Op-Ed: How India’s Saint Antony Crucified Finmeccanica
(Source: Defense-Aerospace.com; published April 2, 2015)

By Giovanni de Briganti
A career politician, Arackaparambil Kurien (A. K.) Antony, 72, is now a Member of Parliament in the upper house, Rajya Sabha. He was Defence Minister of India from October 2006 to May 2014. (Indian Govt photo)
PARIS --- Now that Italian magistrates have dismissed the final charges against two former CEOs of AgustaWestland for lack of evidence, it is worth looking at how the accusations were formed, and what they rested on.

The Italian prosecution’s case rested on the same allegations as the ongoing investigations in India: that AgustaWestland had bribed the then Chief of Staff of the Indian Air Force to lower the required maximum altitude for the VVIP helicopters.

The original tender required the helicopter to fly at altitudes up to 6,000 meters, which AgustaWestland’s AW101 could not do, but by the time it won the contract the altitude requirement had been lowered to 4,500 meters.

This allowed the AW101 to win the competition, and the anti-AW lobby immediately seized on this to allege corruption, to inflame India’s notoriously trigger-happy media and to encourage MPs to question the government on this issue.

No payment, no corruption

Despite all the publicity, four years later no trace of any improper payment, nor indeed of any impropriety at all, has been found, in India or elsewhere.

This finally led the Court of Busto Arsizio, in Italy, to acquit the two accused CEOs of corruption charges in October 2014, since in the judges’ words “no offence was committed,” and finally to clear them of all remaining ancillary charges earlier this month.

Charges against both AW and Finmeccanica had been dropped in the spring of 2014.
Prosecutors are appealing the acquittal, while the two CEOs are appealing their conviction on lesser charges, but these are now minor sidelines, which the prosecution will probably lose and the two CEOs probably win.

Even though no money was found to be paid by the Italian contractor, India’s Central Bureau of Investigation and its Enforcement Directorate are still, in separate investigations, looking for bribes paid to Indian officials, so far unsuccessfully.

Pre-election hysterics

The bribery allegations first surfaced in India, and were initially ignored by the government. But they were taken up, repeated and circulated by certain Members of Parliament who no doubt saw them as a useful weapon in the upcoming general election, and as a possible way to reopen bidding on the contract to benefit other manufacturers.

Stoked very effectively, the allegations took on a life of their own, leading to a press campaign in Italy fueled by pacifist and disarmament networks, and ultimately to the opening of an investigation by magistrates in Naples. This was subsequently transferred to Busto Arsizio, near Milan, by the Supreme Court.

Not everyone is impressed by the investigative zeal shown by Italian magistrates, nor by the self-righteousness of the Indian Defence Minister, who single-handedly took the decision to first block payments to AgustaWestland, then to cancel the contract, and finally to sue for payment of the surety and performance bonds that the company had placed in escrow, on the basis of unproven allegations.

In doing so, Antony ignored a fundamental legal and moral principle: that the accused is innocent until proven guilty. This is unconscionable behavior for a cabinet minister in “the world’s greatest democracy,” and can only be explained by motives other that a constitutional duty to his mission.

The reality is that Antony, as the upcoming general election neared, even wanted to put AgustaWestland and Finmeccanica, its corporate parent, on the government’s blacklist, until he was blocked by the Solicitor-General.

At the time, Antony was less interested in running his department than in burnishing his credentials as India’s “Mr. Clean” in anticipation for a run for higher office. In fact, he was so wary of any whiff of corruption that he simply stopped awarding equipment contracts, thereby severely impeding the armed forces modernization. This is one of the reasons why talks about India’s Rafale purchase dragged on inconclusively in 2012 and 2013.

Yet, even as he pilloried his Italian supplier for alleged corruption, Antony’s own staff had produced a document that, had anyone bothered to read it – notably Italian magistrates -- would have indisputably cleared AW by removing the motive for corruption.

No motive, no corruption

On Feb 14, 2013 the Indian Ministry of Defence posted an explanatory document on the Government’s Press Information Bureau website titled “Acquisition of AW-101 Choppers for IAF: The Facts”

In this remarkable document, which we reproduce in its entirety below, the defense ministry concluded (Para 17) that ”The procurement case was, thus, progressed in accordance with the established procurement procedure in a transparent manner with all stages of procurement being followed meticulously.”

So, at that date, the defense ministry had not found any impropriety.

