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The arms industry: an ethical minefield
Several reports have confirmed that banks are heavily involved in the arms industry. With growing military budgets around the world, the arms industry offers interesting investment opportunities. It seems that financial institutions are blindly investing in any project or company offering lucrative prospects. Nonetheless, it is common that the industry operates in clear breach of arms embargoes and arms export control, in turn fuelling numerous conflicts and providing support to oppressive regimes.
Arms trading fosters wars, conflicts, murders and human rights violations around the globe. When it comes to the role and responsibilities of the financial sector, the grave implications of arms trading should taken into account. Among the most serious are:
- Corruption: nearly 50% of the bribes paid worldwide are considered to be linked to the arms trade.
- Unproductive expenditures: several countries in the world, namely some of the poorest, spend more on arms than on health care and education combined.
- External debt: for many indebted countries, a substancial part of the external debt is linked to arms trade.
The financing of arms has direct consequences for people living in many countries, including the violation of their fundamental rights. Moreover, the defence industry is known for its lack of transparency and low sustainability standards. The arms trade is also often linked to other murky operations from the financial sector, like the extensive use of tax heavens. Consequently, any financial institution providing financial services to the defence sector takes serious risks of becoming involved in dubious transactions.
Investments in the arms industry fuel armed conflict and can never be sustainable. BankTrack and its member organisations urge all banks to disinvest from arms producers and to provide full transparency on transactions and clients.
BankTrack scored the bank policies of 49 internationally operating banks in its Close the Gap research. One of the sector this study covers, is the military industry. Please have a look at these pages to learn about bank's arm policies.
Some financial institutions have, under the pressure of campaigns and new legislation, severed their investment relationships concerning weapons producers. The extent to which they exclude arms producers differs greatly, but the general trend is the realisation this topic can no longer be avoided. Some reactionary banks only bring their investment policies in line with new legislation - e.g. by no longer investing in landmine producers - but only applying this policy to a limited number of financial products. Others banks apply improved arms policies to all services and include other weapons like cluster munitions, weapons with depleted uranium, and nuclear arms. Several Italian banks have taken the positive step deciding to no longer finance international arms transactions.
It is not just banks, but also institutional investors, who are fronting up to their responsibility. After a revealing documentary about their investments, several Dutch pension funds have decided to no longer invest in cluster munitions producers. The Norwegian Government Pension Fund also excludes these weapons producers.
Legal initiatives against investments in the arms industry
Research into the investment in the weapons industry reveals that self regulation by the financial sector leads to patchy results. As a result, stemming the capital flow towards the arms industry needs stronger international regulation and widespread national legislation. A government simply cannot allow investments by its resident financial institutions that are in opposition to its principles or policies. During the last years there have been signs that some politicians have taken up this challenge.
In February 2007 after years of campaigning by Netwerk Vlaanderen, the Belgian Parliament voted a law forbidding any investment in cluster munition producers by Belgian financial institutions. The law states “Financing a Belgian or foreign company active in production, usage, repair, offer, sale, delivery, import, export or stocking of submunition in the sense of this law, is also forbidden.” The law also instructs the Belgian government to produce a list of cluster munition producers. Belgium is the first country banning investments in cluster munitions.
In July 2005 a European Parliament Resolution “calls on the EU and its Member States to prohibit through appropriate legislation financial institutions under their jurisdiction or control from investing directly or indirectly in companies involved in production, stockpiling or transfers of anti-personnel mines and other related controversial weapon systems such as cluster sub-munitions". This resolution forms the perfect starting point for national legislation against investments in weapons producers and traders.