UK banks invest in cluster bomb manufacturers

A cluster bomb is detonated in the village of Sultaniyeh, Lebanon (AFP/Getty)

British high-street banks, including two institutions that were bailed out by taxpayers, are investing hundreds of millions of pounds in companies that manufacture cluster bombs despite a growing global ban outlawing the production and trade of the weapons.

The Royal Bank of Scotland, Lloyds TSB, Barclays and HSBC have all provided funding to the makers of cluster bombs, even as international opinion turns against a weapons system that is inherently indiscriminate and routinely maims or kills civilians.

One year ago this month, Britain became an active participant of the Convention on Cluster Munitions, a global treaty that bans the use, production, stockpiling and transfer of cluster bombs. Yet there has been no attempt by the Coalition Government to rein in banks and investment funds that continue to finance companies known to manufacture the weapons.

Using a loophole in the legislation, financial institutions can back cluster-arms manufacturers as long as they do not invest in the bombs directly.

A forensic investigation by Dutch arms experts of how financial institutions continue to invest in the industry has revealed that the virtually state-owned RBS is the UK's worst offender.

In October 2010, RBS was part of a banking syndicate that provided the American arms manufacturer Alliant Techsystems with a $1bn five-year credit facility, with RBS itself loaning $80m (£50m). Partially state-owned Lloyds has also invested in Lockheed Martin, the US arms giant that has a long track record of making cluster munitions. And in April 2009, Barclays and HSBC were involved in a major financing deal with Textron, a US arms manu- facturer that builds a "sensor-fused weapon" – the world's most powerful cluster bomb. Alliant Techsystems makes the weapon's rocket motor.

None of these investments is illegal. But they will lead to further concerns about the moral behaviour of the banking industry at a time of public anger over its role in the credit crisis and the issue of bankers' bonuses.

Oliver Sprague, an arms expert at Amnesty, said: "Banks make a mockery of UK law by investing in companies that make weapons that the UK Government and 108 other countries have clearly banned."