By Syed Nazakat
On April 19, 2012, the Ministry of Defence alerted the Central Bureau of Investigation and the Directorate General of Economic Enforcement about the leak of classified documents related to defence procurement. The ministry was tipped-off in style—through an email sent directly to Union Defence Minister A.K. Antony. The mail triggered a probe, at least 10 months before the Italian police arrested top executives of Finmeccanica, the parent company of AgustaWestland, the controversial Anglo-Italian chopper firm accused of paying bribes to swing India’s VVIP chopper deal.
The mail Antony got in March 2012 came from C. Edmonds Allen, an escrow agent with links to arms dealers. Allen had even handled a $205 million-deal in LGT Bank, Liechtenstein, for a a Delhi-based arms dealer. To validate his accusations, Allen attached eight secret military documents. Among them were papers dealing with the procurement of surveillance aircraft for the Research and Analysis Wing, a report on the procurement of next generation submarines for the Indian Navy and the entire acquisition plan of the Indian Air Force.
Speaking to THE WEEK from New York, Allen said: “I gave them enough material to nab these guys. But I saw no investigation. I do not know why they waited for the Italian investigation to start the probe.” It appears that the CBI and the ED acted initially on the alert from the defence ministry, and then sat back. They, or at least the ED, contacted Allen, and questioned him in New York.
The defence ministry was flabbergasted by how such highly-classified documents had reached a foreigner. All that Allen would divulge was that the documents were sourced by a murky network of arms dealers in India and leaked to foreign defence contractors. The documents also revealed the labyrinthine corruption in India’s deal to buy helicopters from AgustaWestland.
To be doubly sure, the ministry sent the documents to the Government Examiner of Questioned Documents, a body authorised to validate the documents. The examiner confirmed that the documents attached to Allen’s mail were “secret in nature and their disclosure was prejudicial to safety, security and interest of India”.
Given the sensitive nature of the documents, the defence ministry again wrote to the CBI on August 24, 2012, to investigate the leak of classified documents from the ministry. The ED was already conducting its investigation on Italy-based money laundering. In 2009, while probing the case of alleged hawala dealer Naresh Kumar Jain, the agency had identified Capri in northern Italy as the base of an India-specific money laundering racket. Despite multiple trails leading to Italy, neither the CBI nor the ED made any progress until the Italian police arrested Finmeccanica’s Chief Executive Officer Giuseppe Orsi in Milan on February 12, on accusations of corruption linked to the sale of AW101 helicopters to India.
Fresh details reveal that in 2009 AgustaWestland had sought the help of New York-based consultancy firm Ganton Ltd to swing a possible helicopter deal with the Delhi Police. During this time, AgustaWestland was negotiating the VVIP helicopter deal with the defence ministry, too. Allen, the whistle-blower, was former president of Ganton.
AgustaWestland knew that the Delhi Police had been asking the home ministry for helicopters since 1996, for aerial surveillance of the national capital. The demand was expected to become stronger ahead of the Commonwealth Games in 2010. Usually, the Delhi Police hires helicopters from the Air Force or the Border Security Force.
As before, this time, too, the home ministry turned down the proposal, citing lack of infrastructure and lack of trained manpower required to maintain the helicopters. Delhi Police Commissioner Neeraj Kumar has denied any negotiation with the company. “At that time I was the special commissioner of police (administration),” Kumar told reporters in Delhi. “This thought [procurement of AgustaWestland helicopters] had not even come into our minds.”
But, THE WEEK has with it the copy of an agreement between AgustaWestland and Ganton Ltd, dated August 7, 2009 (AG/ME/09/166). In the document, AgustaWestland has offered commissions to Ganton Ltd to help strike a deal with the Delhi Police. The agreement was “on non-exclusive basis, in the promotion and negotiation of… AW119, AW109 and AW139 helicopters for the Delhi Police.” AgustaWestland offered Ganton an 8 per cent commission for helicopter sales and a 15 per cent commission on sale of spare parts. The agreement was signed by Bruno Spagnolini, former CEO of AgustaWestland, who also was arrested recently in Italy.
