Compensation deals for arms contracts are bad ideas-Expert

by | February 16, 2017 5:31 pm

Governments should not negotiate compensation deals to offset the procurement of arms and other goods, as such agreements lead to graft and higher prices, leading Austrian corruption expert Franz Fiedler said Thursday.

Dpa spoke to the former president of the Austrian Court of Audit after the Austrian government charged that Airbus and Euro fighter had defrauded the country in a 2.1-billion-dollar deal over jet fighters.

As part of the deal, Airbus agreed to award Austrian companies 4 billion euros’ worth of contracts.

According to Fiedler, such countertrades are not unusual in armament deals.

“But the rate of 200 per cent is extraordinary,’’ said the expert who is a leading advisor for the anti-corruption group Transparency International in Austria.

Such offset deals never come for free, he said.

“There is no doubt that these additional obligations are a burden for the seller,’’ who then tries to make the buyer pay for this burden through the back door.

“There should be no compensation deals, they only make the price higher,’’ Fiedler said.

Fiedler added that if such deals really offered such stellar rates of return for countries’ economies, Austria should have bought 100 rather than just 15 Euro fighters.

He warned that countertrades also open the door to corruption.

“It is nearly impossible for governments to monitor whether companies such as Airbus award genuinely new contracts, or whether existing business relations are presented as countertrades,” he said.

In addition, people can be bribed by pretending that they will really do some work for the arms producers as part of the compensation package, when in reality they only take the money.

The Austrian Defence Ministry said that Airbus inflated the sales price by 183 million euros, by charging a sum that was actually part of the compensation deal. Some of this money ended up in criminal channels, according to Austrian investigators.

“It can be observed around the world that arms procurement is especially prone to trickery and bribes,’’ Fiedler said.

Such deals are usually less transparent than other types of public procurement as defence matters are kept secret.

In addition, arms producers have ample money for bribes because of the industry’s traditionally high profit margins, Austria’s former top auditor added.

Tags: ,