The Shadow World: Inside the Global Arms Trade

• Introduction
• Remarks
• Questions and Answers

JOANNE MYERS: Good morning. I'm Joanne Myers, director of Public Affairs Programs, and on behalf of the Carnegie Council I'd like to thank you all for joining us.

Our speaker is Andrew Feinstein, and he is the author of The Shadow World: Inside the Global Arms Trade.

With the discussion of his book, we will be joining him on an unusual exploration, which will take us into a world where money, corruption, deceit, and death are commonplace. "It is a world," Andrew writes, "that is inhabited by people who make their own rules, largely unscrutinized, benefiting few, while bringing suffering to many."

During the course of the 20th century, the global trade in arms has fueled conflicts that have cost the lives of over 230 million people. Still, in the first decade of this 21st century, the trade in arms has, if anything, become even more violent, leading to internal conflicts, civil unrest, human rights violations, humanitarian crises, crime, violence, and terror.

In The Shadow World, our speaker reveals the corruption and cover-ups behind weapons deals, ranging from the largest in history between the British and Saudi governments, to BAE's (also known as British Aerospace) controversial transactions in South Africa, Tanzania, and Eastern Europe. Also included are the revolving-door relationships that characterize the U.S. congressional-military-industrial complex and their facilitators.

As you will soon hear, very few of these arms transactions are entirely aboveboard, for even if they are conducted through legal channels, they are undertaken covertly.

It should be noted from the onset that while any discussion of this shadow world raises countless legal and ethical questions, our speaker addresses this subject with moral authority that is rightly his and deservedly earned. Andrew was born and raised in South Africa. He was an ardent supporter of the ANC [African National Congress], and in South Africa's first democratic elections, which were held in 1994, he was elected as an ANC member of Parliament.

Seven years later, he resigned over the ANC government's refusal to allow an unfettered investigation into a multibillion-rand arms deal that was tainted by allegations of high-level corruption. He wrote about this experience in a political memoir, entitled After the Party: A Personal and Political Journey Inside the ANC, which was published in 2007 and became a best-seller in South Africa.

He is also a founding co-director of Corruption Watch in London.

Since that time, his research has taken him across several continents to expose both the formal government-to-government trade in arms and the shadow world of illicit weapons dealings.

As Andrew takes us inside this world of secrecy and we discover just how pervasive and corrosive the arms trade is, I think you will be surprised at the complex network stretching across the globe and the magnitude of activities fueled by the illicit sale of arms.

Please join me in giving a very warm welcome to our speaker this morning, Andrew Feinstein.

Thank you for joining us.

ANDREW FEINSTEIN: Thank you so much, Joanne. And thank you so much to the Council for this invitation. It really is a great pleasure and an honor to be here.

Global military expenditure is estimated to have totaled $1.6 trillion in 2010—that's $235 for every person on the planet. Today the United States spends almost $1 trillion a year on national security, with a defense budget of over $703 billion, its highest since the Second World War. The trade in conventional arms, both big and small, is worth, on average, around $60 billion a year.

It is my contention that this expenditure has profound impacts on the world, from the enabling, fueling, and perpetuation of conflict, to the corrosion of democracy in both buying and selling countries, and the massive opportunity costs in terms of socioeconomic development in emerging countries and, I would argue, the prosperity and well-being of ordinary taxpayers in more advanced economies.

What has become apparent to me since being thrust into this world that 12 years ago I knew absolutely nothing about, is that arms deals stretch across a continuum of legality and ethics, from the official or formal trade—sometimes described as the government-to-government trade—to the gray and the black markets—the black market being where deals are entirely illegal in both conception and execution, what I refer to as "the shadow world."

In practice, the boundaries between these three markets are extremely fuzzy. They are often intertwined and dependent on each other. With bribery and corruption commonplace, there are very few arms transactions that do not involve illegality, most often through middlemen, described in journalistic literature as "arms dealers," "arms agents," sometimes "arms brokers."

Many of these dealers who provide services to large defense companies and governments do so while continuing to operate in the black and gray markets.

In a remarkable piece of work [The Hidden Market: Corruption in the Global Arms Trade], a gentleman by the name of Joe Roeber, at the time with Transparency International in London, obtained information from a number of treasuries around the world, a number of intelligence agencies, and calculated that the trade in weapons accounts for almost 40 percent of all corruption in all global trade, a business with sales, on average, of $60 billion a year—40 percent of all corruption.

