Murder, corruption, bombings – the company at centre of Australia’s submarine deal Michael West Media by Michelle Fahy | Oct 24, 2020  The arms company at the centre of a deadly criminal saga and numerous global corruption scandals, Naval Group, was selected by the Australian government to build our new fleet of submarines – a deal heralded as ‘one of the world’s most lucrative defence contracts‘. How did this happen? In this special investigation Michelle Fahy discovers significant gaps in anti-bribery and corruption measures on this massive procurement project. The message communicated far and wide is that our standards are lax; grey areas are tolerated; and we’ll bend the rules and look the other way.…………In June this year, 18 years later, a Paris court secured the first convictions in the case. Six men were found guilty of charges involving kickbacks on deals signed in 1994 for the sale of submarines to Pakistan and frigates to Saudi Arabia. They include three former French government officials and the former head of the International Division of Naval Group.

Investigations into arms trade corruption take years, often more than a decade, due to multiple countries being involved, layers of offshore shell companies hiding the money trail, and the senior people implicated. Court cases and convictions are rare.

The Karachi Affair resonates in Australia today because despite this high-profile and deadly criminal saga – and two other corruption scandals, in Taiwan and Malaysia, which also involved murder – the company at the centre of all three, Naval Group, was still selected by the Australian government in 2016 to build our new fleet of submarines. A deal heralded as “one of the world’s most lucrative defence contracts”. Naval Group is 62.25% owned by the French government and 35% by French multinational Thales (a global top 10 weapons-maker).

The French case continues. In January, the former French prime minister Edouard Balladur and his defence minister will stand trial. It is alleged the kickbacks helped fund the PM’s failed 1995 presidential bid. Both men deny any wrongdoing.

Meanwhile, in Australia, the submarine deal continues. In February last year, after two years of negotiations, the government signed a ‘strategic partnership agreement’ with Naval Group. The signing took place despite the emergence of two more investigations into Naval, including alleged corruption on a 2009 submarine deal with Brazil and a significant security breach where complete plans of the new Scorpène submarines Naval had provided to India were apparently leaked from within Naval.

………………….Strong anti-corruption measures essential

Vast amounts of Australian taxpayers’ money are being handed to military industrial companies, including Naval Group, in contracts. Yet the perennial lack of transparency in defence procurement, blanket secrecy surrounding Australian weapons exports, and a pervasive “culture of cosiness” between government and industry all continue.

“Big money attracts greedy people and firms,” wrote a 31-year veteran of financial crime investigation for the Australian Federal Police, Christopher Douglas, in 2018. “New defence programs… also attract foreign intelligence interest.” This is already occurring in Australia, and Douglas says there will be more than one country spying. He says there is a “symbiotic relationship” between successful intelligence gathering operations and corruption.

The corruption risk has only compounded since 2018. In June, the federal government further increased its projected military spend, from $195 billion to $270 billion.

Tufts University in America researches arms trade corruption. It says there is an assumption by governments, barely questioned in defence and security circles, “that maintaining an advanced domestic arms industry is an unquestioned good, and essential to national security and influence. In all too many cases, this goal has therefore been placed above anti-corruption objectives.” (Emphasis added.)

In Australia, developing a domestic arms industry is being accorded a high priority, but this should be accompanied by an increase in anti-corruption protections. The facts show nothing could be further from the truth.

‘Perfect bribe vehicles’

Many of the world’s corrupt arms deals involve submarines. “They are perfect bribe vehicles,” says Tufts University, because “submarines are hugely expensive, and not many countries actually need them.”

Australia is in a minority of countries that can argue it needs submarines. But do we need to spend quite so much money? Of the options available, the government selected the most risky one: the largest, most expensive, never-before-built, and thus completely untested, option.

Chris Douglas, now director of Malkara Consulting, has written a report questioning Australia’s anti-corruption due diligence on the Future Submarine program. He has since used Freedom of Information requests to try to find out more about Defence’s anti-corruption framework in the program and has uncovered what appear to be significant gaps, discussed below.

