Exploring accountability in bribery and corruption disclosures by UK listed defence companies

Jones, Clare and Day, Robert (2017). Exploring accountability in bribery and corruption disclosures by UK listed defence companies. In: Steckle, Rudolf ed. Theorie und Praxis aus Rechnungswesen und Wirtschaftsprufung - Nationale and Internationale Enterwicklunge. Germany: LexisNexis, pp. 123–175.


The aim of this chapter is to examine the bribery and corruption disclosure statements of all companies in the Defence Industry classification of the main market of the London Stock Exchange. The particular motivation for the research arises from four main areas. Firstly, the research is motivated by economic impact and the international scale of corruption. A conservative estimate of the total bribes paid worldwide is $1 trillion annually and this can cause a reduction in a country’s growth rate of between 0.5% to 1% (World Bank 2007a). Although the impact can vary from one country to another, it is estimated that losses from corruption equal 20% to 40% of overseas development aid (World Bank 2007b). In Europe, German companies are said to lose more than 6 billion euros to white collar crime each year (Martin Luther University 2007), and some 25% of UK based international companies surveyed said they had lost business to corrupt competitors in past years (Control Risks 2006). 

Secondly, the nature of the defence industry is such that the contract sales are very large in nature and the customers tend to be governments throughout the world. The awarding of public contracts is an element in the classification of companies as high risk (FTSE4Good 2012). The setting up of an anti-corruption organisation by the industry itself means that the problem is recognised.

Thirdly, a long awaited piece of legislation was enacted in the UK. The Bribery Act was passed in 2010 and replaced the previous Act which dated back to 1916. The analysis in this chapter examines not only the quality of disclosure but also whether there was a response by the companies in anticipating the enactment of the legislation through an increase in disclosure. 

The final motivation is that corruption has become prominent through some very high profile cases. In December 2008, the German group Siemens pleaded guilty under the Foreign Corrupt Practices Act of 1977 in the US for failing to maintain controls and keep required records. According to the authorities, between 2001 and 2007, the company paid $1.4 billion in bribes, which in some cases represented up to 40% of the value of contracts . In the UK, the furore over the UK government’s decision to abandon the two year enquiry by the Serious Fraud Office (SFO) into alleged corruption involved in the BAE Systems’ £40billion defence contract with Saudi Arabia has been reported not only in the press, but also examined by international organisations such as the Organisation for Economic Cooperation and Development (OECD). Since that time, the company agreed to pay £288 million after pleading guilty to producing false statements and accounting practices in relation to deals with Saudi Arabia and Tanzania. This included both a settlement with the SFO and the US Department of Justice, relating to activities occurring before the year 2000 .

These cases illustrate the potential financial liabilities that can be incurred from corrupt actions which can be even more accentuated by reputational damage. With this in mind this research also examines whether this type of risk is disclosed under a risk management framework published by those companies thus indicating the perception of bribery by reporting entities.

This chapter is divided into three main sections. The first deals with the economic impact of bribery and corruption in society as well as the relevant environments in which the defence sector companies operate. The second section discusses the methodology, the theoretical framework and the findings, while the final section produces an analysis and discussion of the results.

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