As I was doing this work, the question that kept on recurring to me is: Why is this industry so prone to corruption on such an enormous scale?

I concluded that it is built into the structure, the very DNA, of the trade. Put simply, in the formal trade, in which only a few deals a year happen, which are often worth tens of billions of dollars—so of huge import both to the governments behind them in terms of foreign policy, but also to the defense contractors involved, whose future for many years can be determined by the winning or losing of one of these deals.

And then, the reality that in the buying countries the decision on what to purchase and from whom is often made by an extremely small number of people. In the research that I did in developing countries, the average number of senior politicians and officials involved in the final decision-making on multi-billion-dollar arms deals was six, half-a-dozen.

And, given that all of this takes place behind a veil of secrecy required by national security, one has the perfect conditions for large-scale corruption.

This corruption, and as much the efforts to conceal the corruption, undermine the rule of law in buying and selling countries, distort the market, pollute the business environment, the political process, and the effective functioning of the state.

I experienced these impacts firsthand in South Africa. I was extremely privileged to serve in the first democratic government in South Africa under Nelson Mandela, where my primary responsibility was the drafting of legislation to create a framework for the managing of public finances.

In late 1998, as Nelson Mandela was preparing to step down from public life, and his successor, Thabo Mbeki, had taken over the reins of control of the ANC a few months before being elected president of the country, Mbeki drove a process in which South Africa concluded an arms deal the costs of which, by the time the contracts are concluded in 2018, will amount to $10 billion. Three hundred million dollars in bribes were paid to the defense minister, his political advisor, the head of procurement in the South African Defense Force, a number of other senior officials and politicians, and, sad to say, just under half of those bribes went to my own political party, the ANC, itself.

So when I was reelected to Parliament in 1999 and worked on the national media campaign, little did I know that that election campaign was funded through the proceeds of these bribes.

It's also important to note that these deals were concluded at a time when then-president Mbeki was telling South Africa that the state could not afford to provide antiretroviral medication to the over 5.5 million South Africans then living with HIV or AIDS. In a study undertaken by the Kennedy School of Government at Harvard, it was conservatively estimated that in the five years following this arms deal, 355,000 South Africans died avoidable deaths because the state claimed it could not afford to provide them with life-saving medication.

In addition to this human tragedy, in order to cover up the corruption, the leaders of the ANC, many of whom had sacrificed so much and displayed remarkable courage in overcoming apartheid and in building South Africa's first democracy, were prepared to undermine the very democratic institutions they had created in order to prevent exposure of this corruption.

In Parliament, where I was at the time the ranking ANC member on the main financial oversight body, known as the Public Accounts Committee, when this matter was presented to my committee by the equivalent of the inspector general in a report, I was called in by the presidency after we had held our first public hearing on the matter, and I was instructed to close down any parliamentary investigation. I was told that we would deal with the matter internally within the party, rather than publicly in Parliament.

I refused. I was given the choice of my loyalty to the party I had joined in my teens in a squatter settlement outside Cape Town when it was still a banned organization, and the oath that I had taken to the South African Constitution when I was sworn in as a member of Parliament.

As I continued to refuse to stop any investigation, I was removed from the committee. But, as a member of Parliament, I was still allowed to go to any committee meetings that I wished to. So I continued to go to meetings of my former committee and to ask questions about this deal and an investigation into it.

Something of a pantomime developed, wherein as I would leave the committee room twice a week, there would be two government whips waiting for me at the door who would start yet another disciplinary proceeding against me. This continued for a few months before I was informed that, in terms of South Africa's 100 percent proportional representation constitutional system, I would be removed from Parliament.

I resigned two days before that removal was due to take place and started research for my first book, which dealt with that deal and its impact on South Africa.

But it wasn't only Parliament that was undermined. The institution, a key check and balance, has become nothing more than a rubber stamp to the wishes of the executive. They still in the ANC caucus refer to "being Feinstein" for anyone who votes against the party or raises issues that the leadership is unhappy with. Sadly, it happens very seldom.

