The rebirth of Finmeccanica

A new paradigm for integrity and ethics is evolving in Raksha Mantralaya. Strangely, our Attorney General has advised the government that "a complete ban" on Finmeccanica (the Italian conglomerate, being investigated in its own country for bribery and employing middlemen in defence deals in India), which is supplying a large number of weapon systems, radars and ammunition to the Indian armed forces, would jeopardise the battle-readiness of the armed forces and impinge on national security, thus echoing the stand of the Ministry of Defence.

It is only after the Agusta Westland scam surfaced in February 2013, that the people of India have come to know the extent of the Italian spread and depth into our defence establishment. The Agusta Westland scandal has been well documented as a Bofors 2. As usual, the exposure of corruption within our defence deals, came not from India but from Italy, where a war had broken out within the Finmeccanica top brass.

Clearly, the Italian segment of UPA 1 had wasted no time in doing what it did best, namely, swindling India. Way back in 2005, Italian President Carlo Azeglio Ciampi visited India and met Prime Minister Manmohan Singh and Congress president Sonia Gandhi. And bingo, an "under-the-radar meeting between then Air chief S.P. Tyagi and Finmeccanica officials" took place, and a scam was born. In 2010, a deal was signed, worth over Rs 3,800 crore to buy 12 helicopters, from Agusta Westland, a company under Finmeccanica, not for the defence of India, but for use by VVIPs. Only after the scandal broke in Italy, and investigations were in progress, India learnt of how specifications and field trials were being tweaked, orders being enhanced, prices being escalated by 10 million euro per helicopter to generate slush funds, middlemen being used, kickbacks totalling 51 million euro being listed and shared, including not surprisingly, to "the family". This information forms part of the evidence before the Italian court. All this was achieved under the good governance provided by the Italian leadership of the UPA between 2005 and 2010. As I have stated earlier in this same paper, the meticulous manner how this scam was executed can offer a multi-media crash module to the nation on money laundering.

Of course, no one expected A.K. Antony to do anything, until Italy blew the lid over Indian kickbacks. And only then, he was forced to act, well after certifying to Parliament that everything was fine with the deal. Salman Khurshid had novel answers for dealing with the scam, saying that cancelling the deal would "affect our defence preparedness", knowing full well that these were luxury helicopters for VVIPs that even US could not afford, and had nothing to do with our defence preparedness.

Anyway, the Congress was still in power and still had the clout to suppress the scam. The Defence Minister had looked away for one whole year and given a clean chit to the deal in Parliament. But the matter was getting out of control with arrests in Italy, and damning evidence that kept mounting from Italy about bribery, Indian accomplices and kickbacks to various members of the Indian establishment, including "the family". Only then did he entrust the whole affair to its "caged parrot", the CBI.

Meanwhile, Finmeccanica's fortunes seem to be looking up. It entered into a plea bargain with prosecutors, agreeing to pay a fine in return of it not being made criminally liable for the alleged actions of bribery by its former top executives who face prison terms. The prosecutors have agreed not to press for a clause that makes the Italian defence company liable for crimes committed by its employees in return of what Finmeccanica calls a "negligible fine" to be paid by it. However, corruption charges still stand against the former CEO of Finmeccanica, Giuseppe Orsi and former CEO of Agusta Westland Bruno Spagnolini, besides several middlemen.

Back home, the Attorney General echoed the previous thoughts of Salman Khurshid. He cautioned government that blacklisting Italian defence firm Finmeccanica and its subsidiaries in the wake of the alleged chopper scam could affect the operational preparedness and modernisation of the armed forces in a big way as the group companies are involved in defence projects worth over Rs 30,000 crore. The MoD had put on hold all defence deals with Finmeccanica after the scam broke last year. A.K. Antony's halo had to be showcased, despite the fact that the nation knew that this was only an act of last resort under duress of corruption exposures in Italy, with a national election close by.

On 23 August, Arun Jaitley said the MoD would see how wrongdoers could be punished without blocking acquisitions and the flow of spares. "It is a serious challenge. We have to balance between two competing public interests. One is contracts are meant to be abided with and not violated, even by our suppliers. The other is the larger public interest in terms of our national security and defence preparedness. We are finding an answer." But we are not at war, nor is war imminent, and even if it was, Italian companies, eminently substitutable, are not our saviours.

On 26 August, the MoD issued guidelines that will make Finmeccanica smile.

First, where a Finmeccanica company is executing a signed contract, it should be proceeded with. This will ensure that work continues on the radar systems that Selex ES is fitting on the indigenous aircraft carrier, INS Vikrant.

Second, where a contract has been fully executed, but spares and upgrades are required regularly, that can continue. This will ensure the continued supply of equipment like the 76-millimetre naval gun, which Bharat Heavy Electricals Ltd (BHEL) is building under licence from Otomelara.

Third, where the vendor has been declared as L-1 (cheapest bidder) after tendering, "all such procurement/acquisition cases shall be put on hold until further orders".

Fourth, where the tender process is under way, but no L-1 has yet been declared, Finmeccanica companies will be eliminated from consideration, provided there are alternatives.

Fifth, Finmeccanica companies are to be eliminated from all acquisitions where tendering is yet to commence, provided there are valid alternatives.

Sixth and final, where a Finmeccanica group company is a sub-contractor to another foreign vendor, that contract would continue. This covers upgrades that Selex ES is reportedly handling as a sub-contractor to a Russian company.Will the sequence of the above events be the beginning of another courtship with Finmeccanica? The language of the guidelines leaves enough openings for that. Every guideline above appears to have a proviso that protects Finmeccanica.

I have great respect and confidence in the Prime Minister, whom I have supported with all the resources at my command, throughout his campaign preceding his phenomenal victory. So much so that I am prevented almost by a moral estoppel on speaking what I should loudly be proclaiming. And that it is my conviction that the MoD is not acting in the best interest of the nation.It does not appear that this latest decision by the ministry is based on a Cabinet decision or whether the seriousness of this decision has been understood. The two ministers involved, once each other's mortal enemies are ad idem on this one. But the fact remains that each of the six responses mentioned above has an escape route, providing complete defence to the criminals of the Finmeccanica scam. If the government does not share my conclusions and advice, it would be in the best interest of the nation if the matter is referred to the Supreme Court for an advisory opinion, to say the least. We must take cognizance of all the evidence in the Italian courts, not provided by our erstwhile leaders of the opposition, now our ministers, but indeed by the Italian investigators.

Lastly, I would request our Prime Minister, who sets a high priority on good governance, to set up a think tank to examine why our defence procurement procedures are among the most complicated and lengthiest in the world, providing innumerable entry and exit points for influence peddling, bribery and corruption. The procurement procedure should be made shorter, cleaner, with definite timelines, and with no entry points for middlemen, kickbacks and corruption. Why should there be a situation of dependency on a single armaments company? I realise that this means uprooting the deep rot of decades. But it must be done. Defence procurement must place India First and not Finmeccanica First.