Is 3% the going rate for defence contract bribes?

The latest case of bribery and corruption in defence contracts where the numbers have been revealed suggests that the going rate for commissions is around 3% of the contract value for simple component contracts.

In this case as reported by Bloomberg:

Armor Holdings Inc., the military- truck maker now a subsidiary of BAE Systems Plc, agreed to pay $16 million to resolve U.S. claims it bribed a United Nations official to win contracts connected to peacekeeping missions.

The company will pay $10.3 million to resolve criminal allegations and $5.7 million to settle related civil claims, the Justice Department and Securities and Exchange Commission said in separate statements today. The violations of the Foreign Corrupt Practices Act, which began as early as 2001, took place before BAE bought the company in 2007, prosecutors said. …..

The criminal probe by the Justice Department was settled with a non-prosecution agreement that cited the company’s cooperation and internal investigation in the case. In settling the SEC claims, Armor didn’t admit or deny the allegations.

The Justice Department said Richard Bistrong, who worked in Armor’s international sales unit, and another unidentified executive arranged for the UN agent to receive more than $200,000 in commissions for the 2001 and 2003 contracts. Bistrong pleaded guilty last year to bribing UN and Dutch officials to win body armor and pepper-spray contracts.

It seems this particular contract for the UN was for $6 million, with a declared profit of about $1 million and with the value of the bribe (commission) at about $200,000. Of course the commissions would have been put down as a cost so the real margin would have been well over 20%. A $16 million penalty might appear to be reasonably and sufficiently painful, but I am quite sure that it is small relative to the profits on all the other contracts which could not be penetrated. The amount is probably considered good value by Armor and their new owners considering the immunity they have gained from further sanctions which would also presumably prevent all other prior contracts from being scrutinised very closely .

British Aerospace Systems, the new owners of Armor, are well versed in the payment of commissions for the winning of contracts. They could probably teach their new subsidiary a thing or two about how to hide commission / bribe payments as legitimate expenses.

Related:

BAE Settles Corruption Charges

Armor Holdings Resolves Enforcement Action / BAE Avoids Successor Liability

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