But it was also, for instance, the country's prosecuting authorities that were undermined. A constitutionally independent body was called in by the president and told exactly who and what they could and could not investigate. There was one simple criterion: if you were involved in corruption in the deal but you were a political ally of the president, you could not be investigated; if, however, you were a political threat to the president, the investigators could make hay and present the public with some sense of activity on the matter.

Therefore, our current president and then-deputy president, Jacob Zuma, was the subject of investigation—quite rightly, too—but so should the minister of defense, his advisor, and various others.

Ten days before he was elected president of the republic, Jacob Zuma had 783 counts of corruption, fraud, and racketeering in relation to this deal dropped. The prosecutor who dropped the charges was made a High Court judge three weeks after the election.

The country's two anti-corruption bodies were both disbanded, one immediately when the issue became public, the second a few years later for being a little too vigorous in pursuing Mr. Zuma.

And, sadly, Kgalema Motlanthe, the country's current deputy president, and perhaps the ANC politician today most closely associated with Nelson Mandela and his generation of leaders, just a few weeks ago lamented that both government at all levels and the ANC are drowning in a sea of corruption, the seeds of which were sown by this arms deal. It was the point at which a remarkable liberation movement lost its moral compass.

When I left South Africa after resigning from Parliament, I started to explore not just those who were corrupted, but those who do the corrupting.

In researching the United States and its role in the arms trade, it was interesting to me to note that during the 1960s, the 1970s, and most of the 1980s the U.S. led the way in terms of corruption in foreign arms deals, employing agents from the extreme of perhaps the leading mafiosa in Japan, a gentleman by the name of Kodama, also known as "the monster," to the husband of the Queen of The Netherlands, who was an agent for both Lockheed Martin and Northrup Grumman at the same time (the companies didn't know this for many years) and who was paid millions of dollars to try and persuade European governments to buy from the companies.

But as a consequence of the Foreign Corrupt Practices Act, toughening-up of the act, and far, far tougher enforcement, starting particularly in the early 1990s, it became far more difficult for American defense contractors to engage in corruption in foreign deals. It's not that it doesn't happen at all, but it has become far less commonplace than it was.

Instead, where so much of the arms trade and what is wrong with it is reflected is in the domestic U.S. weapons procurement system, where—and I say this advisedly, as an outsider, as somebody who spent my years in public life creating public financial management frameworks—the system to me is built on a circle of patronage between defense companies, lobbyists, lawmakers, the White House, and the Pentagon, a scheme of mutual back-scratching that doesn't break U.S. law but that a senior Capitol Hill staffer who had worked on committees involved in the procurement process for over two decades described to me as "a system of legalized bribery."

Its consequences are often inordinately expensive weapon systems that are sometimes inappropriate to the country's defense needs, on occasion don't perform as promised, and, inevitably, are delivered years, sometimes decades, late.

The Pentagon officials who make the decisions about what weapons projects to embark on and whom to purchase them from have an inherent need to keep the defense contractors on-side, reflected by the fact that in 2010, 84 percent of the most senior generals and officials who retired from the Pentagon went to work for defense contractors in senior executive positions—the very companies to whom they had been awarding contracts during their careers.

Lawmakers enjoy significant campaign contributions from the defense companies and their employees, in addition to which, on the major contracts, there are promises of jobs in virtually every congressional district—and, as I discovered, those jobs sometimes constitute two or three people sitting around a table doing nothing in particular. But it makes it extremely difficult for a lawmaker to vote against a weapons project and face the opprobrium that follows when they are labeled as voting against jobs for their own districts.

How else but in terms of the circle of patronage could one explain the folly that is the F-35, the most expensive jet fighter ever built? The current estimate is that it will cost the American taxpayer around $382 billion. Some defense financial analysts suggest that that cost will increase by between 25 and 30 percent by the time the first jet is delivered.

Now, this is a jet that would have been useful during the Cold War but is largely irrelevant to the conflicts in which the United States finds itself engaged today and, according to the country's intelligence agencies, is likely to be engaged in for the next few generations.

A former Pentagon aerospace engineer described it in terms that I won't repeat in this morning's breakfast, but claimed it was far worse than the planes it is supposed to be replacing.

When I started to get this sort of information about these projects from a range of sources, I thought to myself, "Well, at least there must be the appropriate checks and balances. There's got to be some underlying reason why these projects are happening."

