15/11/2011 11:02 GMT | Updated 16/11/2011 04:57 GMT

Government Urged To Probe Arms Trade's 'Shadow World'

It is a deal that will not die. South Africa is launching a new inquiry into allegations that illicit payments were made to secure a massive $10bn contract to modernise the country's armed forces, agreed between the government and a number of international arms dealers - including the UK's BAE Systems, French contractor Thales and the Swedish aerospace company Saab.

Despite years with few results, veteran campaigner and former South African MP Andrew Feinstein said that there is now a clear chance to ramp up the pressure on governments and companies to clean up the arms trade.

In South Africa, individuals connected with the deal have been brought to justice. The chairman of the parliament's defence committee, Tony Yengeni, was convicted of fraud in 2003. Schabir Shaik, a financial advisor to the then-deputy president Jacob Zuma, was found guilty of fraud and corruption in 2005. No South Africans have been charged over direct links with BAE itself, but the allegations surrounding the company's conduct mounted.

Further questionable deals in the Middle East and in Tanzania focused attention on the company, but investigations by UK authorities went nowhere. Saab issued a statement in July saying that its internal investigations had uncovered improper payments, but pointed the finger at BAE.

Feinstein was a member of the South African parliament in 1999 when the infamous deal went through. The government's refusal to hold an official inquiry into the case led to his resignation and threw him into vocal opposition with his allies in the African National Congress (ANC) party. His fierce critique of corruption within the ANC, "After the Party", was published in 2007.

Since then, Feinstein has thrown himself into researching and writing on what he sees as widespread corruption and bribery within the arms trade, which he says is under-regulated and so closely entwined with national governments that has been able to operate with relative impunity in many parts of the world. Barring Russia and China, Feinstein said, the UK is probably the worst for failing to police the behaviour of its arms exporters.

According to Transparency International, the anti-corruption watchdog, the arms trade could account for as much as 40% of corruption worldwide.

"When you think about the way that we regulate industries that are supposedly dangerous to our health like tobacco and alcohol, the paucity of [regulation] in the weapons trade, is remarkable," he told the Huffington Post UK.

Feinstein believes that the arms lobby, through legal and illegal means, co-opts and bribes countries into spending money they do not have on weapons that they do not need.

He is motivated, he said, by the experience of that multibillion dollar deal.

"I've seen the devastating impact that this trade has had firsthand in South Africa," he said. "Only 11 of the 24 hawk [training jets] that we bought have ever been in the air because we simply can't afford to fly them. More than half the 26 Gripen jet fighters we bought have been mothballed without ever flying, because we can't train the pilots to fly them on the hawks and we can't afford to put them in the air.

"But at the same time that the arms deal was being negotiated, [then president] Thabo Mbeki was telling South Africans that we couldn't afford to provide anti retroviral medication for the over 5m South Africans living with HIV or Aids. And in the five and a half years immediately after we started paying for the arms deal, according to a Kennedy School of Government public health study, at least 355,000 died avoidable deaths because they simply couldn't afford to buy the medication they needed to stay alive. But we had $10bn to spend on weapons that we didn't need."

The large scale players and high profile cases in the legal part of the arms trade are just the tip of the iceberg in an industry that has a long history of illicit networks and traders. Alongside the formal trade between legal players, and the "shadow world" of illegal dealers, there is a "grey trade", which combines elements of both.

With middlemen, fixers and brokers often running on the borders between all three worlds, the distinctions are very blurred, according to Feinstein. "The formal trade and the shadow world are inextricably intertwined," he said. "You have this industry that does this often multi-billion dollar deals in which a very small number of people are the key decision makers and which take place behind a veil of national security controlled secrecy. So conditions are ripe for corruption and bribery."

The close relationship between arms companies and the state means that personnel often move back and forth, and the inroads made by private contractors into the intelligence world has made the partnership more complex still.

"I think in the case of the UK in particular there is an added element, and that is that BAE Systems and the weapons trade is such an important part of British manufacturing that I think every government since Margaret Thatcher has bent over backwards to accommodate the industry, has acted as salesperson in chief for the industry, even when it's absolutely clear that there is a lot of criminal behaviour going on," Feinstein said.

"When New Labour came to power, they wanted to demonstrate to business that they were on their side - what better an example of British manufacturing than BAE - and to, in a sense, hitch their coattails to what is the face of British manufacturing. I think it is a pretty ugly face, but in many ways it is the face."