The document then recounts in detail the process which led to the lowering of the required altitude:

  3. On November 19, 2003 a meeting was taken by Principal Secretary to PM on this subject. In the meeting, 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 PM and President have rarely made visits to places involving flying at an altitude beyond 4500 meters.

In the meeting it was decided to make the mandatory requirement for operational altitude 4500 meters. The higher flying ceiling of 6000 meters, and a cabinet height of 1.8 meters could be made desirable operational requirements. It was observed that with these revisions, several helicopters which otherwise met all requirements, but had been rejected due to the altitude restriction, would now come into the reckoning.

4. The meeting was followed by a letter dated 22nd December, 2003 from the Principal Secretary to PM to the Air Chief, stating that it was unfortunate that neither PMO nor SPG was consulted while framing these mandatory requirements. He suggested that CAS and Defence Secretary may jointly review the matter to draw up realistic mandatory requirements satisfying operational, security and convenience requirements of VVIPs and also set in motion a fast track process for selection and acquisition of the replacement helicopters.

5. In pursuance of the above directive, the ORs were deliberated at length between IAF, NSA, SPG/PMO and MoD between March, 2005 to September, 2006 and the above indicated changes were incorporated.

17. The procurement case was, thus, progressed in accordance with the established procurement procedure in a transparent manner with all stages of procurement being followed meticulously.

No ambiguity is possible: the decision to lower the altitude requirement was official and above-board. It was taken during a meeting chaired by the Prime Minister’s Principal Secretary, was followed up in writing with the Air Force Chief of Staff, was reviewed by the then-Defence Secretary. Subsequently, the “Operational Requirements were deliberated at length” for 18 months by the authorities involved before becoming effective, and included in the final Request For Proposals.

Once this document was made public, it was impossible for anyone to give credence to claims that the Air Force Chief of Staff was bribed to secretly lower the altitude.

Ministerial and judicial irresponsibility

Yet, these claims were made, and although still unsubstantiated they eventually led to investigations and a trial in Italy, to several (continuing) investigations in India, during which more than a dozen people had their assets seized and bank accounts frozen.

In Italy, two former AW chief executives lost their jobs, and their reputations, and AW itself lost a €566 million contract, as well as €228 million of its €278 million performance bonds, which dented its cash position and that of Finmeccanica.

All of this for no other reason than an Indian minister’s overwhelming preoccupation with his political future. And, to add insult to injury, he and Italian prosecutors will be the only characters in this sorry story to escape unscathed.

(ends)


Acquisition of AW-101 Choppers for IAF: The Facts
(Source: India Ministry of Defence; issued 14 February, 2013 at 18:21 IST)
(Emphasis in bold typeface in original document)
In August 1999, the IAF which is responsible for carrying out VVIP communication task, proposed the replacement of Mi-8 VIP helicopters due to severe operational constraints, such as, inability of Mi-8 to operate at night and in adverse weather, inability to operate safely at places in elevation beyond 2000 meters etc. IAF felt the need for the replacement of Mi-8 helicopters as they were completing their total technical life.

2. A global RFP was issued in March 2002 to which 4 vendors responded. The Technical Evaluation Committee shortlisted 3 helicopters and accordingly flight evaluations were conducted. Since, EH-101 of M/s. AgustaWestland was not certified for an altitude of 6000 meters, it did not participate in the flight evaluation. The Russian helicopter Mi-172 could not comply with 7 mandatory Operational Requirements (ORs). After flight evaluation, EC-225 of M/s. Eurocopter, France was found suitable for acquisition.

3. On November 19, 2003 a meeting was taken by Principal Secretary to PM on this subject. In the meeting, 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 PM and President have rarely made visits to places involving flying at an altitude beyond 4500 meters. In the meeting it was decided to make the mandatory requirement for operational altitude 4500 meters. The higher flying ceiling of 6000 meters, and a cabinet height of 1.8 meters could be made desirable operational requirements. It was observed that with these revisions, several helicopters which otherwise met all requirements but had been rejected due to the altitude restriction, would now come into the reckoning.

4. The meeting was followed by a letter dated 22nd December, 2003 from the Principal Secretary to PM to the Air Chief, stating that it was unfortunate that neither PMO nor SPG was consulted while framing these mandatory requirements. He suggested that CAS and Defence Secretary may jointly review the matter to draw up realistic mandatory requirements satisfying operational, security and convenience requirements of VVIPs and also set in motion a fast track process for selection and acquisition of the replacement helicopters.

5. In pursuance of the above directive, the ORs were deliberated at length between IAF, NSA, SPG/PMO and MoD between March, 2005 to September, 2006 and the above indicated changes were incorporated.