I was truly shocked to discover that the Pentagon, the biggest employer and the biggest spender in the U.S. government, and therefore possibly of any government department anywhere in the world, has not been audited for well over two decades.

Congress insisted that the Pentagon make itself audit-ready by 2014. Earlier this year, senior officials appeared before a congressional committee to inform the committee that they will miss that deadline but that they hoped to be audit-ready by 2017.

And this, I remind you, is the formal or clean trade in weapons. But the reality is that this formal trade, this government-to-government trade, also supports the black and the gray trades.

Viktor Bout, the Russian "Merchant of Death"—although he is one of hundreds, if not thousands—was, in a rare victory for those working to clean up the illegal trade in arms, convicted in a New York court just a few weeks ago. It was a great moment.

But it was also a puzzling moment, because between 2003 and 2005, while an Interpol warrant for his arrest issued by the government of Belgium was in place, Bout made tens of millions of dollars—one person calculated $60 million—in transporting equipment, weapons, and ammunition to Iraq on behalf of the U.S. Department of Defense.

I've tried to interview a number of so-called illicit or illegal arms dealers. I tried to speak with Bout, unsuccessfully. Probably 90 percent of them didn't want to have anything to do with me, unsurprisingly.

But there were a few exceptions: Count Alphonse Mensdorff-Pouilly in Vienna, Austria, BAE's main agent on a series of five corrupt transactions in Eastern Europe.

And then I read in a Commission of Inquiry report of a man who was described as "the scariest human being on the planet" by someone who had dealt with him, a Lebanese-Armenian gentleman based in Beirut. I spent months searching for him. I thought, "This is a guy who has never been interviewed, his name never comes up in the annual reports of the Stockholm International Peace Research Institute [SIPRI], the gold standard of arms trade work."

Eventually, after highly frustrating months, I was in Cape Town with my sister and her family and I was telling them of this man I was trying to find. My then-14-year-old niece said to me, "Well, why didn't you look on Facebook?" [Laughter]

I said to her, displaying my own ignorance at the time—a few years ago, in mitigation—that "I thought you had to be under 16 to use Facebook." [Laughter]

So she took me to her computer, she developed a very basic Facebook page for me, I typed in the name "Joe Der Hovsepian"—and, sure enough, there he was. He was 77 at the time, wearing a Stetson hat in his photograph.

So I emailed him and asked to speak to him. In this world of Google and the Internet, one has to be completely up-front about what one is doing, because anybody can Google you, especially if they're on Facebook.

I received what was effectively a one-line reply, which said something along the lines of, "In my long life I have never done anything for nothing, and I have no intention of changing."

I thought, Well, what can I offer him? I realized it certainly wasn't money. But perhaps flattery would do the trick. So I wrote to him for months and months and months. Every time I met anyone involved in the industry, I'd send him an email to say, "So-and-so says that you more than anyone alive is the person I need to talk to about the global trade in arms."

Eventually, after I'd almost forgotten about him—I was sitting in my little office in north London, and my cell phone rang. A very Germanic-sounding voice said, "This is Der Hovsepian. I'll be at my office in Amman, Jordan, on Sunday. Come and have a chat."

I was so excited that I immediately booked the plane ticket, rushed home to pack a bag and to tell my wife that it was all completely secure, and then spent six hours en route to Amman, which I had never visited before, wondering just how secure it was and whether it wasn't something of a setup.

I arrived at my hotel in Amman, and I went to a very bemused concierge and I said to him, "Could I take your cell number? I'm meeting a man who I don't really know and I'm a little concerned about the meeting. I will text you every half an hour, and if you don't hear from me for over an hour, please phone me. And if I don't answer my phone, please come to this address where I'm supposed to be meeting him." He just laughed at me. But he agreed.

So I went to meet Joe, who was sitting in his very plush office—he has eight or nine offices around the world—still wearing his Stetson.

He told me about his extraordinary career in the illegal arms market, how he had started off with a German company called Merex, formed by a former senior Nazi officer called Gerhard Mertens, whose first deals were done with the support of German and U.S. intelligence in the early days of the Cold War, who used a string of former senior Nazi officers, including, for two-and-a-half years, Klaus Barbie, "the Butcher of Lyon," as arms agents.They also had on their books a few decades later Charles Taylor, the Liberian dictator, and his brother Bob.

