Mideast Turmoil Rocks Western Reputations

by Peter Apps

LONDON  - NMS International has taken to hiding its website behind a password and director Louis Oliver gives a false name when he answers his phone.

  The company -- based in the small town of Market Harborough in central England and employing less than a dozen full-time staff -- provided equipment and training to the police forces of Libyan leader Muammar Gaddafi. But after Amnesty International posted video of one of the firm's armored police buses pushing through protesters in Tripoli in the early days of the uprising, NMS became a target for rebuke from British newspapers and activists alike.

It's not the only one. A host of companies piled into the North African country during its rapprochement with the West over the past few years. Now the unrest that has swept Tunisia and Egypt's presidents from power and pushed Libya to the brink of civil war has many western firms, universities, politicians and others scrambling to protect dented reputations.

The Arab uprisings have already claimed foreign scalps. French Foreign Minister Michele Alliot-Marie resigned last week over her ties to the ousted Tunisian regime, and in particular a holiday she took in the country shortly before the uprising. A few days later, the head of the London School of Economics Howard Davies resigned over a 1.5 million pound ($2.4 million) donation from the family-run Gaddafi Foundation.

Some of those caught out seem genuinely surprised. As well as the armored buses, NMS provided Libya with riot shields and equipment including baton guns which fire tear gas, smoke and rubber bullets. The company also used former British police and military instructors to train local police. But Oliver says his company did nothing more than try to help bring Libya in from international isolation and teach its authorities to handle dissent without killing people.

"Everything we did was legal and with the knowledge of the British government," Oliver told Reuters by telephone from the company office. "We never sold anything lethal to Libya or anyone else. It looked like the regime was improving, and it was right to encourage that."

"I HOPE WE HAVEN'T SOLD THEM SOMETHING".

That was then. As the old order unravels across the Middle East, even the most innocuous deal or political friendship can suddenly look like appalling judgment. Rights groups, political dissidents and ordinary citizens in the Middle East and elsewhere have long complained of abuses and repression by security forces, corruption and a lack of democracy. As people have taken to the streets, western allies, backers and suppliers have come into the spotlight.

"Companies and governments haven't been paying nearly enough attention to what has been going on in the countries in which they were working," said Amnesty International's senior director for international law and policy Widney Brown. "We've always known they knew that things were happening -- and WikiLeaks proves it -- but it's often been deliberately ignored."

One official at a western defense firm, who like many interviewed for this story asked not to be named to protect their commercial or career interests, says the public reckoning has people in the industry on edge. "Every time one of these countries goes, everyone starts worrying: 'I hope we haven't sold them something,'" he said.

Reputational damage is notoriously hard to cost. But companies have lost customers and had to change strategy before: Barclays in its dealings with apartheid South Africa, cosmetics companies over animal testing. Gem giant De Beers has spent years working to rehabilitate its reputation after being accused of trading in "conflict diamonds."

Some firms can bounce back -- usually at a cost. Private military contractor Blackwater still has lucrative U.S. government and other contracts after several high-profile scandals in Iraq and elsewhere, particularly around alleged excessive use of force. But to make a break with the past it chose to rebrand itself Xe.

The fallout from recent weeks goes beyond defense firms. Telecoms, banks, construction companies, public relations consultancies, universities and politicians have all received an unwelcome reminder that dealing with authoritarian regimes is a riskier game than they had believed.

"The governments caught up in the recent fuss were not deemed 'dodgy' to most people until very recently," said the chief of one London-based public affairs company. "They were merely places where democracy was accepted as being practiced "differently" and where it was expedient for the old ways to be accepted."

The London School of Economics initially defended its decision to accept the Gaddafi Foundation donation. Gaddafi's son Saif al-Islam attended the school for his Ph.D. and spoke at an event organized by the university. But as the outcry grew, the university asked a senior judge to investigate its ties to Libya. LSE chief Davies -- who had also served as an unpaid economic envoy to Libya as then-Prime Minister Tony Blair led a diplomatic offensive to bring the country into the international fold -- stood down, saying it was the best way to protect LSE's name.

"The reputation of the school is my responsibility and it has, I might say, been damaged," Davies told BBC radio.

PANICKED POLICY-MAKING?