Spagnolini and Orsi, according to the 64-page Italian probe report which contains conversations and details of money laundering to India, had used services of Delhi based arms dealer Abhishek Verma, who is currently in Tihar jail. They had paid bribes amounting to $27 million through two Switzerland-based intermediaries, Guido Haschke and Carlo Gerosa, to secure the Rs 3,600 crore helicopter deal. For its part, AgustaWestland allegedly used software companies IDS India and IDS Tunisia as front firms to cover up payments to officials in India.
Desperate to bag the helicopter deal, Spagnolini and Orsi allegedly used a British middleman, too—Christian Michel, 52, of Chelsea, the UK. A known figure in Delhi’s arms dealer circuit, Michel is accused of linking AgustaWestland to India’s former Air chief marshal S.P. Tyagi.
According to court documents, Michel, as a consultant to AgustaWestland, had “promised and effectively funnelled, through the brothers Juli Tyagi, Docsa Tyagi and Sandeep Tyagi, sums of money, whose full amount has not been fully quantified, to Marshal S.P. Tyagi, the head of the Indian Air Force from 2004 to 2007, to carry out and for having carried out an act contrary to his official duty.”
Air chief marshal Tyagi has strongly denied any wrongdoing. “I retired from the service in 2007, and the deal was signed in 2010,” he said. “I am shocked that my name has been dragged into this.”
Michel holds crucial information about the case as he has been operating from Delhi for many years, said the investigators in the helicopter deal. He is believed to be living in Dubai, where he also runs a runs a company called Global Trade and Commerce. THE WEEK’s attempts to contact him at his businesses in Dubai failed.
The crucial allegation is that the middlemen, through Tyagi, reduced the operating ceiling mentioned in the initial tender. “[They] intervened in the tender, changing it to favour AgustaWestland by changing the operating requirements, bringing the altitude requirement down from 18,000ft to 15,000ft,” the Italian arrest warrant alleges. “This allowed AgustaWestland [which otherwise would not have been able to submit a bid] to take part in the tender.”
In a 35-point statement, the defence ministry has denied that procurement procedures had been manipulated to allow AgustaWestland to win the contract. “On November 19, 2003, a meeting was taken by Principal Secretary [Brajesh Mishra] to PM [Atal Bihari Vajpayee] on this [altitude] subject. In the meeting, the Principal Secretary observed that his main concern was that the framing of the mandatory requirements has led us effectively into a single-vendor situation. It was also noted that Prime Minister and President have rarely made visits to places involving flying at an altitude beyond 4,500m [around 14,800ft],” reads the defence ministry statement. Subsequently, the operational altitude was reduced.
The Italian probe actually started in Naples, to investigate whether there were connections between the Italian mafia, the corporate world and the government officials. Many see the probe as a tussle between Italian Prime Minister Mario Monti and former prime minister Silvio Berlusconi, who has denounced the probe and called it “a suicide act against our economy”.
But the probe has gone much beyond Italy, as fresh details have disclosed that cash was sent via a web of middlemen and companies in the UK, Switzerland, Italy, Tunisia and Mauritius to pay kickbacks in India.
In Delhi it is common knowledge that arms dealers with links to AgustaWestland had scheduled meetings with top defence ministry officials in South Block. One such meeting was organised by Abhishek Verma, between Swiss small-arms firm Sig Sauer and defence ministry officials and politicians. On December 5, 2011, he received Ron Cohen and Michael Leuke, the two top executives of Sig Sauer, in Delhi and arranged their meetings with the director-general (defence acquisition), director-general (special frontier force), joint secretary of the home ministry and with other senior bureaucrats. At the Verma estate in Delhi, he hosted a gala reception for them, attended by many retired Army officers.
“The focus of our investigation is to find out the nature of involvement of people within the defence ministry in fixing the deals,” said a senior CBI officer. “No deal is possible without their involvement.”
India has launched its own investigation into the allegations of corruption. The government has sent a four-man delegation to Italy, jointly led by Arun Kumar Bal, joint secretary, ministry of defence, and Mahipal Yadav of the CBI. Finmeccanica could be blacklisted for several years in India if the corruption allegations are proven.