He told me that once he had split from Mertens—who did him out of a million dollars on some deal or other—the number of UN arms embargoes he had broken in the Balkans, in apartheid South Africa, in the Middle East—pretty much wherever there was conflict and wherever there was an embargo.

With the help of an academic from British Columbia, I have calculated that there are about 502 recorded violations of UN arms embargoes. Only one has ever resulted in a court case, and the person involved was acquitted.

But Der Hovsepian must have been involved in quite a few of those 502. I think he thought now, having reached the age of 78, that it was time that he got recognition for the good work he had done in the world, for, in his own words, everything he has done has been "in defense of humanity." "I have armed the powerless to bring peace," he said to me.

And then his party trick: he took from his desk drawer his contractor ID for his work in Iraq and Afghanistan for the U.S. Department of Defense and two of the U.S.'s largest defense contractors, and then the tags for his work for USAID [United States Agency for International Development] in Iraq and Afghanistan and Liberia.

The unintended consequences of the arms trade—blowback, as Chalmers Johnson called it—which we have seen in Egypt and Libya over recent months—where, in the case of Libya, since 2003 and the rehabilitation of Muammar Gaddafi in the eyes of the West, the countries of the European Union, Russia (a longtime salesperson to the regime), and the U.S.A., bought Colonel Gaddafi more weaponry than he had the military personnel to use.

So an enormous amount of it was, quite literally, just stockpiled in warehouses that, during the transition, were no longer guarded. So an enormous amount of that weaponry has already found its way onto the world's black or illegal market in weapons.

So if you have $50,000 to spare and an axe to grind, there are places on the periphery of Egypt, on the periphery of Libya, where today you can pick up a surface-to-air missile that is capable of taking down a commercial jet airliner. And the irony of NATO forces bombing in support of the rebels was that they had to destroy a lot of the weaponry that their own member states had sold to the Gaddafi regime, helping keeping him in power.

And let us not forget the fiscal consequences—whether, with the levels of wastage that occur in this industry, the levels of corruption, it can be justified to spend $1.6 trillion on national security at a time when the basic human security of many Americans is under threat like never before, or at least since the 1930s.

Or the case of Greece today, where hospitals don't have sufficient bandages, sufficient inoculations for babies and children. But the governments of Germany, France, and the United States, the largest suppliers of weapons to Greece, are, according to recent reports by a number of Greek economists, insisting that the transitional government doesn't drop defense spending by a single penny.

There is something that we can do, in conclusion. Currently, the United Nations, as the ambassadors will know, is negotiating an international arms trade treaty.

Now, there is a possibility that that treaty will be so weak as to be nothing more than an endorsement of the existing status quo of the arms trade. But there is also the possibility that, with political pressure, besides human rights criteria, socioeconomic development impact criteria, the treaty could include strong anticorruption measures, demands for transparency in the use of middlemen and agents through whom these bribes are paid, harsher penalties for those who transgress, including debarment and the prosecution of individual executives.

As we meet here this morning, the United States is about to sell $60 billion of weapons to Saudi Arabia, who were the recipients of the largest arms deal in history, a £48 billion deal between the United Kingdom and the Kingdom. Six billion pounds of commissions, what ordinary people understand as bribes, were paid on that single deal.

And the deal is still possible, despite attempts to halt it, to sell $53 million of equipment to Bahrain [from the United States], where over two dozen health workers are currently in jail because they provided medical assistance to those protesting the regime's nature.

More than ever before, the words of the not-uncontroversial anthropologist Margaret Mead have relevance: "Never doubt that a group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has."

Because if we simply accept the status quo as unchangeable, the trade in arms will continue to make the world a poorer place, a less democratic place, a more corrupt place, and, perhaps most ironic of all, a more dangerous place.

Thank you very much.

Question: Susan Gitelson.

Thank you for being so brave—let's hope that no one wants to attack you personally—and for giving us this devastating report.

Immediately it comes to mind what can be done, and whether the current economic malaise, for example, could help us, because, with the supercommittee and everything else, there is a chance that the Pentagon's budget will be cut.

ANDREW FEINSTEIN: Yes.