6. The required numbers of helicopters for the entourage of VVIP was further deliberated between Air HQ, MoD and SPG/PMO. The quantity of helicopters proposed for procurement was revised from 8 to 12 helicopters by adding 4 helicopters in non-VIP configuration for security reasons.

7. The AON for the procurement of 12 helicopters was accorded by the Defence Acquisition Council under ‘Buy’ category with 30 percent offsets on 3rd January, 2006. RFP was issued to 6 vendors on 27th September, 2006.

8. Three vendors, namely M/s Sikorsky, USA (S-92 helicopter), M/s AgustaWestland, UK (EH-101 helicopter) and M/s. Rosoboronexport, Russia (Mi-172 helicopter) responded to the RFP.

9. M/s. Rosoboronexport did not submit earnest money deposit and the Integrity Pact, along with their Technical and Commercial proposals. It had been made clear to M/s Rosoboronexport in February 2007 that this was a global tender and hence every contractual clause would be the same for all vendors. As no Integrity Pact and Earnest Money Deposit were received from M/s Rosoboronexport, their Techno-Commercial offer was not accepted.

10. The Technical Evaluation Committee evaluated the technical proposals of M/s Sikorsky and M/s AgustaWestland and recommended field evaluation trials of their helicopters.

11. The Field Evaluation Trial of M/s AgustaWestland was carried out in UK and trials of M/s Sikorsky were carried out in USA from 16 January 2008 to February 2008. The Field Evaluation Trial team submitted its report in April 2008 and recommended AW-101 helicopter of M/s AgustaWestland for induction into Service. SPG was also part of the Field Evaluation Trial team.

12. The Staff Evaluation Report of Air HQ concluded that the S-92 helicopter was non-compliant with respect to four SQRs for the VVIP helicopter (Missile Approach Warning System, Service Ceiling of 4.5 km, Drift Down Altitude and Hover Out of Ground Effect). The Staff Evaluation Report assessed the VVIP helicopter AW-101 to be fully compliant with all SQRs.

13. Technical Oversight Committee constituted on 6 August 2008 found that the field evaluation trials, compliance to SQRs and selection of vendors were done according to the prescribed procedures.

14. Contract Negotiation Committee (CNC) was constituted and it carried out its discussions with the vendor between 19 September 2008 and 21 January, 2009. While the CNC was progressing its discussions, Air HQ recommended inclusion of Traffic Collision Avoidance System (TCAS-II) and Enhanced Ground Proximity Warning System (EGPWS) for all 12 helicopters and SPG/PMO recommended inclusion of Medevac System for 8 VVIP helicopters. These additional equipment were considered to be essential for safe and effective operation of the helicopter in VVIP transportation role. SPG also agreed to these requirements. The CNC, thereafter, recommended conclusion of the contract at a negotiated price of EURO 556.262 million.

15. On completion of CNC the proposal was submitted for approval of the Cabinet Committee on Security (CCS). The CCS considered the proposal in its meeting held on 18 January 2010 and approved the proposal.

16. In pursuance of the decision of the CCS the Ministry of Defence concluded a contract for the supply of 12 AW-101 VVIP helicopter with M/s AgustaWestland, UK on 08 February, 2010.

17. The procurement case was, thus, progressed in accordance with the established procurement procedure in a transparent manner with all stages of procurement being followed meticulously. Security aspects as required by SPG/PMO and IAF were fully taken into consideration. The role of PMO which began in 2003 was to ensure that security, communication and other requirements of VVIP security were taken care of and the helicopter for VVIP use is selected on the basis of broad based QRs.

18. Contract signed with M/s. AgustaWestland includes specific contractual provisions against bribery and the use of undue influence. Article 22 of the contract deals with penalty for use of undue influence. This clause entitles the ‘Buyer’ to cancel the contract with the ‘Seller’ and recover from him the amount of any loss arising from such cancellation. Article 23 of the contract dealing with agents and agency commission requires the ‘Seller’ to confirm and declare that he has not engaged any individual or firm, whether Indian or foreign, whosoever, to intercede, facilitate or in any way to recommend to the Government of India or any of its functionaries, whether officially or unofficially, to award of the contract to the ‘Seller’ nor has any amount been paid, promised or intended to be paid to any such individual or firm in respect of any such intercession, facilitation or recommendation. This clause further entitles the ‘Buyer’ to consider cancellation of the contract without any entitlement or compensation to the ‘Seller’ who shall be liable to refund all payments made by the ‘Buyer’ in terms of the contract along with interest.

