AMERICA'S ALLIANCE FOR THE 21ST CENTURY

In the midst of the financial bailout by Congress little attention was paid to the fact that Congress ratified a nuclear pact with India, the world’s largest democracy, creating what could turn out to be an important alliance for decades to come. India, like its neighbor, China, is on track to become a superpower and in the eyes of Pentagon planners it will provide a counterweight to Chinese domination in South East Asia.
The nuclear deal will not only allow India to buy fuel from the West for its nuclear power plants but it will end India’s international isolation, which began in 1974 when it shocked the world by testing a nuclear bomb. In the decades since, while the US built close relations with Pakistan, especially after the events of 9/11, it maintained a hands-off policy towards India.
All of that will now change, not just in the field of diplomatic relations but in terms of commerce, military cooperation, the fight against terrorism and the cementing of better relations between India and other US allies in the region, especially Afghanistan and Pakistan. In regards to Pakistan, which has been a bitter enemy of India, particularly over the disputed Kashmir region, the U.S. would like to see a lessening of tensions between the two nations given the fact they have nuclear missiles pointed at each other. From a U.S. perspective, India is about to become an important ally with sufficient economic power to exert greater influence beyond its own borders. It can also help stabilize that part of the world. In addition, Washington would like to see an economic alliance embracing India, Japan and Australia as a counter balance to China’s Pan Asian forum.
America is already India’s largest trading partner but the hope would be that India could quickly increase its 1% share of the huge US market to reduce China’s 10%. The coming together of the U.S. and India could benefit American arms dealers since India is the biggest arms buyer in the developing world. In recent years, it has spent on average $15 billion annually and has the world’s second largest army, amounting to almost 4.3 million personnel with 1.5 million on active duty. Until now, U.S. arms manufacturers had to watch from the sidelines while their competitors in Russia and Israel sold India everything from submarines to aircraft, artillery and surface-to-air missiles. In January, 2007, Israel inked a $300 million deal to manufacture ship-mounted missiles for the Indian navy. That is all about to change. This latest pact will mean US arms suppliers will no longer be hampered by red tape and the requirement of special export licenses, which in the past were always denied.
America’s engineering and nuclear power corporations are thrilled by the Congressional decision because India intends to build at least another 21 nuclear power plants over the next two decades. Companies like General Electric are gearing up to pitch their services to the Indian government in the hope of getting a slice of the approximately $200 billion India will use to construct those nuclear plants.
Military cooperation with India will also be speeded up, thereby creating a new partnership with larger naval exercises larger than the one that took place in 2002 and was codenamed the “Malabar” joint exercises. They were organized at the behest of then Admiral Mike Mullen, Pacific Fleet Commander and his Indian opposite number, Arun Prakash. The two men had formed a close relationship after they met at an Indian Defense Institute in 1979 and with a few years they were telling their respective political bosses that the US and India were capable of forming a powerful military alliance with a1,000 ship fleet to protect the world’s oceans. Adm. Mullen pointed out that Australia and Japan would be happy to be partners in such an endeavor. He stressed, however, that for India to be an integral part of such a force, its weapons’ systems would have to be upgraded and linked to those of the other nations, especially the US. The developing ties between the U.S. and India will now enable that to happen since both nations are conscious that China has expanded its presence in the Indian Ocean, the Pacific Ocean and the South China Sea. Japan has warned Washington and New Delhi that China appears determined to make the South China Sea exclusive to China and that is something, which cannot be allowed to happen. However, the place that most concerns the U.S. and India is the Straits of Malacca, which is one of the world’s busiest and most vital shipping lanes. Like the Suez Canal, it narrows to 1.5 miles in parts, has 5,000 ships a day passing through it and it is the passageway for a quarter of the world’s oil shipments. It links the Indian and Pacific oceans and is vital to China’s developing infrastructure, which needs constant supplies of oil and raw materials that arrive by sea. The Straits waterway is particularly vulnerable to a terrorist attack like the one that crippled the USS Cole while it was moored offshore in the Yemeni port of Aden on October 12, 2000.