QUESTIONER: Now, every defense minister will always say, "Oh no, I'm defending the country. You cannot reduce the budget. We need every dollar or pound or peso," whatever it is.

But now we are really in dire straits and, as you were mentioning, there are a lot of people without jobs and many infrastructure needs. Similarly, in Europe there are very serious economic problems, beginning with Greece. Would you give us further thoughts about how this can be controlled?

ANDREW FEINSTEIN: In the time that we have, I'm not going to talk too much about the EU fiscal situation, because that's a whole conversation on its own. Like many white South Africans of my generation, I studied for far too long to stay out of the apartheid military, so I have a whole host of degrees in economics and have very strong views on what is happening in Europe and some of the remedies that are being proposed. But perhaps we can talk about that informally afterwards.

In terms of the supercommittee, let's take the best-case scenario. There are many who watch Capitol Hill who are concerned that any meaningful cuts to the defense budget are unlikely.

There is very interesting work done by a gentleman called Winslow Wheeler at an organization called CDI [Center for Defense Information]. You can find links to all these organizations on the website theshadowworld.com under "campaign." He has done calculations that if the worst case of defense cuts from the Pentagon's perspective do take place, the United States during that first budget year in which the cuts take effect will spend—and I might be a little out on the figures—around $474 billion that year on its budget.

The second biggest spender will be China, if certain proposed increases to defense spending do take place—and those are under debate, we believe, in the Party in China. They will spend $114 billion in the same year. So it gives you some sort of indication.

My sense is that what needs to happen in the United States is that there needs to be a rethinking about the strategic focus on militarism and a far more transparent, and I would argue honest, analysis of what a lot of the money is going to.

I report in the book on, obviously, the Iraq and Afghanistan conflicts and the practice of reset, in terms of which every military unit is able to replenish its equipment. It is staggering the costs that have been added to the war bill as a consequence of that practice and some inappropriate activities within that practice, including—and this has been identified—asking for the replacement of equipment that never existed but that those particular branches of the military have wanted for a long time.

So I think that there is an overall rethink that needs to take place, in short.

QUESTION: Don Simmons is my name.

Part of the trade in arms includes that in nuclear material and hardware and know-how. What portion of the trade would you say is in that category?

ANDREW FEINSTEIN: The book deals primarily with the trade in conventional arms and any deals with nuclear weaponry insofar as they intersect—so, obviously, some activity over the past 15 years in Pakistan, for example; the Iran situation, obviously; the relationship between Israel and apartheid South Africa on nuclear weapons.

It's incredibly difficult to put a figure on it, but the $60 billion figure that I gave you is just conventional weapons, and that does not include the black or gray markets. Those are only figures reported by governments. My instinct would be that you are probably talking about somewhere between 35 and 50 percent of that figure sold in nuclear matters.

But the one thing that has struck me about the trade in nuclear components is that some of the very same dealers whom I have investigated—a chap called Nicholas Oman, a Slovenian who sold to every side in the Balkans conflict and is now in jail in Australia for pedophilia—so generally a lovely chap—did a deal to sell nuclear material to a Russian nationalist leader who is still a member of the Russian Parliament today.

He provided this material, something called red mercury, which, according to the buyer, didn't work. I'm not sure how he tested it. But Oman took the money anyway. The buyer then sent somebody to get the money back from Oman. Oman persuaded the emissary to take half of the money and let him go, which is when he fled to Australia. The emissary returned to his boss and was murdered.

So the trade in nuclear weapons isn't that different. So when we think about the Irans, the North Koreas, of this world, the ease with which they can obtain material is truly frightening. That is because of what we have allowed to take place in the illicit trade in weapons, both conventional and nuclear.

QUESTION: Susan Rudin.

I was shocked to hear that the Pentagon has not been audited. How can they cut a budget if it hasn't been audited for years, and why isn't this far more public? Nobody has made any comment about it in the newspapers. I don't know whether anybody else knew about it.

ANDREW FEINSTEIN: The extraordinary thing, Susan, is that obviously some of the information that I have in the book, especially about the illicit dealers, has never been in the public domain. I managed to source huge archives, just one of which, relating to a Ukrainian-Israeli arms dealer who went on trial in Italy, and the trial was very quickly dropped—but they had been investigating him for over five-and-a-half years. The full archive was made available to me because of the frustration of the investigators when the trial was dropped.

