Introduction

In our twenty-first-century world the lethal combination of technological advances, terrorism, global crime, state-sponsored violence and socio-economic inequality has raised instability and insecurity to alarming levels. At the same time, the engine that has driven this escalation, the global arms trade, grows ever more sophisticated, complex and toxic in its effects.

It might therefore be thought essential that the world’s democratic nations should address this trade collectively and urgently. If it must exist, then surely it should be coherently regulated, legitimately financed, effectively policed and transparent in its workings, and meet people’s need for safety and security?

Instead the trade in weapons is a parallel world of money, corruption, deceit and death. It operates according to its own rules, largely unscrutinized, bringing enormous benefits to the chosen few, and suffering and immiseration to millions. The trade corrodes our democracies, weakens already fragile states and often undermines the very national security it purports to strengthen.*

Global military expenditure is estimated to have totalled $1.6tn in 2010, $235 for every person on the planet. This is an increase of 53 per cent since 2000 and accounts for 2.6 per cent of global gross domestic product.1 Today, the United States spends almost a trillion dollars a year on national security with a defence budget of over $703bn.2 The trade in conventional arms, both big and small, is worth about $60bn a year.3 †

The US, Russia, the UK, France, Germany, Sweden, Holland, Italy, Israel and China are regularly identified as the largest producers and traders of weapons and matériel.*

Almost always shrouded in secrecy, arms deals are often concluded between governments who then turn to manufacturers, many of which are now privately owned, to fulfil them. In some instances, governments enter into contracts directly with commercial suppliers. And companies do business with each other or third parties, some of whom are not even legal entities. These include non-state actors – from armed militias to insurgent groups and informal clusters of ‘terrorists’ – and pariah states. The sale and supply of weapons often involves murky middlemen or agents, also referred to as arms brokers or dealers.†

Many arms deals contain elements of all these arrangements stretching across a continuum of legality and ethics from the official, or formal trade, to what I will refer to as the shadow world, also known as the grey and black markets. The grey market alludes to deals conducted through legal channels, but undertaken covertly. They are often utilized by governments to have an illicit impact on foreign policy. Black market deals are illegal in conception and execution. Both black and grey deals frequently contravene arms embargoes, national and multilateral laws, agreements and regulations. In practice, the boundaries between the three markets are fuzzy. With bribery and corruption de rigueur there are very few arms transactions that are entirely above board.‡

The arms trade operates on collusion between world leaders, intelligence operatives, corporations at the cutting edge of technological development, financiers and bankers, transporters, shady middlemen, money launderers and common criminals.

This unholy alliance attempts to avoid responsibility for the gruesome consequences of their actions with the oft-quoted mantra: ‘Guns don’t kill people, people kill people.’4 But even technologically advanced forms of warfare, such as the use of unmanned drone aircraft to eliminate enemies, cannot minimize the sheer brutality of the trade and the destruction it causes.*

Supplying conflicts from world wars to the Cold War to the War on Terror, from small insurgencies to large-scale revolutions, arms dealers, weapons manufacturers and even governments have fuelled and perpetuated tensions in pursuit of profit, on occasion selling to all sides in the same conflict.

In addition to the primary moral issue of the destruction caused by their products, there is the related concern of the ‘opportunity cost’ of the arms business. For while a weapons capability is clearly required in our unstable and aggressive world, the scale of defence spending in countries both under threat and peaceable results in the massive diversion of resources from crucial social and development needs, which in itself feeds instability.

A stark example of this cost could be seen in the early years of South Africa’s democracy. With the encouragement of international arms companies and foreign states, the government spent around £6bn on arms and weapons it didn’t require at a time when its President claimed the country could not afford to provide the antiretroviral drugs needed to keep alive the almost 6 million of its citizens living with HIV and Aids. Three hundred million dollars in commissions were paid to middlemen, agents, senior politicians, officials and the African National Congress (ANC – South Africa’s ruling party) itself. In the following five years more than 355,000 South Africans died avoidable deaths because they had no access to the life-saving medication,5 while the weapons remain largely under-used.

The corrupt and secretive way the industry operates undermines accountable democracy in both buying and selling countries. The arms trade accounts for over 40 per cent of corruption in all world trade.6 The combination of the sheer magnitude of the contracts, the very small number of people who make the purchasing decisions and the cloak of national security lends itself to bribery and corruption on a massive scale. Some states are active participants in this illegality, while many more are content to countenance the behaviour. Almost all governments make weapons procurement decisions with huge financial implications that are neither cost-effective nor in the best interests of their countries. And the goods purchased often cost far more than initially quoted, are not able to perform as promised, and are produced or delivered years behind schedule.

