Czibik, Á., Fazekas, M., Hernandez Sanchez, A. and Wachs, J. (2020). State Capture and Defence Procurement in the EU. GTI-R/2020:03, Budapest: Government Transparency Institute.
This paper is part of a broader research project which aims to assess state capture risks in the field of defence procurement using a combination of qualitative and quantitative methods to overcome research challenges typical of this area, most of all the relatively low level of transparency due to specific procurement regulations.
Public procurement is one of the government activities most vulnerable to corruption (OECD, 2016; World Bank & IBRD, 2013), and risks are even higher in the field of defence due to the large amounts of money involved, the complex and large contracts, the low number of buyers and suppliers – which develops stable personal relationships conducive to corrupt deals, and the fact that governments themselves are the enforcers of secrecy (Pyman, Wilson, & Scott, 2009).
There is thus the need to strike a balance between openness and transparency in the defence procurement process, on the one hand; and the protection of the core security concerns of the procuring governments, on the other (OECD/Sigma, 2011). This is a particularly salient issue given not only the sensitive nature of defence spending, but also its sheer volume.
We analyse how the most significant EU-level policy intervention in the market for defence procurement, the 2009/81/EC Directive, impacted corruption risk outcomes across the EU. Using advanced quantitative methods, we compare similar contracts awarded right before and after the implementation of the Directive at the national level to estimate the causal effect of the Directive on defence procurement. The analysis finds that average corruption risks decreased following implementation across the entire EU.
We also conduct detailed case study analyses of defence procurement in the UK and France and find that strong reporting requirements and monitoring institutions do not by themselves prevent the risk of state capture. Efforts to reduce corruption risks in the defence sector must therefore include both better reporting standards – especially of non-sensitive products – as well as robust competition policies that ensure value for money without hindering national security concerns. Finally, we outline five policy recommendations to strengthen transparency in EU defence procurement and to reduce the risks of corruption and state capture.
- We identify the need to increase the quality and quantity of procurement data in the sector. This includes expanding the scope of items reported, particularly for non-sensitive purchases.
- Richer datasets require more advanced data analytic methods to help relevant actors better understand the defence sector and the impact of policies thus improving overall monitoring capabilities.
- We also propose a more strategic use of competition, such as opening the door to foreign competition to extract better terms from its national suppliers.
- We recommend strengthening initiatives for demand aggregation at the European level whenever viable, thus not only increasing economies of scale, but also improving competition for large projects.
- We propose expanding the sphere of oversight engagement beyond private companies and ministry of defence officials and to include parliamentary oversight committees and those entities that specifically investigate and target corruption.