BankTrack.org - pages - Military industry and arms trade

Clusterbomb distribution

what is at stake

The world is awash with weapons big and small. The inherent characteristic of all weapons is that they are designed to kill, maim and destroy. Hence, they threaten the most fundamental human right; the right to live.

Weapons are the necessary prerequisite for waging wars and conflict between states. In 2007, sixteen major armed conflicts were active worldwide, involving the countries Burundi, Somalia, Sudan, Colombia, Peru, USA, Afghanistan, India, Myanmar, Pakistan, Philippines, Sri Lanka, Iraq, Israel, Turkey. These armed conflicts pose a grave threat to large numbers of citizens, particularly women (as specifically addressed by Security Council Resolution 1325).

Non-state actors, like rebel groups, often play a prominent role in these conflicts. This diminishes the possibilities of the international community to hold countries accountable for human rights violations and abuse of civilians.

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States have the right to defend their civilians and their legitimate individual or collective security interests. However, these rights also entail the responsibility to properly control and monitor the transfer and use of arms. In practice, however, governments and multilateral bodies (such as the UN Security Council) have often been ineffective in controlling the international arms trade. Reports of both the Control Arms Campaign and Saferworld reveal how the arms industry exploits existing loopholes to circumvent arms export regulations and embargoes. Therefore, arms trade controls, arms embargoes and weapon licence systems have so far not been able to keep weapons away from dictators, conflicting parties or the worst abusers of human rights.

An additional issue regarding the weapons industry is the relationship between military spending and other expenses, particularly in developing countries. Worldwide military spending averages 10% of national public spending. In developing countries, where there is a greater need for investment in constructive sectors - such as agriculture and food production, education, health care or infrastructure - military spending amounts to 15% of GDP. According to the Human Development Report 2003 of the United Nations' Development Programme (UNDP), military expenditures are therefore a major obstacle to reaching the UN Millennium Development Goals (MDG) for poverty reduction, health care and the protection of the environment. According to the UNDP, attaining the MDG is not possible without reducing military expenditure, since money spent on military development cannot be spent on human development. The detrimental effect of military spending on the MDG is further exacerbated by the costs of debt. Between 15 and 20% of total global debt is related to military expenditure. In many developing countries, interest payments on this military debt far exceed spending on healthcare and education.

Moreover, arms trading often generates corruption--while international arms trade only accounts for 1% of global trading, 50% of all bribes paid worldwide between 1994 and 1999 was related to the arms trade.

Weapons are not only used in wars or armed conflicts. Where people have access to weapons, conflicts between individuals, within families or between groups or gangs tend to be ‘solved' by the use of arms. Eight million small arms are produced every year, and an estimated 650 million small arms circulate in the world today, of which nearly 60% are in the hands of private individuals.

To play a legitimate role in achieving a just, safe and peaceful world, the military industry needs to undergo a profound and structural reform, ensuring that:

No weapons are produced that can not distinguish between combatants and civilians;
The international trade of weapons is strictly controlled and regulated and that weapons are not supplied to oppressive regimes, terrorist groups and parties in open conflict;
Corruption is eradicated and transparency strongly improved;

As long as this profound reform of the military industry does not take place, investments by banks in any military company entail a high risk of supporting (directly or indirectly) corrupt practices, violations of human rights, and the entrenchment of oppressive regimes.

An increasing number of institutional investors are voluntarily adopting restrictions on investments in the military industry. Banks should also carefully reconsider their investments in the military industry. If banks decide not to abstain entirely fro mthe sector, they should very carefully screen companies in the military industry and set strong preconditions for any investments.

selected standards and initiatives

The most important international standards and initiatives relevant for the military industry sector are listed below.

International Humanitarian Law

International Humanitarian Law (IHL) is a combination of leading international agreements regarding the use of arms. IHL is meant to limit the humanitarian damages of armed conflicts. It is intended to protect civilians and restricts the means and methods of warfare. Important principles in this realm are proportionality and discrimination between the military and civilians.

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Specific weapons and arms systems

Over the last decades, various international treaties have been developed regarding the production, use, stockpiling and trade of specific weapon systems:

The Nuclear Non-proliferation Treaty (NPT) of 1970 seeks to inhibit the spread of nuclear weapons;
The Biological and Toxin Weapons Convention (BWC) of 1975 outlaws biological and toxin weapons;
The Convention on Certain Conventional Weapons (CCW) of 1980 regulates conventional weapons that pose special risks of causing indiscriminate damage to civilians or unnecessary suffering;
The Chemical Weapons Convention (CWC) of 1997 bans chemical weapons and requires their destruction within a specified period of time;
The Ottawa Convention of 1997 bans anti-personnel landmines;
The Convention on Cluster Munitions, - which was adopted in May 2008 and signed by 94 countries in December 2008 - prohibits all use, stockpiling, production and transfer of Cluster Munitions that cause unacceptable harm to civilians. The convention also secures adequate provision of care and rehabilitation to survivors and clearance of contaminated areas.

International treaties and national laws on arms control seldom limit banks and other financial institutions to invest in the military industry, but there exist interpretations of the Convention on Cluster Munitions (CCM) that limit investments in cluster munitions. Article 1c of this Convention states that "Each State Party undertakes never under any circumstances to assist, encourage or induce anyone to engage in any activity prohibited to a State Party under this Convention." Hence, the Cluster Munition Coalition argues that the prohibition on assistance includes a prohibition on investments in cluster munitions. Several countries have confirmed this view: Lebanon, Mexico, Norway, Ireland and Rwanda have identified investment among the prohibited forms of assistance. Of the countries mentioned, Ireland, Luxembourg, Norway and the Netherlands have proposed or enacted legislation, and Denmark and Switzerland are discussing this in parliament.