19. In addition to the above contractual provisions, M/s. Agusta Westland has signed an Integrity Pact with the Government. The validity of this Integrity Pact is from the date of its signing and extends up to five years or the complete execution of the contract whichever is later. Under the Integrity Pact, the bidder commits himself to take all measures necessary to prevent corrupt practices, unfair means and illegal activities during any stage of the bid or during any pre-contract or post-contract stage. Any breach of the provisions of the Integrity Pact entitles the ‘Buyer’ to take actions against the ‘Seller’ 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 Government for a minimum period of five years which may be extended, etc.

20. As regards, the allegations of unethical dealings in helicopter procurement case including involvement of middleman and payment of bribes etc., the first report in the media appeared in February 2012.

21. Immediately (the next day after the news item appeared in the papers) DG(Acq) in MoD sought a factual report in the matter from our Embassy in Rome.

22. MoD also noted the report in the ‘Hindu’ of 28.2.2012 that, quoting Finmeccanica, states that its subsidiary AgustaWestland is not involved in “any irregularity in the deal”.

23. Subsequently, MoD received more than one communication from M/s AgustaWestland confirming that the statements in the press are “completely unfounded and have been issued with malicious intent” and that “no commissions whatsoever were paid” in the case.

24. In April 2012, MoD wrote again to our Embassy in Rome seeking an update.

25. A detailed report on the status of the case was received from our Embassy in Rome in May 2012. The report made it clear that there are inherent difficulties in obtaining formal details of the case given the independence of the judiciary from the executive in Italy.

26. MoD in July 2012 wrote to our embassy in Rome stating that it could approach the concerned judicial authorities directly. A formal request was indeed made by the embassy to the Naples prosecutors office on July 16, 2012.

27. Since factual information was difficult to arrive at, Defence Secretary wrote to Secretary (West), MEA, in October 2012 reiterating the importance of the need to get information from the Italian authorities so that MoD could take further necessary action in this regard.

28. MEA’s response again was that the matter had been taken up with the Italian side and the position conveyed for the need for ‘reliable information’, for “news reports alone could not be the basis for the Ministry of Defence to make any preliminary determination”.

29. In October 2012 Defence Secretary also wrote to Secretary (West) to take up the matter with the Government of U.K. in view of the alleged involvement of a British citizen and the fact that the contract was signed with M/s AgustaWestland, U.K.

30. In November 2012, Secretary (West), MEA, replied to Defence Secretary stating that ‘the U.K. authorities were waiting for the results of the Italian investigation in order to ascertain whether there are further actions to take’.

31. Earlier, in connection with the letter received from one Mr. Edmund Allen of Ganton Limited, USA, MoD had written on 19.4.12 to CBI and Enforcement Directorate for necessary action, as Abhishek Verma and others were also being named in various media reports in connection with several defence deals. Later, Enforcement Directorate informed MoD in July 2012 that they were enquiring into the allegations.

32. In November 2012, a letter was received in MoD from the Director, Income Tax (Investigations) regarding allegations against Indians possibly involved in the deal as middlemen and seeking information about them. The current status of the case was conveyed to the income tax authorities in January 2013; in return, MoD asked Income Tax to share with it any ‘credible information’.

33. Throughout the process of this case, MoD has been prompt to take action on newspaper reports, and to seek factual information from the concerned authorities. Since foreign governments are involved, MoD has consistently pursued the matter though MEA.

34. As soon as information was available of one concrete step having been taken by the concerned foreign investigative authorities, namely, the arrest of Mr. Giuseppe Orsi, CEO, Finmeccanica on Feb 12, 2013. MoD handed over the case to CBI for investigation and put on hold all further payments to Agusta Westland. Besides this, the Indian Embassy has been requested to provide the factual position and any other relevant information. The CEO of M/s AgustaWestland has also been asked to categorically state the clear position in view of the current developments indicating specifically if any financial transaction has taken place with any Indian individual / entity which would be violative of the Integrity Pact or any other terms and conditions of the contract.

35. As already mentioned above, both the contract and integrity pact signed with M/s AgustaWestland, U.K., contain specific provisions by which strict action including cancellation of contract, recovery of payment, blacklisting and penal action can be taken against the vendors. Government is determined to take all possible legal and administrative action against the guilty parties and accordingly has ordered a thorough probe by CBI.

Sitanshu Kar (Release ID: 92237)

Click here for the full document on the Indian government website.

-ends-





prev next

Official reports See all