There is clearly some need to maintain national security and commercial confidentiality. However, the all-encompassing secrecy that often characterizes arms deals hides corruption, conflicts of interest, poor decision-making and inappropriate national security choices. As a consequence, this trade, which should be among the most highly controlled and regulated, is one of the least scrutinized and accountable areas of government and private activity. Subsequent attempts to cover up malfeasance lead to additional illegal activity and the weakening of government. For instance, in the South African arms deal Parliament was undermined, anti-corruption bodies were disbanded and prosecuting authorities were weakened in order to protect politicians all the way up to the President.

It is hardly surprising that the agenda of weapons manufacturers and their supporters is at the centre of the governance process. For there is a continuous ‘revolving door’ through which people move between government, the military and the arms industry. The companies not only make significant financial contributions to politicians and their parties but also provide employment opportunities to former state employees, retired officers and defeated politicians. Nowhere is this more apparent than in the United States of America.

The pervasive, largely unchallenged common interests of defence manufacturers, the Pentagon, intelligence agencies, and members of Congress and the executive suggest that the US is effectively a national security state. This ensures that irrelevant weapons programmes which do little to make the country more secure continue to harvest billions of dollars in every budgetary cycle. For instance, during these straitened economic times the United States will ultimately spend over $380bn on a fighter jet that is of little use in current conflicts and has been described by a former Pentagon aerospace designer as ‘a total piece of crap’.7 The real security and economic interests of ordinary American taxpayers are sacrificed on the altar of this legalized bribery.

The ‘revolving door’ of people and money perpetuates what C. Wright Mills described as the ‘military metaphysic’, a militaristic definition of reality justifying ‘a permanent war economy’.8 This, despite the warning of the former General, Dwight D. Eisenhower, in his farewell address as President of the United States:

[with] the conjunction of an immense military establishment and a large arms industry … in the councils of government we must guard against the acquisition of unwarranted influence by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes.9

Within a year of George W. Bush assuming the presidency, over thirty arms industry executives, consultants and lobbyists occupied senior positions in his administration. Half a dozen senior executives from Lockheed Martin alone were given crucial appointments in the Bush government during 2001. By the end of that year the Pentagon had awarded the company one of the biggest military contracts in US history.10

Dick Cheney had served George W. Bush’s father as Secretary of Defense before becoming CEO of Halliburton. During his tenure as Vice President under Bush junior, Cheney’s former company garnered over $6bn in contracts from the Department of Defense.11 Its oil-related contracts in Iraq trebled that number.12 Cheney still held stock in the company and left office a very wealthy man.13 Too little has changed under the Obama administration.

But it is not just the contracts. It is also the pernicious influence that this complex has on all aspects of governance, including economic and foreign policy and decisions to go to war. This unease is intensified because a large part of what it does is not open to scrutiny by law makers, the judiciary, the media or civil society watchdogs.

The arms industry and its powerful political friends have forged a parallel political universe that largely insulates itself against the influence or judgement of others by invoking national security. This is the shadow world.

The United Kingdom is hostage to a similar collusion between the main arms companies, especially the large and powerful BAE Systems,* and the executive branch of government, which acts as salesperson-in-chief for the industry. This relationship intensified during the Premiership of Margaret Thatcher, and Tony Blair’s New Labour happily followed suit. Over the past decade BAE has been investigated for bribery in at least five separate arms deals.

In France, where parts of the industry are still in state hands, arms companies receive similarly enthusiastic levels of support from governments of every stripe. But the country’s media and opinion-formers, with rare exceptions, appear mostly unconcerned by the dubious practices of their defence industry. That said, one or two investigating prosecutors have been more intrepid than their British counterparts in seeking legal recourse in cases of grand corruption. German, Swedish and Italian companies also receive massive assistance from their governments. Prosecutors in Germany do investigate arms companies but seldom with any publicly embarrassing consequences. In Italy and Sweden, where Saab has partnered BAE in many of the deals under scrutiny, investigations are rare.

The relationship between the defence industry and government is even more symbiotic in less democratic countries. The role of the weapons business is a crucial component of the People’s Liberation Army’s vast and growing commercial empire, which has become a defining feature of China’s autocratic command capitalism. While weapons have always been a tool of foreign policy, China’s use of cheap arms sales to expand its influence has reached unprecedented levels.14 Those who operate the levers of power of the Russian state – the so-called siloviki around Vladimir Putin – exercise complete control over the country’s arms business, which is an important source of patronage.15

China and Russia sell weapons to many of the world’s despots, including Sudan, Syria, Burma, Iran, North Korea and Zimbabwe.† Their small arms proliferate in conflict zones from Darfur to Mullaitivu. The Chinese were willing suppliers of weapons to Hosni Mubarak’s Egypt, along with Russia, France, the UK and the United States.16 The NATO powers, in their attacks on Libya’s Muammar Gaddafi, have had to destroy not only Russian weapons, but also those sold to the dictator by France, Germany, Italy and the UK.17

Such blowback – the unintended and unexpected negative consequences of weapons sales – is commonplace in the arms trade, often undermining the security of the selling country. Perhaps the most obvious example is the US arming of the mujahideen in Afghanistan. Armed and trained to drive the Soviet Union out of the country, the same trained fighters, with the same weapons, formed the core of the Taliban and the adumbral Al Qaeda network that today constitute America’s greatest enemy.