Belgium already adopted a law in July 2004, prohibiting financial institutions to invest in producers of anti-personnel mines. In March 2007, this prohibition was expanded to include investments in cluster munitions producers and in July 2009 expanded to include investments in depleted uranium weapons.

International arms trade

There are various initiatives aimed at preventing weapons from being supplied to repressive regimes, terrorist groups and rebels:

International bodies, such as the United Nations, European Union and the Organization for Security and Co-operation in Europe (OSCE), have the power to enforce arms embargoes against countries or non-state actors. Generally, weapons embargoes are introduced when parties are involved in armed conflict in which serious abuse or violation of human rights occurs.

The European Union recognizes the need for a control system for transaction of arms. The Common Position on Exports of Military Technology and Equipment consists of eight criteria designed to prevent arms transfers from the EU that contribute to human rights abuses or internal repression, or undermine international peace and security or sustainable development. It also contains a set of operative provisions intended to assist implementation by Member States and develop co-operation between them.
In December 2006, the UN General Assembly's First Committee voted overwhelming in favour of the proposal to develop an Arms Trade Treaty (ATT) and in October 2009, governments agreed a timetable to establish a "strong and robust" ATT with the "highest common standards" to control international transfers of conventional arms. Amnesty International has developed the Golden Rule on Human Rights and International Humanitarian Law: "all states will prevent the transfer of arms, including military weapons, ammunition and equipment, where there is a substantial risk that the arms are likely to be used for serious violations of international human rights law or international humanitarian law".
The Control Arms Campaign has published the six Global Principles for Arms Transfers, which are based on international and regional treaties, declarations and resolutions of the United Nations and other organisations. The principles are intended to be model regulations for national legislation.

content of a bank policy

Banks should aim to avoid investments in arms industry entirely. If banks decide not to abstain from investing in the sector, they should at least exclude investing in controversial arms trade, the most controversial weapons, and those banned by the existing international arms control treaties.

Banks should also avoid investment in producers of weapon parts and producers of ‘dual-use' technology (parts of systems that can be used for both civil as military end products). Some institutional investors use a generic approach to exclude the military industry from their investment universe: companies deriving a certain percentage (e.g. more than 50%) of their turnover from military products are excluded. This approach is unsatisfactory, as most of the largest weapons producing companies in the world, including producers of the most controversial weapons, would not meet this threshold.

essential elements

The bank will not invest in companies that:

Produce weapon systems banned by the existing international arms control treaties, including landmines, cluster munitions, chemical and bacterial weapons and also produce nuclear weapons;
Provide weapons to dictatorial, corrupt regimes, terrorist groups and parties in open conflict.

additional elements

The bank will avoid investments in the military industry entirely, including in companies that:

Produce weapon parts and supply those to producers of weapon systems; and
Produce ‘dual-use' technology.

scores

how do we score this?

The bank is active in this sector but has no investment policy for this sector;
The bank:
has only adopted or signed onto a voluntary standard or initiative relevant for this sector; or
has developed its own policy, but it is vaguely worded without clear commitments;
The bank has developed its own policy, that includes at least half of the essential elements;
The bank has developed its own policy and
this includes the essential elements in its lending and investment banking; orthis includes the essential elements in its asset management
The bank has developed its own policy and
this includes the essential elements in its lending and investment banking as well as its asset management; or
this includes both the essential and additional elements in its lending and investment banking; or
this includes both the essential and additional elements in its asset management;
The bank has developed its own policy and this includes both the essential and additional elements in its lending and investment banking as well as its asset management.

Netherlands \| Rabobank	3
Netherlands \| ING Group	3
Italy \| UniCredit Group	3
Belgium \| KBC	2
Canada \| RBC	2
Spain \| BBVA	2
Norway \| DnB	2
Italy \| Intesa Sanpaolo	1
Netherlands \| ABN AMRO	1
Belgium \| Dexia	1
Australia \| ANZ	1
Spain \| Santander	1
Germany \| WestLB	1
United Kingdom \| Standard Chartered	1
Germany \| Deutsche Bank	1
United Kingdom \| HSBC	1
United States \| Citi	1
France \| BNP Paribas	1
France \| Crédit Agricole	1
United Kingdom \| Barclays	1
China \| China Construction Bank	0
Brazil \| Banco Bradesco	0
South Africa \| Nedbank	0
Switzerland \| UBS	0
Australia \| Westpac	0
China \| Agricultural Bank of China	0
Japan \| Mizuho	0
China \| Bank of China	0
United States \| JPMorgan Chase	0
United States \| Goldman Sachs	0
Turkey \| Garantibank	0
Switzerland \| Credit Suisse	0
Denmark \| Danske Bank	0
Japan \| Bank of Tokyo-Mitsubishi UFJ	0
China \| Industrial Commercial Bank of China	0
Germany \| DekaBank	0
Brazil \| Itaú-Unibanco	0
United States \| Bank of America	0
Brazil \| Banco do Brasil	0

analysis scores arms industry and trade

Half of the 49 banks in this research have developed a policy on controversial weapons and trade. ING, Rabobank and UniCredit exclude both controversial weapons and controversial trade. The three banks that are awarded with two points have included restrictions either on the production of controversial weapons or on trade with dictatorial, corrupt regimes, terrorist groups and parties in open conflict. The majority of the bank policies is accredited one point. Some of these banks only mention two of the five weapon systems listed as controversial (e.g. BNP Paribas, Natixis and RBS), some will only finance the trade in weapons instead of trade and production of weapons (e.g. Barclays and Deutsche Bank), and others only apply their restrictions on part of their investment activities (Intesa Sanpaolo and Standard Chartered Bank).