Thursday, October 8, 2009

Taiwan Corruption Report Raises More Questions

Defense News


Taiwan Corruption Report Raises More Questions

By Wendell Minnick

TAIPEI — A long-awaited report by Taiwan’s Ministry of National Defense (MND) cites 142 military personnel in cases of alleged corruption, a situation that sources outside the MND say can flourish because of lucrative U.S. arms sales and unregulated local sales agents.

The report comes after calls to investigate a recent scandal in which 29 Taiwan generals allegedly bought their promotions during the previous administration of President Chen Shui-bian, who is now in prison on corruption charges.

The report said 142 military personnel, including 114 generals, were involved in 48 cases of alleged corruption. Defense Minister Chen Chao-min said 19 of the cases were related to procurement irregularities. The MND reviewed 910 personnel cases, more than 3,000 engineering cases, 16,000 procurement cases and 21,000 financial cases covering 20 years.

“I think it’s great that the minister is supporting the investigation, and I hope it’s more than political window dressing or a cleaning out of non-KMT officers,” said a former U.S. defense contractor once based in Taiwan.

There are concerns the return of the Chinese Nationalist Party (KMT) to power after the 2008 elections could result in political retribution against military officials connected to the opposition Democratic Progressive Party.

But the need to weed out corruption in the MND is long past due, said the former defense contractor. “Taiwan’s military has a lot of quality officers, but like all groupings, there are also some ‘less than honorable’ bad apples that detract from all the good the others work hard to accomplish,” he said.

“When it comes to U.S. arms sales, the greatest potential for corruption lies in the payment of commissions, also known as ‘contingent fees,’ associated with a sale,” said a former U.S. government official.

“Commissions sometimes amounting to several million U.S. dollars are paid for contracts executed within both Foreign Military Sales [FMS] and Direct Commercial Sales [DCS] channels.” Many of these “contractors” working for U.S. defense companies in Taiwan are of questionable character with links to organized crime, the former official said.

Others have direct links to political parties and defense officials, who facilitate the approval of certain arms sales that benefit them directly. The result has been a shift away from indigenous production of arms to relying solely on the United States.

The former official blames the U.S. for conducting arms sales with Taiwan in “a manner intended to keep them out of the limelight to the maximum intent possible.”

Part of this has to do with pressure from China. However, with U.S. encouragement, Taiwan keeps “arms sales secret, including in its annual budget submission to the Legislative Yuan,” the former U.S. official said.

Budget line items of U.S. arms sales should be transparent, said the former U.S. official. “This veil of secrecy is the first condition that creates an environment conducive to corruption.”

The other veil of secrecy that should be lifted is the identity of Taiwan sales agents working for U.S. defense companies. There are no public records identifying them, said a former Taiwan defense official, now working in the public defense sector.

The only time a sales agent is identified is when there is an arrest. One case involved Ko-suen “Bill” Moo, who worked for a U.S. defense company in Taiwan.

In 2005, Moo was arrested and later pleaded guilty in the United States for attempting to sell an AIM-120 Advanced Medium-Range Air-to-Air Missile, an AGM-129 cruise missile, Black Hawk helicopter engines and an F-16 fighter jet engine to China.

Taiwan MND officials refused to comment on Moo’s dealings in Taiwan. One MND official said Moo’s arrest had nothing to do with his activities in Taiwan. After all, Moo was “arrested in the U.S., not Taiwan.”

Moo represented U.S. companies working on Taiwan’s Po Sheng Project, a C4I modernization program, and on the Anyu-4 air defense modernization program. No investigative report by the MND into Moo’s possible relationship with China and his access to Taiwan MND programs was ever acknowledged.

“The combination of a negligent U.S. company and an unscrupulous sales agent is a recipe for disaster,” said the former U.S. official.

There also is no transparency in where arms sales commissions go after they are paid to local agents.

“As an exception to a general rule barring ‘contingent fees,’ U.S. fed­eral acquisition regulations allow for large commissions to be paid to only a handful of countries, includ­ing Taiwan,” said the source.

“In effect, this ‘cost of doing business’ takes the form of a U.S. govern­ment subsidy to industry to promote the sales of defense articles and services to foreign customers.”

However, in the case of Taiwan, there is no foreign competition. The United States is the lone supplier, as China has effectively blocked other nations from selling arms to Taiwan. Local sales agents have little to do but collect their fees.

The source said the U.S. government is indirectly encouraging corruption in arms sales to Taiwan. “Uncle Sam should not be a middleman. U.S. federal acquisition regulations should exclude Taiwan from the list of exceptions, which would make contingent fees an unallowable cost that a company would need to bear on its own. This could discourage large commissions.”