Jan. 29 (Bloomberg) -- Saudi Arabia is among the biggest arms-importing countries that have insufficient safeguards against corruption in the defense industry, Transparency International said.
Seven of the nine countries that imported more than $1.5 billion of weapons in 2011 ranked between high and very high for corruption risk, the non-profit organization said today as it unveiled a ranking of 82 countries. Morocco, Pakistan, Turkey and China were among the largest markets with the lowest grades.
Saudi Arabia signed a $29.4 billion agreement with the U.S. in 2011 to buy 84 new F-15 fighter jets and modernize 70 existing ones. A unit of European Aeronautic, Defence & Space Co. is currently being investigated by the U.K. Serious Fraud Office over bribery allegations in the country.
“Arms races can be started just to satisfy the greed of individuals,” Transparency International said in the report, whose principal author was Oliver Cover. “International security can be put at risk through corrupt agendas.”
The report highlights the risk that companies from Lockheed Martin Corp., the world’s largest arms maker, to EADS face as they seek growth markets. Cuts in U.S. and European defense spending have driven weapons makers to pursue contracts in the Middle East, Asia and other markets to compensate for lost revenue at home.
Transparency International said that 70 percent of the countries fell into the bottom three bands for the risk of corruption, which costs the defense industry at least $20 billion a year.
The worst performers included Algeria, Angola, Cameroon, Eritrea, the Democratic Republic of Congo, and Syria. Egypt, one of the largest recipients of U.S. military aid, was among them along with Libya, which is expected to be a major purchaser as it rebuilds its military following NATO air strikes in 2011. China, which imports weapons mainly from Russia, had a high risk for corruption, the group said.
Dealings overseas have already ensnared companies such as BAE Systems, Europe’s largest defense contractor, EADS, and Italy’s Finmeccanica SpA in corruption probes.
“In many of the growing export markets, the defense procurement chiefs of the purchasing countries are really interested in raising anti-corruption standards, Mark Pyman, director of Transparency International U.K.’s defense and security program, said in an interview. Saudi Arabia, for instance, is trying to address shortfalls, he said.
Offsets, deals in which companies return business to the buying country, are often poorly regulated and create risks of money being misappropriated, Pyman said.
Only Germany and Australia received an A-grade, indicating a very low risk of corruption. The U.S., with the world’s largest defense budget, and the U.K., western Europe’s biggest spender, joined Austria, South Korea, Sweden and Taiwan in receiving B-grades, denoting low corruption risk.
Countries covered in the report, which were graded against 77 questions on issues from budgetary transparency to whistle-blower rules, spent about $1.6 trillion on defense in 2011, Transparency International said. The report follows a study last year into corruption prevention policies at defense firms.
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