“Unethical conduct” in Australia, corruption probes in France, Netherlands, Spain. Yet Thales wins big. Again.
National Anti-Corruption Commission is missing in action right when it is needed most.
Part 2 of 3
French multinational Thales offered a Defence Department official a bottle of champagne as a gift if the Mulwala Redevelopment project (munitions factory) was removed from Defence’s Projects of Concern list.
This offer by Thales was not recorded in the department’s gifts and benefits register.
Defence Department records show that later, in May 2017, when the same Defence official asked Thales for the bottle of champagne, Thales reminded him the offer had been conditional on its removal from the notorious list.
This email exchange was revealed in the national audit office’s scathing 96-page report into the Defence Department’s 10-year, $1.2 billion munitions deal with Thales, released in June.
The auditor-general said the behaviour of the defence official and the Thales executive was evidence of “unethical conduct”.
As reported in Part 1, the Defence Department referred the deal to the National Anti-Corruption Commission which quickly flipped it back, telling the department to conduct its own preliminary investigation. The NACC showed “incompetence” and “poor judgment” because it missed corruption red flags, said former Australian Federal Police investigator and 35-year anti-corruption expert, Chris Douglas.
The Defence Department said its internal investigation was “unable to substantiate the allegation”.
The audit office found that the Defence Department official had also given Thales confidential information during the protracted negotiation process and had then taken up a position with the company shortly before it was awarded the decade-long contract to run two Commonwealth-owned munitions facilities.
Thales remains the sole contractor since 1999 to have run the two facilities, through several contractual arrangements. The Rudd Labor government had tried to introduce a competitive process but that was shut down by the Abbott Coalition government. Thales’ current contract extends to 2030.
The Projects of Concern list was founded in 2008 by the Labor government with the aim of focusing the highest levels of government, Defence and industry on remediating problem projects. The public perception was that defence acquisition projects routinely ran late and over budget.
Defence’s management of probity “not effective”
The auditor-general’s report noted that the Defence Department did not put in place a probity framework until July 2018, nearly two years after discussions began between Defence and Thales on this billion-dollar contract.
“By that stage, some of these probity risks had already crystallised during 2016 and 2017.” These included the sharing of the confidential information and the solicitation of the champagne.
The auditor also raised concerns that some discussions between Defence officials and Thales took place well before final government decision-making and “could have been perceived as committing Defence and government to a course of action that had not been officially endorsed or approved”.
“While planning activities for the procurement had commenced by March 2016, Defence did not implement project or procurement specific probity arrangements until July 2018, more than two years later. … Defence did not clearly differentiate between [business as usual] engagement with Thales and its [separate] procurement planning activities.”
The auditor-general said Defence’s Complex Procurement Guide identified the “inherent” probity risks in a procurement that involves high levels of business-as-usual interaction with a tenderer. “Despite this, the Defence Department did not appoint a probity adviser that was external to Defence for this procurement.”
The report uses the word “unethical” eight times to describe issues with the contract negotiation process.
Thales’ history of corruption and dubious dealings
Thomson-CSF changed its name to Thales in late 2000 to escape the stench of the vast international web of corruption that authorities were uncovering in a major French arms deal with Taiwan in the 1990s. The deal included warships, fighter jets and missiles.
At least US$520 million in kickbacks and bribes, allegedly authorised by president François Mitterand, were paid to members of Taiwan’s political elite to secure the deal. Eight suspicious deaths, including the murder of the whistleblower, were linked to the exposure of the corruption. The investigation continues today. The scandal remains one of the most extensive naval contracting corruption schemes in modern history.
Thales was also part of a complex web of corruption in a 1999 major arms deal with South Africa. Prior to this, the company had for decades supplied military equipment to the apartheid regime in South Africa - supply that continued after the UN imposed a mandatory arms embargo on apartheid South Africa in 1977.
In 2022, Thales confirmed it was being formally investigated by French authorities as part of a long-running corruption probe tied to the 2002 sale of submarines to Malaysia.
In June this year (coincidentally the same month the audit office released its abovementioned report) police in France, the Netherlands and Spain raided Thales’ offices as part of another corruption investigation into two additional Thales arms deals, including for suspected corruption of a foreign public official, criminal conspiracy and money laundering related to a sale of submarines and the construction of a naval base in Brazil.
In Australia, the auditor general’s June 2024 report echoed an equally excoriating report it published in 2018 into the Defence Department’s contract with Thales to manufacture the Hawkei armoured vehicle. The audit office documented many ethical and procedural irregularities in that deal, including that the Hawkei contract failed to provide taxpayers with value for money, a criticism it also levelled at the Thales munitions factory deal.
The Defence Department also conducted its own internal investigation into Thales in 2019 over tens of millions of dollars of alleged fraud in naval sustainment contracts, with BAE Systems also investigated. A Defence Department whistleblower triggered the investigation, which found the allegations serious enough to escalate to the department’s Assistant Secretary Fraud Control and then also to the Independent Assurance Business Analysis and Reform Branch of Defence.
In May 2019, the Weekend Australian published three separate articles detailing numerous specific allegations, including figures. Following the media exposure, the Defence Department said it would conduct a second internal investigation into the matter. The department eventually said its “independent internal review” had found “no evidence of inappropriate excess charges” and blamed “minor administrative issues” for the problems.
The case is the first Australian example of potential arms industry corruption included on the Corruption Tracker website which documents arms industry corruption globally.
Despite the NACC’s still-open investigation, and the ongoing international corruption investigations into Thales, the Albanese government has just appointed Thales a “strategic partner” in the $22 billion Guided Weapons and Explosive Ordnance GWEO enterprise. (More in part 3.)
6.12.24: This article was updated to include the paragraph on Thales’ corrupt history in South Africa.