Tony Blair made two formal visits to South Africa. His Swedish counterpart Goran Persson made one. The Royal Yacht Britannia travelled to Cape Town, and, according to Feinstein, "hosted a dinner for key decision makers in the deal."

The links between governments and their arms dealers is strong, and stays strong, even when regimes change. In May of this year, when Saab president and chief executive Haakan Buskhe was faced with fresh allegations around the deal, he made a statement from Brazil, where he was on a further sales mission with the new Swedish prime minister, Fredrik Reinfeldt. David Cameron travelled to the Middle East in February of this year on a tour. Eight arms manufacturers accompanied him.

"And so," Feinstein said, "When the going gets tough and things turn sour, the instinct to protect those companies is also profound."

The close relationship between the defence architecture and the private sector - as well as the attitude that British government officials take to lobbyists - was highlighted by the recent scandal that prompted the resignation of defence secretary Liam Fox in October, Feinstein noted. Adam Werrity, a close friend of Fox with links to US defence companies, was found to have travelled extensively on official trips and had extraordinary access to Westminster.

"I've just been amazed at the way it's been handled here. It's all been so polite," Feinstein said. "The guy's already talking about wanting to return to government as soon as possible. This is so typical of inappropriate influence and what I would regard as corrupt behaviour in the weapons trade. Here, they finesse it and it's all polite, and the gentleman made a misjudgement, which is an absolute nonsense and is the reason that the British arms trade is in the situation it's in and has the reputation it has. Which is awful, by the way."

However, it is government action that is needed to try to stem the flow of illicit payments. The US has had some success through the aggressive implementation of the Foreign Corrupt Practices Act (FCPA), which allows American lawmakers to pursue companies which bribe overseas. However, with US arms companies having such a strong domestic market to play for, there is less need for them to export. For UK companies, the bribery bill, which came into force in July 2011, opens up companies who use middlemen or agents to pay bribes to the threat of prosecution.

"During the 70s and 80s, the US arms companies were the biggest bribers on the planet, and if I look at the last 10 years, there is only one case in which I fairly strongly suspect there was bribery from an American company," Feinstein said. "So there is no doubt in the amount of corruption coming through the formal trade in the US has diminished substantially."

He is less convinced about the Bribery Act, which he said is a good piece of legislation, but one that is undermined by the guidance given to companies on it by the government.

"That's not where the change is going to happen," he said.

Enforcing transparency will be the key, he explained. "A huge amount of the bribery and corruption are hidden under the name of national security, and they have absolutely no impact on national security or commercial confidentiality," he said. "If you're in a situation where the names of middlemen, agents or dealers in any arms deal had to be made public, had to be transparent, and how much they were paid and for what, that in itself would have a huge impact on cleaning up the trade."

Beyond that, pressure needs to applied to other parts of the arms chain, he said. Some shipping and logistics companies are able to operate with a foot in both the legal and the grey areas of the trade with relative impunity, and either legislative or public action could have an impact in the flow of weapons.

Banks, too, are a potential weak link. Anti-apartheid activists were able to pressure Barclays in its home market until it disinvested from South Africa, and Feinstein advocates taking a similar approach.

"I don't think they're making trillions of dollars out of their work in the arms trade. I think it would be interesting to see how committed they were to continuing to fund the sorts of deals that they do," he said.

Encouraged by the appearance of popular protest movements, such as Occupy Wall Street, Feinstein believes that it is time for a resurgence in activism targeting the arms trade. "This is an area where I think a wave of new momentum in activism around it could make a very meaningful difference, because it's been so off the political radar for so long," he said.

Even so, he is aware of the scale of the task and the public scepticism over whether the industry can ever change, which was highlighted to him on a book tour in South Africa.

"There was one woman sitting in the front row and before I'd even closed the book, she said to me 'why don't you just get a life?' Get a proper job, go and spend more time with your children, accept that the arms trade is corrupt, accept that politicians are all corrupt. Just live a normal life," he recalled.

"For 10 years now, I've been bashing my head against what often feels like a brick wall, and I had to face the awful situation of my colleagues in the ANC, who I'd spent most of my adult life with, seeing me as a traitor. I'm really not averse to the frustrations and the sometime feelings of impotence that this kind of work brings, but ultimately if enough ordinary citizens and taxpayers realise what is being done in their name and with their money, maybe politicians will be forced to change eventually. It's worth having a try."