Implosion (47 page)

No one claimed that the wrong guns had been chosen – indeed, they have served India well, especially in the 1999 Kargil border war with Pakistan in Kashmir. The alleged crime was that money had been paid to middlemen to facilitate the deal. The accusations were first made by Swedish Radio and became a scandal in that country, which helped to keep the story alive in India where it was led by two campaigning newspaper editors, Arun Shourie of
The Indian Express
and N. Ram of
The Hindu
. It was alleged that Ottavio Quattrocchi, an Italian executive then based in Delhi for Snamprogetti, who with his wife was close to Rajiv and Sonia Gandhi, acted as a middleman in the deal and received kickbacks. Quattrocchi denied this but was behaving at the time as though he had an inside track on fertiliser plant, gas pipeline and other contracts, where Snamprogetti did controversially well. After long legal battles, including attempts to bring him back to India, the inquiries were closed and cases against him were dismissed in 2011. He died in 2013, underlining the closure.
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Unbanned Agents

The specific point on which the Bofors saga blew up was that Rajiv Gandhi, in an attempt to clean up corruption, had banned the use of agents and the payment of commissions on defence deals (though this did not rule out employment of consultants to fix appointments).
⁶⁶

That was, as it turned out, one of his most well-meant but useless moves. Many agents are well-known and are so visible that it makes a mockery of the government’s official line since then that they do not – or should not – exist. Prime Minister Manmohan Singh said in 2006 that, since agents could not be eliminated, they should perhaps be recognized. As increasingly became the case with his remarks, however, no one did anything.
⁶⁷
General V.P. Malik, a former chief of army staff, said that foreign firms in particular ‘needed someone they can authorize and say is their agent’. But the present muddle suits the vested interests, who seem not to want to register and formalize their work. It also benefits other players in the defence establishment – and enables successive governments to embarrass their predecessors with allegations of corruption.

The main agent named in the Bofors case was Win Chaddha and his Delhi-based company Anatronic. Admiral S.M. Nanda, a high-profile and controversial chief of naval staff from 1970 to 1973, who led the bombing of the Pakistani city of Karachi in the 1971 India-Pakistan war,
⁶⁸
was named (though he denied involvement) in the HDW scandal that arose after German officials told India a seven per cent commission had been paid to agents.
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When he left the navy, Nanda headed the state-owned Shipping Corporation of India and then, after retirement, he founded a firm that initially dealt with offshore oil drilling and engineering deals, and later broadened into defence. His companies were called GlobalTech, Crown Corporation and Eureka and he was joined by his son Suresh, also a former Indian navy officer. In 2003, the family bought Claridges, a medium-sized up-market colonial-style hotel in central Delhi for Rs 930 crore (then about $25m) and three other hotels.

Also well known is Sudhir ‘Bunny’ Choudhrie, whose family originally worked with the Nandas and who figured in the
Tehelka
sting. London-based, he has close links with Israeli defence companies and with Russia’s Sukhoi aircraft manufacturer,
⁷⁰
and was named in 2013 in Italian courts as an agent for Finmeccanica on the VVIP helicopter corruption scandal involving Finmeccanica’s Augusta Westland company.
⁷¹
He was one of the early investors in Air Deccan,
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a short-lived budget airline, and in Alpha Technologies, a Bengaluru-based defence equipment manufacturer with Israeli and other joint ventures. His C&C Alpha Group has real estate and hotel businesses.
⁷³
He hit UK news headlines (including a BBC television programme)
⁷⁴
in 2010 for having donated £750,000 to the Liberal-Democratic Party.

