Ethical arms trade?

Dick Olver and the BAE Board should ask themselves whether it is possible to be an ethical company a

BAE Systems' annual general meeting earlier this month was even more surreal than usual. Taking advantage of the recently released Woolf report, chairman Dick Olver restated the company's unimpeachable record and promised it would soon reach the ethical gold standard that Lord Woolf had outlined, setting the benchmark not just in the arms business but for all industry globally. Barely drawing breath, Olver called for all the Serious Fraud Office investigations into BAE to be reviewed and ended.

Setting aside for the moment the obvious question of whether a company that produces the means of waging war can ever claim to be ethical, Olver's assertions rang cavernously hollow.

The company treated the Woolf committee like an expensive PR exercise for which the former lord chief justice was paid £6,000 per day. Styled as a review of BAE's corporate governance practices, the committee was only allowed to propose improvements to the way the company does business. It was explicitly forbidden from considering any of BAE's past practices.

So, no mention then of al-Yamamah and the allegations of £1bn of bribes paid to Prince Bandar, the son of the Saudi defence minister at the time of the deal; nor of the sale of chronically overpriced Hawks to South Africa, in relation to which the Serious Fraud Office has been investigating alleged bribes of £75m; or the flogging of an air traffic control and radar system to Tanzania for $45m, which Clare Short, as international development secretary, described as a corrupt and useless project.

And that's only the recent history. Obviously, the committee gave no thought to the years during which the company armed President Suharto's brutal regime in defiance of UN resolutions but funded by both a Labour and Tory government under the export credit guarantee system.

True, Lord Woolf stated: "Both the chairman and chief executive . . . acknowledged that the company did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage." But it is not what shareholders have been told year after year at previous AGMs.

In 2001, as a South African member of parliament, I had the responsibility of investigating an arms deal between BAE and South Africa's nascent democracy. BAE had initially been excluded from the shortlist for provision of jets to the South African air force. There was a better technical alternative that cost less than half BAE's bid.

In addition to the £75m being investigated by the SFO, it was established that BAE paid R5m to a charity of which the then defence minister, Joe Modise, was life president. BAE admitted the payment but denied that this had been for the purpose of securing the contract.

At precisely the time that the government was spending £5bn on arms the country didn't need, South Africans were being told that the country couldn't afford antiretroviral drugs to combat the Aids pandemic. For millions of South Africans, therefore, BAE's claims to being an ethical company will remain laughable until the board acknowledges and apologises for its past.

But Dick Olver should come clean. He claims that the SFO's four years of investigations into al-Yamamah have yielded nothing. (Though it took 14 years for the facts about the Swedish company Bofors's corrupt arms deal with India to emerge.) He ignored the myriad allegations that have surfaced following the unlawful closing down of the al-Yamamah investigation. In addition, the SFO has been investigating BAE's deals in South Africa, Tanzania, Romania and the Czech Republic for just a few years.

Sadly, it looks likely that a compliant British government will be easily steered into closing down the Serious Fraud Office investigations into BAE's activities. Through an amendment to constitutional legislation currently before parliament, Gordon Brown will empower his Attorney General to now do this without the bothersome intervention of the high court.

However, BAE still faces money-laundering investigations in Switzerland and a US justice department probe.

The reality is that if BAE wants to conduct its business in future to higher acceptable standards, it will have to stop making the kinds of "facilitation payments" which the company admitted to Woolf it still pays. And it will have to do away with the use of "industrial offsets" as sweeteners for deals.

Most importantly, it will have to go beyond the Woolf committee's recommendations that focus on self-regulation, and make available for public scrutiny all its interactions with and payments to agents or middlemen and government decision-makers, however circuitous the maze of companies through which much of this activity takes place.

If such transparency is practically unworkable then Dick Olver and his board should ask themselves whether it is possible to be an ethical company and operate in the arms business.

According to research undertaken by Transparency International, the arms trade accounts for 49 per cent of corruption in all world trade.

Andrew Feinstein is a former South African MP for the African National Congress. His memoir "After the Party: a Personal and Political Journey Inside the ANC" is published by Jonathan Ball

This article first appeared in the 19 May 2008 issue of the New Statesman, Secret Israel