Thursday, November 19, 2009

Corruption in defence deals: Blacklisting firms not the solution

The global arms bazaar is no place for angels. If one is to judge by the plethora of well-documented cases of defence pay-offs around the world, corruption is an endemic part of the business. To some extent, this is understandable -- the orders for defence equipment tend to involve large sums of money, there are only a handful of suppliers for specific items, the buying process is buried deep in technical detail, the purchases are funded out of the public exchequer, and the people acting on behalf of governments are not incorruptible.
Suppliers who have invested large sums in research and product development, over many years, are usually willing to go to any lengths to acquire a crucial order which could mean the difference between running or shutting down a production line, between well-paying jobs and large-scale unemployment. Throw all this into the cauldron and it becomes a witch's brew.
The question is what is to be done. The defence ministry has been busy blacklisting one supplier after another, usually in the wake of a pay-off scandal. The rash of action has meant that, in some cases, the country has no acceptable supplier left -- or only a single supplier, who can, therefore, dictate terms. It is curious, though, that this action is not matched by any steps taken against those who have received the pay-offs. Since it takes two hands to clap, the asymmetric response is hard to explain.

Perhaps the reason is that penal action in the past has led to people charged with making defence purchases becoming ultra-cautious and not taking any decision at all. That has brought about the unintended but predictable result of budgeted sums for defence hardware going unspent, and (one presumes) the country's defence capability being impaired. Further action against those suspected of having received pay-offs could make the decision-making paralysis even worse.

The obvious solution would be to clean up the whole business. Recall that George Fernandes [ Images ] as the defence minister made a show of examining all previous defence deals and of introducing transparency in new purchases -- only for purchases that he ordered to come under the scanner, and for the Comptroller and Auditor General to eventually issue an indictment! The United States made a serious attempt at cleaning up, passing the stringent Foreign Corrupt Practices Act in the wake of a Lockheed scandal, some three decades ago. But, as recent reports have suggested, the existence of a stringent law has not stopped US companies from making payments under the table.

If backlisting of suppliers is counterproductive because too many companies get knocked off the approved list, and if past experience suggests that cleaning up is a desirable but unachievable goal, then it stands to reason that some compromises have to be made. Perhaps there can be a gradation of offences, with blacklisting resorted to in only the most egregious cases; less grave offences could attract a graded system of penalty points when assessing competing bids, so that an offending company finds itself at a disadvantage but is not knocked out of the reckoning altogether


Sooner or later, all the major suppliers will be on the list.

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