Others involved in defence deals include the London-based India-born (originally Iran-based), Hinduja family, whose name was linked to the Bofors and HDW deals, though they denied involvement. In Delhi, prominent names include Chetan Seth, a garrulous Delhi partygoer who is best known as India’s only Cuban cigar importer and runs the Chemon Group that combines a foreign agent’s work with production of defence equipment. They also include Vipin Khanna and Abhishek Verma, who was jailed for two years over leaks from the Indian navy. Verma has since then figured in various defence deals with German, Israeli and other companies and has been charged for revealing secret information.
⁷⁵

In October 2006, the government-controlled CBI raided 35 agents’ premises in Delhi and other cities over a $269m contract placed with Israeli Aircraft Industries for Barak missile systems during the previous BJP-led coalition government. It subsequently registered cases against George Fernandes, the coalition’s defence minister and leader of the small north Indian Samata Party. Also charged were Jaya Jaitley, a close friend of Fernandes and a former Samata president, and Admiral Sushil Kumar, a retired chief of naval staff. The CBI alleged that payments included Rs 20m had been given to Jaitley, and that the admiral had ‘colluded’ by favouring the Barak in preference to the Trishul missile system that was then being developed by the DRDO. The Indian navy was content with the Israeli missiles, and in January 2006 a $350m deal was struck for the DRDO and Israel jointly to develop a long-range Barak air defence system for use by the two countries’ navies.
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‘In addition to long-existing networks with names like Khanna, Nanda and Choudhrie, foreign agents have flourished for decades, fattening on the capital city’s cocktail circuit in apparent disregard of visa regulations or immigration controls,’ says Ajai Shukla, a former army officer and defence specialist.
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‘Although these agents (and others too numerous to be named) operate quite openly in India, it could legitimately be asked why the government has never taken action against them. The answer, according to a top government official, is that “MoD officials, and even political parties, do not want to stop the flow of funds that comes from these people. This is a gravy train and the money is distributed widely … to individuals as well as to political parties across the spectrum”.’

Shukla also mentioned ‘two expatriates, Swiss-American citizen, Guido Haschke, and British citizen, Christian Michel’ who had been ‘named by Italian prosecutors as key players in bribing Indian officials on the Augusta-Westland helicopter deal. ‘Christian Michel, who runs Panama-registered Keyser Incorporated, has never bothered to hide his profession,’ wrote Shukla. ‘In 2004, he actually sued French aviation company, Dassault, for failing to pay him commission in New Delhi’s Euro 350m purchase of ten Mirage-2000 fighters in the year 2000. The French court threw out his lawsuit, ruling that his agreement with Dassault had expired two years before the deal was concluded’.

Blacklisting

Corruption allegations have led to long lists of foreign companies being blacklisted, sometimes in the middle of contracts, which has seriously undermined the modernization of the armed forces for many years. Manufacture of Germany’s HDW submarines and delivery of Sweden’s Bofors’ howitzer guns and ammunition were hit after corruption scandals in the 1980s. South Africa’s Denel company was blacklisted in 2005 when it was supplying technology for howitzer ammunition after it was discovered it had paid UK-based agents on an earlier rifles order. In 2006, the defence ministry issued a list of 118 defence suppliers in India and abroad that had been banned, including some named by DPSUs.
⁷⁸

In March 2012, A.K. Antony, the defence minister, put a ten-year ban on six defence firms originally blacklisted in 2009 after the head of India’s ordnance factories was accused of accepting bribes. The firms included Singapore Technologies Kinetic (STK) which was involved with supplies of howitzer guns and small arms, Israeli Military Industries with ammunition for Bofors guns, Germany’s Rheinmetall Air Defence with land systems, and a Russian corporation with military systems. The most serious effect of these bans and other delays is that India has not had new artillery guns since the 1980s, that there have been shortages of ammunition and spare parts, and that ordnance factories delayed manufacturing Bofors guns in a factory at Jabalpur in central India for over 20 years.

Antony used these bans to protect his reputation of not being corrupt, and ignored the seriously negative impact it was having on supplies of military equipment. Eventually he was heavily criticized in 2013 when he reacted to the Finmeccanica helicopters’ corruption allegations by warning that the Augusta-Westland contract might be cancelled, even though he had been ignoring public rumours of the alleged bribes for nearly a year till the news of the case in Italy built up in India. Only three of the urgently needed 12 VVIP helicopters had been delivered when payments to Augusta Westland stopped, as were deliveries of further helicopters, and the company began arbitration proceedings.
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The contract was then terminated by Antony. Tenders for 197 military helicopters on a $1.5bn potential order, which had been stuck by a series of controversies for many years, also looked vulnerable because of allegations that an army brigadier in charge of field trials had asked for a $5m bribe from the company though, by the time this was publicized, Augusta-Westland had been ruled out of the competition on other grounds.
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This led to calls for Antony to rethink the government’s policy, with suggestions that the defence ministry should impose penalties on a foreign company while continuing to accept delivery of orders.

