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Finmeccanica's CEO arrest for alleged corruption: a lesson for all defence companies

Source: Thomson Reuters Foundation - Wed, 13 Feb 2013 04:56 PM
Author: Tiffany Clarke
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Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

By Tiffany Clarke

The Chief Executive Officer of Finmeccanica, Giuseppe Orsi, was arrested yesterday due to allegations of bribery and tax fraud. Bruno Spagnolini, the CEO of AgustaWestland helicopter unit, was placed under house arrest over the same charges. Italian police also raided the offices of AgustaWestland in Milan. Italian prosecutors are investigating allegations that Mr Orsi and Mr Spagnolini authorised the payment of bribes to win the €560 million contract for the sale of 12 AW101 helicopters to India in 2010. The company has denied the allegations.

This arrest comes a year after the previous CEO of Finmeccanica, Pier Francesco Guarguaglini resigned in 2011 after allegations of corruption in connection with his wife, who ran the Finmeccanica subsidiary Selex. Mr Guarguaglini has denied these allegations.

The Indian Defence Ministry ordered an investigation into the allegations by the Central Bureau of Investigation. According to a Ministry statement emailed to media, the contract signed with AgustaWestland includes “specific contractual provisions against bribery and the use of undue influence as well as an integrity pact.” If these allegations prove true, the Indian defence minister A.K. Antony has stated it will cancel the contract.

What do these repeated allegations of corruption tell us about the defence industry as a whole?

Corruption in defence is not going away. Defence company leaders argue they are doing everything in their power to prevent corruption in their companies. These allegations of corruption at the highest levels of authority in Finmeccanica call this into question. Companies should scrutinise their systems yet again so that a scandal like this – wiping out 7% of their stock value – does not happen to them.

Instead, defence company leaders are remaining too silent on the topic of corruption. Transparency International UK’s Defence Companies Anti-Corruption Index (CI) published in October 2012 found that only 9 out of 129 senior leaders spoke up against corruption. Repeatedly speaking up in public about corruption not being tolerated is a central ingredient in preventing corruption before it happens, and much more convincing than apologising if or when it does.

Corruption is not only just a company problem but also one for governments. As we have seen some companies not taking corruption seriously enough, we have also seen the same for governments. According to our Government Defence Anti-Corruption Index, both the Indian and the Italian governments do not go far enough to demand strong anti-corruption systems from their companies. If they want to demonstrate that they are committed to clean procurement deals, they should require companies to demonstrate strong anti-corruption systems and insist upon a supply chain that itself upholds ethical standards.

What can Finmeccanica do in the short term to repair public trust?

According to a press release issued by the company yesterday, Finmeccanica is treating the arrest of Mr Orsi as a “precautionary measure.”

What is notable is the absence of any reference to the condemnation of corruption, and of the commitment to launching an enquiry and publicly reporting the results of this investigation.

This lack of transparency in Finmeccanica’s approach to anti-corruption is consistent with our findings in the CI. Overall, Finmeccanica scores in Band C, which indicates only moderate levels of public evidence of anti-corruption systems. Unlike some of its competitors, Finmeccanica chose not to provide further internal information on the company’s anti-corruption system. As a result, we do not know whether they have further information or how they follow the policies inside the firm.

If Finmeccanica wants to be taken seriously about its efforts to fight corruption, it must speak up publicly about what it does on this front. Senior leadership—from the new acting CEO to the Supervisory Board—should publicly declare a zero tolerance for corruption and report the major components of its programme.

Finmeccanica also should call for an external review of the effectiveness of the company’s anti-corruption system. The company should then publicly report the results of this review, and the steps that it is taking to put any recommended improvements in place to ensure these allegations do not occur again.

Indian and Italian taxpayers, Indian and Italian governments, and Finmeccanica’s investors deserve to know.

Tiffany Clarke is a project officer with Transparency International's Defence and Security Programme

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