Tuesday, September 15, 2009

U.S. Warns Taiwan: Clean Up Defense Procurement



U.S. Warns Taiwan: Clean Up Defense Procurement


U.S. officials are warning Taiwan that time and patience are running out on defense procurement reform — that Taipei must get serious about fighting corruption and stop using arms deals as political footballs.

“2006 will go down as either the year when the U.S.-Taiwan defense relationship takes a nose dive or the year of recovery. The ball is in Taiwan’s court. More specifically, it is in Taiwan’s Legislative Yuan’s court,” said a senior U.S. defense source in Washington. “In the previous two years, the U.S. took mostly a passive wait-and-see mode. Now there are more talks [in Washington] of taking an active reduction/blockage mode if Taiwan does not do something.”

Taiwanese and U.S. sources said Washington has made its position clear to Taipei.

U.S. officials are frustrated with what they call corruption and political infighting that surround Taiwan’s military acquisition process. They say it is eroding Taiwan’s military preparedness and morale, and becoming a distraction from the Chinese threat.

The senior U.S. source warned, “All of this is happening while more and more people [in the U.S. State Department and Department of Defense] are pushing for opening with the PRC [People’s Republic of China]. Taiwan politicians, focusing only on their own self interests, are playing right into the united front strategy of the PRC.”

Spokesmen for Taiwan’s Ministry of National Defense declined to comment.

Playing Politics

U.S. officials are growing more frustrated by the Legislative Yuan, which has blocked or altered defense-procurement legislation in efforts to embarrass President Chen Shui-bian.

The chief example is the holdup, now four years and counting, of the “special budget” that would purchase submarines, P-3 Orion maritime patrol aircraft and Patriot Advanced Capability-3 missile defense systems offered by U.S. President George W. Bush in 2001.

Taiwan has passed no large procurement budget requests since 2003, when it narrowly approved the purchase of four Kidd-class destroyers. The frustration is shared by the country’s military leaders.

“Since 2000, we were barely able to complete major military purchase budgets for the Kidd destroyers (2002), the Po-Sheng (C4ISR) Program (2003), and long-range surveillance radar (2004),” said the 2006 National Defense Report, released on Aug. 28.

The report said the country’s annual defense budget has ranged from $7.3 billion to $8.5 billion over the past six years, though it is declining in proportion to the total federal budget and gross domestic product.

Now the military is pushing for the procurement of F-16 fighters, P-3 Orions, and attack and utility helicopters, and defense sources are complaining that legislators are already lining up for their cut.

“U.S. government officials leave office to make money in the private sector, but in Taiwan, they enter politics to make money,” complained another defense contractor.

Critics say corruption is fostered by the Taiwanese practice of requiring foreign defense contractors to use local agents. A local Taiwan defense source said he knew legislators who assigned an assistant — or even a team of them — to secure handouts from agents.

A former official for the American Institute in Taiwan, the de facto U.S. Embassy in Taipei, said that “private Taiwan agents working for U.S. companies on contract, who, on their own, pay members of the legislature or military procurement officials or anyone else,” are out of the direct control of U.S. defense contractors.

“However, as everyone knows, this is common practice for European companies and their governments — i.e., France — to pay direct payments to anyone who can help get a contract through,” said the former official.

U.S. defense contractors are governed by the 1977 Foreign Corrupt Practices Act and the 1998 International Anti-Bribery Act, which severely punishes U.S. companies that pay bribes or offer other types of financial incentives. However, local Taiwanese contract agents work without such restraints.

“The problem lies in the fact that many Taiwan agents do not work on a retainer, but instead get a percentage of the sale — sometimes as much as 5 percent. Imagine getting 5 percent for a billion-dollar sale. Where does that 5 percent go? Into whose pockets? There is no transparency,” said another U.S. defense source.

Agents also bribe military officials to craft operational requirements documents to favor their clients, said one source.

“The officers who are clean and want to focus on their work distance themselves from anything remotely connected to that — consequently ignorant of the situation and not seeking to improve it — while the dirty ones who take advantage of it usually can get away with it,” said a Taiwan military officer.

Legislators and agents can further complicate military procurement by killing the program that wins the selection process. Sources say that agents and legislators believe killing a program will give them a second chance to win it in the next round. Unfortunately, it takes up to three years to start over, and the military suffers for lack of essential equipment.

“The Legislative Yuan is a huge part of the problem, and because the system is not transparent enough and the media can easily be spun without any verification, there’s little one can do to fix it,” said the Taiwan defense source.

Many would like to blame one political party, but the Taiwanese defense contractor said both the Chinese Nationalist Party and Democratic Progressive Party (DPP) are corrupt.

“Six years ago, the Taiwanese gave the DPP, the current ruling party, a chance in power, and expect the corruption problem will be improved. In fact, it is getting much worse.”

In 1993, one Taiwan Navy captain, Yin Ching-feng, paid with his life when he attempted to blow the whistle on a kickback scheme involving the procurement of six French La Fayette-class frigates for $2.8 billion.

To make matters worse, some agents are now being accused of selling sensitive information on Taiwan’s defense programs to Beijing.

“One agent is working for three competing defense contractors and makes frequent trips to Beijing for unknown reasons,” said a source.

Another U.S. defense contractor said, “There are shadowy types from Shanghai now in Taiwan working in this area [defense procurement]. They are very quiet and they don’t want to be known.”

Sources say there are fears that an Israeli company has sold sensitive information to Beijing about Taiwan’s new early warning radar (EWR) program.

“An Israeli company is doing all of the software for the EWR program, and it has close business relations with China,” said a source.

There are fears that China could shut down Taiwan’s air defense network without firing a shot, local sources warned.


The problem, sources argue, is that procurement selection is not based on program quality, but on the amount of money paid to officials. All agree that commissions and offsets should be tightly controlled or ended.

“Exposing this issue is the easy part, but the solution is far more complex; it will involve the legislature, press, defense industries, and officers willing to risk and sacrifice. Sad, but I don’t have a solution,” said the Taiwan military officer. •