There is, however, a lot of information in the public domain. But it doesn't have profile. It is not given the sort of attention that it deserves.

There are obviously some exceptions, some great investigative journalists around the world who do work on this area.

This is the first book on the global arms trade, besides a textbook that came out four years ago that doesn't deal with the illicit market, it just mentions it, since Anthony Sampson wrote a book called The Arms Bazaar in 1977. I'm aware of two writers, just in the UK, who have written books on the trade that when their publishers legaled the manuscripts they decided not to publish.

It is a very difficult area to write about because of the national security blanket in which it is encased. And there is very little reception for these sorts of issues.

Why? I think for a number of reasons. Particularly post the 9/11 tragedy, to question issues of national security, which have become, if anything, more and more secretive, is just not the thing to do.

People who worked on these issues historically, the majority of them ran out of funding years and years ago and have had to either find a niche to research or have gone into something completely different.

So, for instance, the information about the auditing of the Pentagon is in the public domain. It's not something I discovered. It was something that was new to me. But it was reported in the media in this country. It just didn't make great headlines because it's not new, it has been going on for over 20 years.

That is part of the reason why I have written this book, to try and refocus attention on the impacts of the global trade in arms, because I am of the view that we need a trade in weapons—the reality of the world we live in is that it is incredibly unstable—but that what we desperately need is a more transparent trade in weapons, because at the moment the veil of national security-imposed secrecy is used to hide what is often criminal behavior, and that we need an accountable and more honest trade in weapons so that they serve our national security and defense needs rather than the needs of the middlemen.

QUESTION: Richard Valcourt, International Journal of Intelligence.

I have to take full exception to you right now. There have been literally dozens of books written about the arms trade in recent years, in the last two decades or more, whether about Viktor Bout or Gerald Bull or Ed Wilson or many others, and also about the whole Pentagon situation. So you can fill almost a library shelf or several shelves with these books. And there's always something new coming out.

I think also you have to separate between the Defense Department budget and contractors and so on and the other aspect that you really kind of diverted yourself from, and that is the illegal international trade in weaponry. Those are two separate elements.

I think when you started talking about corruption and so on and the use of the shipping and selling of weapons illegally, then that's a whole different area.

You looked upon pretty much the Western trade, whether European or American. There have been loads of prosecutions over the years for indulging in this kind of trafficking. However, you did not look terribly closely, I think, at what the Chinese have been doing and the Russians have been doing and the Soviets before them and the Czechs, particularly on your continent, Africa. Why didn't you go into those areas?

ANDREW FEINSTEIN: Because I only had 30 minutes to speak in and it's difficult to compress a 600-page book with almost 3,000 footnotes into a 30-minute presentation.

Richard, I'm going to take issue with you in turn. There have been books on individual arms dealers, on individual companies. There is a brilliant book by someone called Bill Hartung that came out in 2010 on the history of Lockheed Martin [Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex] that I would strongly recommend to everybody here.

There has not been a book on the totality of the global arms trade since 1977. I invite you not only to look on those bookshelves but also, which is far easier today, to simply Google every publisher's website on the planet. There has been no book on the global arms trade since 1977. And believe me—I've spent over 11 years researching this—if there was one, I would find it.

In terms of China and Russia, I ask you to look in the book. I'll provide you with my contact details, in the hope that once you've read the book you might be back in contact with me and we can talk about some of the issues you raise.

But the principal point I want to make in the time that we have here to respond to you today is that I would have come at this matter from exactly the same assumption that you have made, about separating these various types of trade, the domestic defense budget, the export, international deals, and the illicit trade. That was what I thought was the case when I was sitting in Parliament in South Africa trying to comprehend this industry that had had such devastating impacts on our nascent democracy.

Unfortunately, what became more and more apparent to me is that the linkages between those three trades that I have outlined are profound, and the use by, for instance, the United States Department of Defense and the U.S. defense contractors of some of the most venal individuals operating in the black trade—I won't even talk about the gray trade, in which governments and intelligence agencies are themselves extremely active, which is how that segment of the market is defined—the scale of the use of people who should be behind bars but are protected by governments that use them and intelligence agencies that often use them as assets shocked me to my core.