As per the Integrity Pact, which AgustaWestland had signed with the defence ministry, a bidder is prohibited from offering, directly or through intermediaries, commission, fees, brokerage or even a gift to the buyer. Any breach of the provisions of the integrity pact by the vendor entitles the defence ministry to take actions against them, which includes forfeiture of the earnest money, performance bond, cancellation of the contract without giving any compensation, to recover all the sums already paid with interest, to cancel any other contracts with the bidder and to debar the bidder from entering into any bid from the Indian government for a minimum period of five years, which may be extended.
The defence ministry has issued a show cause notice to AgustaWestland to explain, within seven days, why the Indian government should not terminate the agreement for 12 helicopters under the integrity pact. In a statement, Finmeccanica said it had never broken Indian law in the 40 years it had been operating in this strategic market, adding that it was confident that AgustaWestland would be able to show it had acted lawfully.
Meanwhile, the defence ministry has put the VVIP helicopter deal on hold. The case has put immense pressure on Antony, whose ministry has been buffeted by a string of graft cases. “Whosoever is responsible must be brought to justice at the earliest and must receive maximum punishment,” Antony told reporters in Delhi. “It is the resolve of the entire government. We will show no mercy.” When asked whether he would resign over the controversy, Antony said he will explain everything to the Parliament. “We have nothing to hide. Our hands are very clean,” he said.
The kickbacks in the helicopter deal have cast a shadow on India’s procurement plans. Indian Rotorcraft Ltd, a joint venture between Tata Sons and AgustaWestland was established for the AW119 helicopters. As per the 2010 agreement, Indian Rotorcraft was responsible for the final assembly, completion and delivery of the AW119s, while AgustaWestland had to manage global marketing and sales. The first aircraft was scheduled for delivery from GMR Aerospace Park, Hyderabad, in 2011. If AgustaWestland is blacklisted, the joint venture will be on shaky ground.
The process to acquire 197 high-altitude reconnaissance and surveillance helicopters, worth $600 million for the Indian Air Force and the Indian Army, is already hit by allegations of kickbacks. A document seized from the home of alleged middleman Guido Haschke by Italian prosecutors has revealed that a serving Indian Army brigadier, who oversaw the flight trials of the choppers, had asked for $5 million in January 2010, days before the trials began.
AgustaWestland was eventually disqualified from the bid in May 2010 on technical grounds. The Army refused to comment on the case, saying it was not aware of the probe in Italy. However, a senior defence ministry official told THE WEEK that “the Army’s own probe had found that the allegations against the brigadier were baseless.”
Last year, former Army chief General V.K. Singh had shocked the country when he said that a retired general walked into his room at the Army headquarters and offered him a bribe of Rs 14 crore to clear the deal to procure overpriced Tatra trucks for the Army.
And, the move to replace the INSAS rifle with 65,000 new assault rifles in 2014 has hit a rough patch. Sig Sauer was the front-runner to win the Rs 4,850 crore contract. Now that Sig Sauer’s ties with arms dealers are known, the deal might be scrapped.
And, all eyes are on the much awaited Dassault Rafale fighter jet deal, for which the tender was issued in August 2007. Out of six global military aviation giants, French firm Dassault bagged the Rs 55,000-crore deal. Allegations that Michel has also worked with Dassault have put a question mark on the deal, too. Coincidentally, joint secretary Bal also heads the contract negotiation committee of the fighter jet project. There are speculations that India may review the fighter jet deal, though it seems most unlikely at the moment.
But the hope of a review prompted visiting British Prime Minister David Cameron to say that the Eurofighter Typhoon, which is partly built in Britain, remained an attractive option. Calling the Typhoon a superior aircraft, Cameron said the consortium that built it had said it would “look again” at the price tag.
Will Finmeccanica be blacklisted?
State-controlled Finmeccanica, Italy’s second largest employer after Fiat, could be blacklisted for several years in India if it is proven that its subsidiary AgustaWestland hired middlemen or paid commission to win the helicopter deal. The defence ministry has issued a show-cause notice to AgustaWestland.
As per the Integrity Pact that AugustaWestland had signed with the defence ministry, a bidder is prohibited to offer, directly or through intermediaries, commission, fees, brokerage or even a gift to the buyer. Any breach of the provisions of the integrity pact by Finmeccanica or AgustaWestland entitles the ministry to take action against them, which includes forfeiture of the earnest money, cancellation of the contract without any compensation, recovery of all the payments with interest, cancellation of other contracts with the bidder and debarring the bidder from any bids for at least five years.