The international standard for anti-bribery measures is ISO 37001. It was introduced in 2016. Anyone serious about managing bribery and corruption requires a system that meets this international standard.

‘Come-from-behind victory’

It was called “a remarkable come-from-behind victory” for DCNS, as Naval Group was then known, as it beat the respected German bid and former prime minister Tony Abbott’s favoured Japanese bid, to win Australia’s huge submarine contract in April 2016.

How did DCNS do it? A history of the procurement is here, but we’ll probably never know the telling background details……………

Given the multiple corruption scandals already dogging the French company, did the appointment by DCNS of Costello in the midst of our own procurement process ring any alarm bells inside the government?

Quite the opposite. Costello told the ABC’s Lateline, “The probity of me working for DCNS was checked and agreed with the government and all stakeholders in the program.”

Costello didn’t elaborate on – or the ABC didn’t air – who in “government” signed off on it, nor who “all” the stakeholders were……………

Well-connected intermediary

It was revealed in February 2019 that Naval Group had “recently” hired David Gazard to help “improve a rocky relationship with the Defence Department and to secure a crucial Strategic Partnering Agreement (SPA)”.

A Liberal Party insider, David Gazard is well connected with the highest levels of the party. He was an adviser to John Howard, Peter Costello and Tony Abbott, in the lobbying business with Peter Costello for a time, and is also reportedly a member of prime minister Scott Morrison’s inner circle. In the 2010 federal election, Gazard stood for the Liberals in Eden-Monaro.

After two years of negotiations marked by tension and sometimes bad-tempered wrangling, in December 2018 the government announced that negotiations had concluded. In February 2019, the ‘contract of the century’ was signed.

Gazard and Naval Group declined to provide details on his role or the amount his lobbying firm, ECG Advisory Solutions, was paid.

Sole FoI document suppressed

Early this year, Chris Douglas lodged an FoI request with Defence about anti-corruption measures on the submarine program.

He asked for:  …….[documents about anti-corruption measures]…….

Douglas submitted another more general request to find out what, if any, ABC planning Defence had done. One document was identified, which Defence said was prepared by EY as part of its comprehensive advisory role (discussed above) and which included opinions and recommendations regarding the business affairs of Naval Group.

As the document mentioned ‘third parties’, Defence said it needed to consult with them before it could be released. Douglas outlined his concern that entities involved in corruption often hid their activities and identities by claiming information was commercially sensitive.

Nevertheless, Defence consulted the third parties. On 8 May, Defence told Douglas it was declining his request to release the document. Among other things, it said it had consulted EY, which had advised that the document was a very specific aspect of its comprehensive advisory role which, if read out of context, would not be in the public interest and could reasonably be expected to harm the professional reputation of EY.

Defence also said it was “aware of allegations in connection with then-DCNS. In relation to these allegations, there have been no formal adverse findings against Naval Group.” (Emphasis added.)

A month after this correspondence, the Paris court recorded the conviction against a former senior executive of then-DCN, now Naval Group, on charges relating to the kickback scandal.

As noted earlier, given the paucity of cases to ever reach court in this industry, it is alarming that the Defence Department seems to require a “formal adverse finding” before it will give weight to corruption concerns. When it comes to managing corruption risk, is the Defence Department saying it is content to set the lowest possible bar for its contractors to clear?

Government collusion

There is no better example of the collusion between governments and industry to ensure arms trade corruption cases rarely make it to court than the UK’s protection of BAE Systems, as described by Tufts University:……

If the multinational, majority French-government-owned Naval Group’s business and professional affairs are such that they would or could be adversely affected by the release of a risk assessment document evaluating its suitability to undertake the largest defence procurement program in Australian history, we might wonder, why was it selected?   https://www.michaelwest.com.au/murder-corruption-bombings-the-company-at-centre-of-australias-submarine-deal/