Damen, the dark side of the Dutch business world

In a country renowned for its ethical spotlessness and strict legal guidelines in business, Dutch shipyards Damen are being singled out, at an alarming rate, for unpalatable business practices. Close to the Dutch Royal house, the company has so far resisted the tidal wave of accusations levelled against it. But if scandals continue to pile up, Damen’s disrepute may be too much, even for the powerful networks it belongs to.

A damning report

Lighthouse Reports, an anti-corruption watchdog based in the Netherlands, recently released its study on Damen business practices, highlighting its obscure methods and tendencies to bribe, in order to win international deals. Its abstract (1) reads: “Damen Shipyards is the leading shipbuilder in the Netherlands with shipyards in 34 countries, revenues of €2 billion in 2017 and it employs 10,000 people. It is a very Dutch success story, owned by the Damen family, who have close links to the Dutch royal family. Despite its reputation at home, Damen now faces allegations of corruption in a number of countries.” Indeed, investigations are now being led in as many as 6 different countries, as reported by the Curaçao Chronicle (2): “These are dubious intermediaries and payments in Sierra Leone, Ghana, Togo, Libya, Brazil and Chile. In response to the findings, the Public Prosecution Service states that it suspects that it has actively, through intermediaries, paid bribes to foreign government officials to obtain foreign (government) orders”.

A rising number of accusations

Over the past few years, Damen was several times placed under scrutiny, namely after refusing to disclose mandatory financial documents (3), within a construction program in Sierra Leone, leading investigators to believe Damen may be hiding illicit payments. Before that, accusations of bribery had surfaced after Damen had sold warships to Chile, through the shady services of a middleman, who eluded legal accountability. In that small timeframe, half a dozen accusations came to light, though none have reached a court yet. The accumulation of clues pointing towards corruption eventually triggered legal action, but only from outside the Netherlands. Reuters Toby Sterling (4) wrote: “Last March, Damen was debarred by the Word Bank for 18 months after a probe by the bank revealed the shipbuilder had acted fraudulently when it failed to disclose an agent and the commission paid to the agent in the tender to supply a fisheries patrol boat under the West Africa Regional Fisheries Programme.” No domestic courthouses have initiated any type of investigation, leaving Damen to continue business as usual.

Business is so good

So far, the wave of legal trouble which is starting to form against Damen had not slowed down its business. With over 2 billion euros each year in earnings, and over 50 companies owned abroad, Damen’s strategic business position was solid and enabled armies of lawyers to repel anti-corruption cases. In recent news, Damen was chosen to build a set of frigates for Dutch and Belgian navies: “The 16 warships consist of four frigates – two for each country – and 12 minehunters – six each – and are estimated to cost about 4 billion euros, which the two countries will share evenly. The frigate program will be managed by the Netherlands, and the frigates built in Dutch shipyards, while Belgium will take the lead for the minehunters”, reports Defense Aerospace (5). It is worth noting that in the case of minesweepers, an open bid was initiated, so as to guarantee the best possible investment. In the case of the frigates, however, a direct purchase was made by the Dutch government, thus sparing the effects of competition to Damen - one of the many advantages of having a powerful influence network...

However, this may be changing, as the Dutch shipbuilder announced entering the red zone for the first time in 15 years, despite naval markets doing well, globally. As reported by World Maritime Views (6): “Dutch Damen Shipyards Group suffered a net loss of EUR 17 million (USD 19.1 million) in 2018 — the first time in fifteen years that the shipbuilder has posted losses.” Is this the end of an era in which Damen could operate, unencumbered, thanks to its political ties?

A strong political line of defense

Indeed, many attribute Damen’s absence from courthouses to the thick power network (7) which the shipbuilder shares with the Royal family. This forms a plausible explanation, according to whistleblowers, as to why Damen has virtually walked away scot-free from all allegations. But this may be changing: the Dutch are notorious for their zero-tolerance for corruption and take pride in their international ranking on the matter. Vikas Shukla, an anti-corruption reporter, commented (8) on the most recent ranking: “The Netherlands scored 82 points on the latest Corruption Perception Index (CPI), same as the previous year. The Dutch nation has managed to reduce corruption by establishing a transparent judiciary and effective anti-corruption programs. The Dutch Penal Code prohibits anyone in the private or public sector to give or take bribes. The Dutch judiciary holds companies liable if their employees working on their behalf indulge in corruption.” As cases continue to be brought against Damen’s business practices, the Royal family may consider the silent partnership politically too risky and withdraw its support. In which case, anti-corruption organizations will have an open road ahead of them to take the shipbuilder to court.

A few clues have appeared recently, suggesting that the Damen citadel may be about to crumble under political and international pressure. Ernst & Young auditors have issued limitations (9) on their annual report, indicating that they are unable to certify Damen’s activities as compliant, in their entirety. The recent raid on Damen is an additional indication that the shipyard may be inches from being held accountable for bribery payments and that accusation may eventually be examined by a judge. Finally, other large operators in the maritime world are pulling away from corruption, such as Maersk, which has issued a powerful report (10) on the state of the industry and its position against corruption. If the naval world does start cleaning up its act, Damen may be questioned among the first. Whether accusation will prove true or false, however, is anyone’s guess.