The AgustaWestland helicopter scam has raised questions about a number of other deals.
Light utility helicopter
The deal to procure 197 light utility helicopters for the Army and Air Force was stalled because of allegations of tender deviations. A serving brigadier allegedly demanded $5 million from an Italian company to fix the deal.
Fighter jet deal
Christian Michel, the London-based middleman who allegedly got 30 million euros in the AgustaWestland helicopter contract, has also worked with Dassault, the French company short-listed to supply medium multi-role combat aircraft to India. The $20-billion deal is one of India’s biggest defence contracts. Arun Kumar Bal, joint secretary in the defence ministry who was sent to Italy to gather evidence in the AgustaWestland helicopter scam, heads the contract negotiation committee in the fighter jet project.
Surveillance aircraft for R&AW
Israeli company Elbit Systems was allegedly in touch with arms dealers on a highly classified tender to procure two surveillance aircraft for electronic intelligence for the R&AW. Investigators suspect the arms dealers might have facilitated the $350-million deal.
Sig Sauer rifle
Swiss small arms manufacturer Sig Sauer allegedly sought services of a Delhi-based arms dealer to win the competition of the 5.56mm/7.62mm rifle. Army is planning to buy 65,000 rifles for Rs 4,850 crore and induct them by mid-2014.
(THE WEEK, 3 March, 2013)
Documents accessed by THE WEEK indicate that money has changed hands
The numbers are scandalous: more than 40,000 emails and other documents containing details of India’s military procurement and associated kickbacks. The Central Bureau of Investigation got these documents from New York-based escrow agent C. Edmonds Allen as part of the investigation on the Rs 3,600-crore AgustaWestland helicopter purchase case.
As the CBI is probing whether the documents are linked to AgustaWestland, fresh details suggest that the Anglo-Italian company may not be the only foreign firm which has employed lobbyists and arms dealers to influence defence deals. The names of other companies also figure in the documents. For instance, details of an international defence firm, which allegedly hired a Delhi-based arms dealer to facilitate a helicopter deal with the Naxal-affected state of Chhattisgarh, have been revealed.
The defence ministry has already stopped payments to AgustaWestland. “They [AgustaWestland] have denied the whole thing. We don’t believe it,” said Defence Minister A.K. Antony in Parliament after coming under fire for not ordering an investigation earlier. The government may now constitute a Joint Parliamentary Committee to investigate the deal. Antony said he was waiting for the CBI probe to conclude before taking a final decision.
The CBI is investigating whether money was paid by AgustaWestland and if it was paid, who were the beneficiaries in India. Though the CBI has managed to secure many important documents, an official said it was difficult to establish a money trail linking the suspects to the bribes.
The documents accessed by THE WEEK indicate that bribes have been paid and more names could be revealed soon. The preliminary inquiry report filed by the CBI has named S.P. Tyagi, former Air Force chief, and Giuseppe Orsi, chief of AgustaWestland’s parent company Finmeccanica. The report has also named Chandigarh-based Aeromatrix as one of the companies which allegedly acted as a front for routing Rs 400 crore in bribes to India. According to the CBI, two middlemen allegedly paid huge sums from their share of the commission to several Indian nationals through the Tunisia and Mauritius route, in the garb of engineering contracts with two Indian companies.
AgustaWestland has denied all allegations. THE WEEK has accessed a letter sent by the company to the defence ministry, signed by its managing director, Raymond Edwards, which says the allegations are based on unsubstantiated reports. The company says the charges are yet to be tested in court as the Italian investigations are still at a pre-trial phase. It has also claimed to be a separate legal entity vis-a-vis its parent company Finmeccanica. AgustaWestland’s best bet is that the Italian investigators continue to refuse assistance to India. The Italian prosecutors have made it clear that they were bound by the law not to share details of the ongoing investigation.
As the tender for the helicopter deal was floated and modified by the NDA government, the BJP is unlikely to find enough ammunition to corner the government. BJP leader and former defence minister Jaswant Singh has already given a clean chit to Tyagi. “Italy is notorious for corruption,” said Singh. “It is not necessary that the bribe would have certainly reached India.”
(THE WEEK, March 10, 2013)