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Operating Under the Radar, the Government Body With an Unethical Stance

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You would expect human rights, arms controls and environmental policies to be central to all of the UK's foreign investments. Yet, today the findings of an Inquiry by the All Party Parliamentary Group on International Corporate Responsibility - a group I chair - will reveal that one UK government body has been able to operate under the radar, at times offering little regard to these concerns.

The body concerned is the UK Export Finance, the government department which provides financial support to British exporters.

In December 2006, this little known government agency was embroiled in a national scandal when Tony Blair, then Prime Minister, called on the Serious Fraud Office to drop a corruption investigation into Britain's biggest-ever arms deal. The Al-Yamamah deal, between BAE systems and Saudi Arabia, was insured by the British Government through the Export Credits Guarantee Department, the precursor to UK Export Finance (UKEF).

Over the years this secretive agency has attracting criticism for underpinning many inappropriate exports and acting as a debt collector for British corporations. When a foreign importer defaults in its payments to a British exporter, the default becomes part of the importing State's sovereign debt. Critics argue this creates moral hazard in so far as corrupt and repressive governments may feel encouraged to buy arms and default on their payments in the knowledge that the debt accumulated will be paid for far into the future. The people of Indonesia are still paying for British arms sold decades ago with the backing of export credits while the country was under the rule of General Suharto.

Export Credit Agencies have taken on renewed global significance recently as OECD and G20 governments have pledged to use them to ensure liquidity in global trade and investment in response to the financial crisis. While many of these agencies, including UKEF, have attracted opposition from human rights organisations for supporting heavy footprint business sectors most commonly associated with human rights violations, the UK cannot afford to ignore the potential use of export credits to enable British companies to compete abroad. This is especially true in times of major financial disruption where private sector finance is lacking. The challenge is to ensure these agencies operate to acceptable ethical standards.

It is in this context that the All Party Parliamentary Group on International Corporate Responsibility, decided to launch an inquiry into how UKEF can achieve, in an ethical manner, the twin aims of supporting export led growth and promoting a wider range of businesses that have export potential. Evidence was sought from many sources, including the British Exporters Association, UKEF's clients, export credit agencies from other countries, UKEF itself and some of its critics such as Amnesty International, Jubilee Debt Campaign and WWF.

The report of our inquiry, which is being launched today in parliament, concludes that delivering export-led growth and upholding ethical business standards are not mutually exclusive. Our recommendations include the application of international social and environmental standards to all project applications, penalties on companies that violate standards, a grievance mechanism, and consultation on a prohibitions list for armaments.

We believe this approach to be not only viable, but essential to ensure that the availability of public funds for British exporters promotes the competitiveness of British business in a way that is compatible with evolving international standards on the environment and human rights.

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