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Weapons Money Intended For Economic Development Being Secretly Diverted to
Lobbying
Alex Emmons
August 17 2017, 10:22 a.m.
The United Arab Emirates created a “slush fund” using money meant for domestic
economic development projects and funneled it to a high-profile think tank in
the United States, emails obtained by The Intercept show.
Last week, The Intercept reported that the UAE gave a $20 million grant to the
Middle East Institute, flooding a well-regarded D.C. think tank with a monetary
grant larger than its annual budget. According to an email from Richard Clarke,
MEI’s chairman of the board, the UAE got the money from offset investments —
development investments by international companies that are made as part of
trade agreements.
The idea behind offset agreements is simple: When a country buys weapons from a
firm overseas, it pumps a large amount of money out of its economy, instead of
investing in its own defense industry or in other domestic projects. So to make
large weapons deals more attractive, arms companies offer programs to “offset”
that effect. As part of a weapons package, they often sign an agreement to
invest in the country’s economy, either in defense or civilian sectors.
Offsets provide a way to sell weapons at inflated prices, when companies offer
juicier offset packages. Critics say the lack of transparency in how offset
investments are carried out leaves a window open for a form of legalized
corruption. The emails lift a veil on what has long been an obscure element of
the arms trade.
According to an email from Clarke, the UAE accepted unpaid offset obligations
as cash payments to a large financial firm called Tawazun Holding. Tawazun sent
the $20 million to a UAE think tank called the Emirates Center for Strategic
Studies and Research. ECSSR then began sending that money to the Middle East
Institute, a prestigious D.C. think tank that has a history of promoting arms
sales to Gulf dictatorships.
“He said the funds would come from Tawazun, from a fund they had created into
which companies owing offsets could donate cash in lieu of projects,” wrote
Clarke. “He stressed that he did not want us to contact the companies.”
re-offset-graphic-final-theintercept-1502979163 Graphic: The Intercept
ECSSR and Tawazun did not respond to a request for comment from The Intercept.
So essentially, in a roundabout way, the UAE took money from international
firms that was meant for economic development and funneled it to a supportive
think tank in the United States.
The UAE practice of accepting offsets as cash payments is itself unusual, and
referenced in a 2011 WikiLeaks cable from the U.S. Embassy at Abu Dhabi. “There
are also reports,” the cable reads, “as well as anecdotal evidence, indicating
that defense contractors can sometimes satisfy their offset obligations through
an up-front, lump-sum payment directly to the UAE Offsets Group.”
Neither MEI President Wendy Chamberlin nor Chairman Richard Clarke responded to
a request for comment.
Multiple experts in the international arms trade interviewed by The Intercept
expressed shock not only that the UAE accepts offset payments as cash, but that
it funnels them to think tanks overseas.
“I’ve not heard of the practice of offsets being paid in cash before,” said Sam
Perlo-Freeman, head of the Stockholm International Peace Research Institute’s
project on military expenditure. “The actual benefit to the buying country is
that it’s a way of laundering money into a slush fund.”
William Hartung, a widely renowned and published expert on the U.S. arms
industry, said in an email to The Intercept that the UAE’s practice highlighted
the vast potential for abuse in the offset practice.
“Offsets are a common practice in the global arms trade, and they are largely
unregulated,” said Hartung. “I’m less familiar with the idea of using cash
payments, which seem at best a form of legalized bribery. And if the UAE is
truly ploughing some of these funds back into lobbying efforts or funding of
think tanks in the U.S., it seems particularly inappropriate — an egregious
case of foreign influence peddling, indirectly financed by U.S. companies.”
In one notorious example, South Africa was promised that offset investments
would create 65,000 jobs in its economy as part of a 1999 arms deal to buy jets
and naval vessels. Amid widespread accusations of corruption, the program only
created 13,690 jobs — and even that figure was based on estimates that came
from the companies themselves.
Offsets are so rife for abuse that a World Trade Organization agreement bans
them from being used as a selection criterion for trade contracts. But like
many WTO rules, that ban doesn’t apply to the arms industry.
The UAE is a major client of U.S. weapons firms. According to SIPRI, between
2012 and 2016, the country was the second-largest recipient of weapons exports
from the U.S., behind Saudi Arabia.
In 2000, in one of the UAE’s single largest arms purchases ever, it bought 80
F-16 aircraft with advanced missile capabilities, for $8 billion.
Top photo: U.S. Air Force F-16 Fighting Falcon fighter jets, manufactured by
Lockheed Martin Corp., taxi on a tarmac at a U.S. air base in Gunsan, South
Korea, on April 20, 2017.