India has expressed its hope that the U.S. will replace its fleet of ageing Russian submarines and help modernize its air power and its counter terrorism forces. In the sphere of terrorism, India knows its proximity to Afghanistan and Pakistan makes its teeming masses susceptible to penetration by terrorist groups, including Al Qaeda. The U.S. has warned Indian authorities that they must not only modernize their armed forces components, which deal exclusively with terrorism, but also their internal security apparatus that has shown in the past year that it lacks the hi-tech tools needed to combat home grown terrorists and others are slipping into the country from Pakistan and Afghanistan.
In the wake of the ratification of the pact with India, Secretary of State, Condoleezza Rice, heralded the move as the beginning of a “regional integration strategy,” pointing out that it would not only forge closer ties between India and Pakistan through their closeness to the U.S. but also generate important relations with countries in the region like Kazakhstan. It is the ninth largest nation on earth and is rich in oil and gas. It is bordered by Russia and China, with China anxious to get its hands on Kazakhstan’s energy supplies. When Sec. Rice visited the Kazak capital on October 5, Moscow responded with a blistering attack on Washington, accusing it of trying to undermine Russian influence in Central Asia.
Russia and China have closely followed the U.S. moves to cement an alliance with India. Russia in particular is upset because it has had unfettered access to India’s arms and nuclear markets since the U.S. embargo of 1974. But, from now on Russian companies will have to compete with American, British, Japanese and French arms and nuclear engineering outfits that are more technologically advanced. In effect, Russia’s special Cold War relationship with India has been melted with this latest move by the U.S. Congress. As for China, it will have to face the fact that India, which has always favored closer links to the West and an alliance with the U.S., will speed up its march towards superpower status, enabling it to erode Chinese hegemony in that part of the globe.

U.S. LEADS FIGHT AGAINST BRIBERY ABROAD

While corporate greed on Wall Street has grabbed the headlines in 2008 it has largely gone unnoticed that the United States heads a list of industrialized nations battling to stop conglomerates using bribes to win massive overseas contracts.
According to Transparency International, the United States is one of 16 counties doing all they can to enforce laws to end bribery and corruption, which they claim is a cancerous element in the body politic of too many nations. To the dismay of Washington, three G7 nations, Canada, Japan and the United Kingdom, have low levels of enforcement despite the fact they were among 34 developed nations that joined the Organization of Economic Cooperation and signed a treaty in 1997, pledging to battle the bribery of foreign officials. Not surprisingly, Russia and the two emerging superpowers, India and China have shown no desire to rein in corruption when it involves their country’s corporate energy giants or arms dealers.
According to Transparency International, which monitors global corruption, by the end of 2007 the U.S. was running 103 investigations of American businesses, with some inquiries dating back several years and involving companies like Halliburton, Lucent Technologies, Akzo Nobel, Ingersoll Rand Co., Chevron Corp., Bristow Group, Textron, Vetco International, Baker Hughes Inc and Kellogg, Brown & Root.
In February 2008, the Department of Justice imposed a $26 million fine on subsidiaries of the oil and gas company, Vetco International Inc and followed that with a penalty of $44.1 million imposed against another gas and petroleum conglomerate, Baker Hughes Inc and one of its subsidiaries.
At the center of U.S. anti-corruption efforts is the FCPA, the Foreign Corrupt Practices Act. According to Transparency International, the U.S. is fortunate to have two Federal agencies - the Securities and Exchange Commission and the DOJ - devoted to prosecuting FCPA violators. The DOJ’s role is to counteract foreign bribery, which is a criminal offense, while the SEC ensures that company books and records are not falsified. In effect, this generates a double punch capability and transgressors often find themselves subjected to two investigations. In instances in which the DOJ decides not to prosecute, the SEC often goes it alone and vice versa. Sometimes both agencies go for the jugular. To add to enforcement efforts the FBI has created a new five-person unit to investigate foreign bribery cases.
In contrast to the U.S. determination to go after big companies that break the law, there has been reluctance in some European capitals to resort to tough legal tactics. For example, the UK government used the cover of national security to stymie an SFO - Serious Fraud Squad Office - investigation of an alleged $1 billion bribe to Saudi figures in connection with a $45 billion arms deal between British Aerospace, which later became BAE Systems, one of the world’s largest arms dealers, and the Saudi government. In 2007, the SFO was reported to have been conducting other investigations into allegations that BAE Systems paid bribes in the Czech Republic, Romania, South Africa and Tanzania. Nothing has so far emerged from those investigations. It was claimed in some British newspapers that the SFO was also investigating Chevron Texaco and Royal Dutch Shell for allegedly making improper payments to a Nigerian company, M.E.R Engineering.