In addition to Antony’s sensitivities, the continuing stream of corruption allegations has slowed down the award of contracts because officials became wary of signing off on large sensitive orders, fearing similar (true or false) bribe scandals that might erupt, maybe many years later. That fear reached crisis proportions under Antony, who proverbially tilted at windmills every time there was a hint of corruption. One solution would be for more contracts to be placed on a government-to-government basis without competitive tendering. That is sometimes done with Russian orders (though it does not eliminate bribes), and it has been done for a large proportion of the $11bn defence orders placed in recent years for US equipment.

Pakistan and China must surely enjoy watching India imposing all this self-inflicted damage on its war readiness and relish the thought that they themselves could not do much more harm in a border war. Indeed, an arch conspiracy theorist would suggest that agents working for these two countries might be engineering some of the setbacks – and maybe they are.

Notes

1.
   ‘Rise in international arms transfers is driven by Asian demand’, Stockholm International Peace Research Institute (SIPRI), 19 March 2012,
http://www.sipri.org/media/pressreleases/2012/rise-in-international-arms-transfers-is-driven-by-asian-demand-says-sipri

2.
   ‘Why China Snubs Russia Arms’,
The Diplomat
, 5 April 2010,
http://thediplomat.com/2010/04/05/why-china-snubs-russian-arms/?all=true
. In April 2013, an article on the same website suggested China might be about to re-start buying Russian arms
http://thediplomat.com/2013/04/12/a-russia-china-alliance-brewing/2/

3.
   Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China 2013, office of the Secretary of Defense,
http://www.defense.gov/pubs/2013_China_Report_FINAL.pdf
– with a summary here: DOD Report on China Details Military Modernization, American Forces Press Service, 6 May 2013
http://www.defense.gov/news/newsarticle.aspx?id=119943

4.
   SIPRI as above and ‘China replaces Britain in world’s top five arms exporters’, Reuters, 18 March 2013,
http://www.reuters.com/article/2013/03/18/us-china-arms-exports-idUSBRE92G0L120130318

5.
   Shivshankar Menon, National Security Adviser, ‘Our ability to change India in a globalised world’, The Prem Bhatia Memorial Lecture, IIC, New Delhi 11 August 2011, Full text on
http://www.prembhatiatrust.com/
click on Lecture 16.

6.
   ‘India army chief says nation’s defences obsolete’, BBC, 28 March 2012,
http://www.bbc.co.uk/news/world-asia-india-17532836

7.
  ‘India will depend on US for military hardware’, Rediff.com, 6 February 2010,
http://news.rediff.com/slide-show/2010/feb/06/slide-show-1-india-will-have-to-depend-on-us-for-military-hardware.htm

8.
  
http://ridingtheelephant.wordpress.com/2012/04/04/army-intrigue-and-graft-hits-indias-defences/

9.
   Manoj Joshi
,
‘Wheels Within Wheels’,
Mail Today
, 28 March 2012

10.
Arindam Bhattacharya and Navneet Vasishth, ‘Creating a Vibrant Domestic Defence Manufacturing Sector’, BCG-CII, March 2012,
http://www.ciidefence.com/pdf/Creating%20a%20Vibrant%20 Domestic%20Defence%20Manufacturing%20Sector%20V5.pdf

11.
‘Defence imports affects National Security, Foreign Policy’, speech by Minister of State for Defence M.M. Pallam Raju at seminar on ‘The Indian Army: Next Generation Systems, An Evolution’, 16 February 2010,
http://pib.nic.in/newsite/erelease.aspx?relid=57904