Politicians in Britain and France, too, have faced questions about their relationships with Arab leaders. French President Nicolas Sarkozy and his government have been heavily criticized for sticking with Tunisia's Ben Ali until just before he fled power. Paris then swiftly turned on him, refusing him entry and joining other European nations in locking down his personal finances.

U.S. President Barack Obama's administration was quick to distance itself from Egypt's Mubarak, but Washington has found itself facing domestic criticism over its close ties to countries such as Saudi Arabia. Italian Prime Minister Silvio Berlusconi -- once seen as Gaddafi's closest ally in Europe -- has also moved to distance himself from the Libyan leader.

In Britain, Prime Minister David Cameron has criticized the previous Labor administration's policy of rapprochement with Gaddafi, and particularly the release of the convicted Lockerbie bomber. "While of course it was right to try to bring that country in from the cold. The question is whether parameters should have been put on the relationship," Cameron told parliament in answer to a question on whether dealings had been too close.

But Cameron himself has taken criticism over a recent tour of the Middle East with a group of business leaders including the heads of several arms companies. "This does make (UK foreign secretary William) Hague's strategy of 'commercial diplomacy' more difficult," said one former British diplomat, referring to an approach in which UK diplomats were told to prioritize trade relations and perhaps pull back on criticism over human rights and other issues.

Perhaps hoping to stave off further criticism, Cameron and Sarkozy have been among the most hawkish international voices on Libya, calling for a potential no-fly zone. More hardline voices -- including some who backed the invasion of Iraq in 2003 -- want western powers to go further, arguing that cozying up to dictators has done more harm than good.

"There was huge neglect from Britain in deliberately bending over backwards to accommodate Gaddafi," Daniel Kawczynski, an MP in Britain's ruling Conservative party and sometime Hague adviser, said on the fringes of an event calling for military support for Libya's opposition. "It just shows how oil contracts and business interests have superseded an ethical foreign policy. Britain's reputation has been hugely damaged. We will only know for certain what weapons we sold him once he has been forced from office."

CRUDE CHOICES

How politicians and companies react to the threat to their name depends in part on what sort of investments they have.

When British mobile phone operator Vodafone shut down its networks in Egypt last month on the orders of President Hosni Mubarak's officials, the company claimed it had little choice but to obey instructions.

Vodafone's approach contrasted sharply with that of Google, which worked to find ways around Egypt's internet shutdown. One of Google's regional managers was involved in organizing protests, was detained for several days by security forces and gave a tearful testimony to TV cameras on his release that helped revitalise street protest.

"It's one thing to take a political line if you are Google and don't have much in the way of infrastructure or offices in the country," said Mark Pursey, a former Vodafone spokesman who now runs his own PR consultancy, BTP Advisers. "But if you have thousands of local staff who can be compromised by not following the requests of the government, and heavy equipment and installations that can be seized, it's another question."

Nowhere is that more true than in the mining and oil sector. Oil firm contingency plans have been especially tested in Libya, with hundreds of foreign staff needing rescue from remote desert air strips by Western special forces and Hercules transport aircraft.

With valuable facilities and national staff left behind, experts say the wiser operators will make sure the local population have a vested interest in looking after them. "It's very important to have the local people on side," said John Drake, senior risk consultant for London-based consultancy AKE -- which advises several oil companies. "If you look at what's happened in some areas of Libya, the security staff were from the local tribe and they are still there -- and from what we hear they are still protecting the facilities."

Oil firms have always worked in hazardous places. Much of the world's oil is found in countries known for corruption or autocratic rule or both. Revenues those firms help generate can fund repression and personal enrichment. Should oil companies simply walk away?

Rights groups acknowledge it can be a difficult balance. Even in corrupt, conflict-ridden countries, oil production and other investment can have a trickle-down economic effect, while sanctions and disinvestment can end up hurting those they were meant to protect. And if western firms walk away, then Chinese or Russian producers are likely to take their place. Is it better for a Canadian oil company to operate in Sudan or a Chinese one?

"We only rarely call for sanctions -- usually only when groups within the country are calling for them and we are confident that they are representative," said Amnesty International's Brown. "When firms are directly implicated in abuses, that is one thing, but sometimes they are not. You can't always offer easy answers."