Bribes, Corruption Suspected in Greek Submarine Order

by: Matthew Potter
March 30, 2011

Category: Business Line, Companies, Contract Awards, Countries, crime, development program, Events, Germany, Greece, production program, Protest, Services | RSS 2.0

Procurement fraud and outright crimes have afflicted government spending and contracting since the dawn of history. There have been many recent cases of bribery used to affect contract awards or purchasing decisions. This has included elected officials, civil servants as well as company representatives. There are cases large and small from accusations against BAE Systems (BAE:LSE) in a multi-billion deal with Saudi Arabia to a U.S. Army Major who took $200,000 in bribes from foreign companies to give them work in Iraq, Kuwait and Afghanistan.

Foreign military sales has always been one area that in the past has seen rampant bribery and corruption. In the last few decades governments have been cracking down on such practices especially the United States. They have made it illegal to use such methods to help win contracts overseas even if those practices were considered part of the cost of doing business. In 2008 for example Siemens (SI) settled with the U.S. government on charges they used such methods to win contracts.

Now there are allegations that Greek defense and elected officials were bribed to influence the award of a contract for four submarines to a German company. The contract was one of the largest in Greek history and would see one boat built in Germany and the other three in Greek yards.

The Greek government and the manufacturer, ThyssenKrupp, ended up having long running dispute about the quality of the submarine leading to the builder to threaten to cancel the deal outright. Greece then came up with the idea of taking delivery of only the first one and perhaps selling it directly themselves to recover some of the costs.

Greece’s government is suffering from financial and debt issues and the idea that the contract was inflated in cost due to corruption has only added fuel to the fire of disputes between the government and political rivals.

Corruption distorts contracts so that the buyer may not get the best value for what could be limited funds. It also affects the contracting market as it may not allow a company with better products the ability to sell those and they cannot or will not pay the necessary bribes to get the work. As more countries follow the U.S. lead in investigating and ending this type of fraud the overall defense market will benefit. Unfortunately stories like this remain much too common.

Photo from sky#walker’s flickr photostream.

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