been denied by the parties involved or remain unsubstantiated. Nonetheless, in the interests of informing the deliberations of the ECGD's current anti-corruption procedures, we feel that it is in the public interest that the allegations be reported. We do so without prejudice to any of the parties involved.

Companies

• BAe Systems received a £1.679 billion ECGD guarantee the sale of 12 Hawk jets and 9 Gripens to South Africa. It has been embroiled in allegations of corruption and improper influence in this sale. In November 2001, the Italian company, Aermacchi, which lost out to BAe in the contest for the contract, was considering challenging the contract award process in court.7 Their case was that in early 1998 the then-defence minister Joe Modise (now dead) intervened to change the tender evaluation mid-way through negotiations, from a costed to a non-costed option. This allowed for the jets sold by BAe which were £450 million more than the Italian aircraft to win the tender. South Africa's Standing Committee on Public Accounts noted that the process had been 'unusual' while the Auditor General of South Africa described it as "a material deviation from the originally adopted value system".8 In March 1998, a month before Modise intervened to influence the process, BAe donated 5 million rand (£614,000) to the ANC's MK Veteran's Association -- of which Modise was a founding trustee and steering committee member.9 At the time of the negotiations for the contract, Modise also held a controlling stake in a company, Conlog Holdings, that was set to win a contract under the controversial offset or 'industrial participation' arrangements that accompanied the BAe deal.10 A subcontractor on the project, EADS (European Aeronautic Defence and Space Company), with whom BAe conducts several joint ventures, and co-owns several companies, has admitted to giving discount Mercedes to Vanan Pillay, who was director of the industrial participation programme but has since been moved sideways, as well as Tony Yengeni, the ANC's chief whip, who faces prosecution shortly.11 A report by the Joint Investigative Committee Report on the arms deal in November 2001 cleared the South African government of unlawful conduct. However, South Africa's Special Investigation Unit, which was responsible at the time for dealing with issues of corruption, was blocked from taking part in the investigation, and critics called the report a whitewash.

With acknowledgements to Dr Susan Hawley and The Corner House.