The investigative files of countries, which are actively pursuing allegations of bribery, show that many of their inquiries are directed at oil and gas conglomerates and major arms suppliers. Nigeria is a country that features prominently in many ongoing bribery cases because it is a nation rife with corrupt officials. Over decades, its massive oil wealth has ended up in the coffers of international companies and the bank accounts of corrupt officials. As a rule, corrupt officials maintain bank accounts in places like Gibraltar, Switzerland, Cyprus, Monaco, Lichtenstein and the Cayman Islands.
In the majority of cases bribes are paid in the millions and often tens of millions of dollars. A $500,000 bribe would be considered short change when an official has the power to negotiate a contract permitting oil or gas exploration. For international oil giants and arms companies that can make billions out of one or two contracts paying “commissions” is pocket money. In many instances, officials are merely middlemen representing government ministers who prefer not to dirty their hands by directly negotiating the size of bribes.
Halliburton, and its former subsidiary, Kellogg Brown Root, have been and remain the targets of investigators in the US, France, Portugal, Italy, the U.K and Japan. Some of the scrutiny of Halliburton centers on an allegation that between 1995 and 2002 it paid $180 million in bribes related to a liquid gas contract in Nigeria’s Niger Delta. On April 25, 2008, Halliburton presented the SEC with a detailed filing, answering points made by the SEC and DOJ. It referred to the Niger Delta case and to connections between Halliburton and companies being investigated by several European inquiry teams. Like Halliburton, BAE Systems is at the center of a raft of inquiries related to allegations that it paid money into bank accounts held by the late Chilean dictator, General Pinochet and some of his associates. The Czech and Hungarian governments are also looking into commissions BAE was accused of paying when negotiating the sale of fighter jets. In a separate case, the alleged payment of $75 million by BAE to South African government officials in 1999 prior to a major deal on military hardware is still under examination.
Sometimes, major investigations don’t make headlines across the globe. For example, an investigation of a French conglomerate that began in 2004 only hit the headlines in November 2007. The company was the energy giant, Alstom that employs 76,000 people in 70 countries worldwide. The investigation related to the payment of hundreds of millions of dollars in bribes to secure contracts in Asia and Latin America between 1998 and 2003. The scandal came to light during an audit of the company’s book in Switzerland when someone spotted the fact that over $30 million had been paid in commissions through shell companies. When investigators moved in they discovered a slush fund from which bribes were paid into banks in Bahrain, Hong Kong, Liechtenstein, Singapore, Switzerland, Thailand and Uruguay.
The way Alstrom functioned was no different from many corporate giants worldwide. It has since denied wrongdoing and has argued that paying “commissions” was part of doing business. That is not the way the 1997 treaty envisioned how business should be done, especially within corporate giants whose governments signed the treaty.
Nevertheless, it is interesting to see how the Alstrom slush fund operated. The company would often budget that 15% of the value of a contract should go to paying the right people. In one instance that amounted to $200 million, some of which was filtered through off-shore accounts. More than 150 contracts Alstrom signed in Brazil are now at the center of a major investigation of its business dealings in that part of the world.
In India, where enforcement of anti-bribery laws is not a high priority, one case has grabbed the headlines. In 2007, the country’s High Court ordered an investigation of two French companies, Thales/Aramis over the purchase of by the Indian government of submarines worth 2.4 billion Euros. It was alleged that more than $100 million in bribes ended up in the hands of middlemen, one of whom was a senior member of the ruling party.
The sheer scale of the bribery issue worldwide has meant that companies doing foreign business have had to decide whether to be honest and miss out on lucrative contracts or get into the game of bribing corrupt officials to win deals. Transparency International feels the U.S. is setting an example for the rest of the world by tackling the problem head on, using the powers of the Federal Government. But, when members of the G7 like France, Japan, the U.K. and Canada have low levels of enforcement, and when Russia and China show little appetite for combating corruption, the impact of the U.S. effort is likely to be minimized in the longer term.