Blowback is also a commonplace when weapons, often surplus stock from the Cold War, the Balkans conflicts or the battlefields of Iraq and Afghanistan, are resold by ‘merchants of death’ such as Leonid Minin and Viktor Bout. Mostly small and light arms, these weapons have fuelled and prolonged conflicts in Africa, the Middle East, Latin America and South Asia.

When these numerous cases of blowback are blamed on the weapons manufacturers and their defenders in government, they retort that these unfortunate incidents are outweighed by the industry’s economic contribution, particularly the number of jobs it creates. In reality the record is mixed.

The positive economic impact of the arms business is often overstated by the powerful PR machines, think-tanks and lobbyists that the industry funds. Not only are the numbers of job opportunities vastly exaggerated but it is overlooked that these jobs usually require significant subsidy from the public purse that could be used to create far more numerous and less morally tainted jobs in other sectors.

There is little doubt that the defence industry has contributed to significant progress in technological development.18 But it is arguable that with the same or even fewer resources, other sectors might have similar impact.

The arms industry’s economic contribution is also undermined by the frequency with which its main players around the world – Lockheed Martin, BAE, Boeing, Northrop Grumman, and those closely linked to it such as KBR, Halliburton and Blackwater – are implicated in grand corruption, inefficiency and wastage of public resources. They are very seldom forced to pay any significant price for their malfeasance and are always allowed to continue bidding for massive government contracts.

While there is a plethora of national, regional, multilateral and even some international regulation of the arms trade, the reality is that the symbiotic and secretive relationship between the industry, middlemen and their governments has meant that, in practice, this regulation is seldom fully enforced and is sometimes completely ignored. Since the modern inception of UN arms embargoes, there have been 502 investigated, documented and publicized allegations of violations of such embargoes, but to the best of our knowledge, there are only two instances where this has led to legal accountability of any sort, and only one of these cases led to prosecution.19

The arms business has a huge impact on the lives of most of the world’s people, not only by fuelling and perpetuating conflict but also because of its profound impact on government, not least of which is the nature and extent of the wars we find ourselves fighting. Its victims include the taxpayers of the countries whose companies produce the weapons, the often more impoverished people of the purchasing countries and, of course, those who suffer at the deadly receiving end of the weapons themselves.

The arms trade – an intricate web of networks between the formal and shadow worlds, between government, commerce and criminality – often makes us poorer, not richer, less not more safe, and governed not in our own interests but for the benefit of a small, self-serving elite, seemingly above the law, protected by the secrecy of national security and accountable to no one.

*   *   *

The Shadow World is a journey of discovery into this powerful, but secretive world.

It begins with an arms company founded by a group of senior former Nazi officers in the aftermath of Germany’s defeat that developed into one of the most nefarious networks of arms dealers the world has known. And it ends with the ill-conceived wars in Iraq and Afghanistan that have been a goldmine for US and allied defence manufacturers, as well as for the shadow world.

Along the way, the book traces the growing wealth of Saudi Arabia and its increasing influence on the global weapons trade, and especially its role in the development of the British defence behemoth BAE via the world’s largest arms contract, the infamous Al Yamamah deal. It looks at how BAE and its US counterpart, Lockheed Martin, consolidated their relationships with governments and intelligence agencies in order to win weapons deals in their home countries, while also using these contacts and dubious agents to bribe their way into spectacularly lucrative contracts abroad.

It tracks the rise of rogue dealers like the Lebanese-Armenian Joe der Hovsepian, and the merging of the state, criminal activity and gun running which reached its apogee with the diamonds-for-weapons transactions overseen by the former Merex agent and Liberian President, Charles Taylor. It surveys the devastation of swathes of the African continent, enmired in seemingly endless civil wars and ethnic conflicts, fuelled by the rapaciousness of the arms trade. And it examines the role of the very wealthiest nations of the world, from Israel to Sweden, in facilitating this trade.

Finally, The Shadow World reveals the current status and whereabouts of the main characters and companies chronicled, before highlighting emerging trends in the arms trade, as well as the prospects for improved regulation, enforcement and accountability.

At our journey’s end, I hope that you might ask whether we, the bankrollers, should not know more, far more, of this shadow world that affects the lives of us all. Whether we shouldn’t demand greater transparency and accountability from politicians, the military, intelligence agencies, investigators and prosecutors, manufacturers and dealers, who people this parallel universe. Whether we shouldn’t emerge from the shadows that blight our world.