When I started writing this book, my intention was to write two distinct narratives along the lines that you have been talking about. The narratives collided so often that my plan simply wasn't possible to institute in the narrative.

So I ask you to read the book and then let's be in contact again about the assertion I make.

QUESTION: Tomoaki Ishigaki from the Japanese Mission to the UN.

Fantastic speech. Thank you very much.

You briefly alluded to the prospect for the arms trade treaty that many of us diplomats here are now working on. You mentioned a good-case scenario where we have high standards for corruption and transparency, which we are aspiring for, and also the watered-down scenario. But at the same time we have a dilemma: if we have a high standard, fewer countries will join; if we have a lower standard, of course it is easier, but it is not so practical.

Where do you think we can find the right balance and what would you be advising the diplomats here?

ANDREW FEINSTEIN: I would obviously be hoping and advising that you go for the highest threshold possible and in that way bring moral pressure to bear on countries who do not sign up. But to do that there also have to be enforcement mechanisms, which is crucial.

My real fear is that if it's a very weak treaty, that everybody, including China and Russia, but even some of the new emerging bigger producers, are happy to sign up to, it will be so weak that all it will do is endorse the current status quo, and in fact give it even greater respectability than it has today. That's my real fear.

So I would probably feel more comfortable—and I'm speaking only for myself here, which is the joy I found since leaving formal politics, is that I am able to do that now—that a far higher bar was set, because it then at least establishes a moral standard, which is so necessary at the moment.

The reason why, to give you just one example: The EU Common Position on Arms Exports, which is rightly regarded as perhaps one of the leading agreements on arms exports, came into operation just a few months before the South African deal was signed. It was irrelevant to the South African deal because it does not include government-to-government deals.

When I went to interview one of the countries which has strong associations with the peace movement—I went to interview the regulator of the arms export business in this country. His country had been involved in the South African deal.

I said to him, "Sir, in your position, if a company from your country is shown to have paid bribes on a deal in a third country, will that mean that they are unlikely to get an export license for their next deal?" et cetera, et cetera.

He looked at me as though I was crazy and said to me, "Oh no, oh no. We don't know what the systems of justice are like in these countries we're selling to. So even a court verdict in a country like South Africa won't have much impact on my thinking."

And he went on to say, when I asked him specifically about certain articles in the Common Position, "Look, the reality is that certain of these articles are very difficult to implement. So we ignore them."

So I think we need to establish a moral standard and try to start persuading countries who do not sign up why they should and why they should change the way they operate in this business.

QUESTION: Palitha Kohona, Ambassador of Sri Lanka to the United Nations.

Thank you for your very interesting presentation, Mr. Feinstein. But you dealt mainly with transactions involving governments. But there are also transactions or deals that involve informal arms deals. A huge amount of arms seep into that area.

ANDREW FEINSTEIN: Oh yes.

QUESTIONER: Most of it, we believe, is illegal. Would you have any comments on that?

ANDREW FEINSTEIN: Yes. I've used as an indicative example Joe Der Hovsepian. He has made his fortune—and it's a fairly substantial fortune—primarily in that industry, in selling to less formal entities, even rogue states, because obviously in those situations, and also in conflict situations themselves, a premium can be charged on weaponry.

In a lot of those situations, it tends to be more the small and light arms than the big, more sophisticated items, the fighter jets and things like that. But there are instances where even those are sold on the black market. But that's really what a lot of the black market activity is: It's selling to informal entities, to a variety of types of groups, many of whom are extremely dangerous.

It's impossible to put a figure on quite how big that trade is. I have been trying with SIPRI to do that work, and we think it will take us at least another year to 18 months. So hopefully, a future edition of the book.

But it is worth just mentioning that the trade in small and light arms is about $4 billion a year, which is much smaller than the formal trade. But it has almost as much of an impact because it goes into a lot of the informal conflicts, a lot of the conflicts like on the African continent, for instance, which I go into in a lot of detail in the book. A lot of the dealers—Viktor Bout, Der Hovsepian, and others I name in the book who are currently very active—make their biggest money in those sorts of transactions.

JOANNE MYERS: Well, in South Africa's ANC "Feinstein" may mean something, but here it means something else. I thank you very much for giving us such a wonderful discussion this morning.