India lifted a ban in early November on defence supplier AgustaWestland and its Italian parent company, Leonardo, paving the way for the companies to participate and bid in ongoing projects and upcoming defence contracts.
The companies were banned in 2015 for 10 years from participating in any defence contracts following allegations of corruption in a helicopter supply contract.
The corruption allegation, dubbed the VVIP chopper scam because it involved the purchase of helicopters to carry the president, prime minister and other important dignitaries, relates to an agreement signed between the Indian National Congress-led United Progressive Alliance government and the Anglo-Italian helicopter manufacturer in 2007.
The deal was put on hold after Italy arrested the head of AgustaWestland’s parent company, then known as Finmeccanica, over allegations of using bribery to win the contract. The scam-tainted Finmeccanica changed its name to Leonardo in 2016.
The ban was lifted because the Anglo-Italian company withdrew its claims against the Indian government, having supplied three of the 12 helicopters without getting paid.
Although the ban has been lifted, India’s Central Bureau of Investigation and the Enforcement Directorate continue their probe into the alleged INR36 billion (USD473.35 million) corruption scandal, and there are concerns that this enforcement action can be seen as being contradictory.
However, Ashish Bhan, a New Delhi-based partner and member of the dispute resolution practice at Trilegal, says: “Lifting the ban is a win for both sides, as AgustaWestland is allowed to bid, and India gets access to better technology, which in the future could see technology transfer.”
It is not in India’s interest to ban significant global players from bidding for defence contracts, Bhan tells India Business Law Journal. “Not only does it have a massive impact on competition, but it is also against national interest,” he says.
For example, the Indian navy has been building six conventional submarines – four of which have been delivered. But they do not have heavyweight torpedoes, which could not be procured as Leonardo was not able to participate in the bidding process.
The defence sector is not the sole victim. Many new airports have been constructed in the past five to seven years and the absence of certain players from the bidding process resulted in the Airports Authority of India losing out on the latest technology. Leonardo has the capability of providing for various airport radar technologies.
“Bans cannot be perpetual and need to be reasonable,” says Bhan at Trilegal. “The company was exonerated in Italy by paying some fines and by ensuring that better anti-bribery mechanisms have been put in place,” he points out.
Even as Italy has already completed its investigation and reached a conclusion, the Indian investigation into the case is moving at a snail’s pace.
“Indian law enforcement has not been seen to be proactive in investigating alleged wrongdoing in defence deals,” says Rajan Raj, a New Delhi-based partner at L&L Partners who focuses on litigation and white-collar crime.
“However, it has been able to overcome its inertia only after sufficient momentum has been built by overseas law enforcement, and its wide reportage in the international and domestic media creating political and public pressure,” says Raj, citing the examples of AgustaWestland and Bofors.
The Swedish artillery supplier, Bofors, had also been accused of paying kickbacks in India in 1987, and was investigated first in Sweden and then by Indian investigation agencies.
Raj adds that it is only when authorities in foreign jurisdictions, where laws are stringent and strictly followed, are in hot pursuit of wrongdoers that India’s enforcement agency is seen to initiate action.
There is “always a skeleton in the closet when it comes to defence procurement,” says Bhan. “More often than not, these allegations give ruling governments political mileage that they are cleaning up the system.”
Raj agrees, and says: “corruption has been a longstanding concern in the defence sector.”
The Modi administration has been talking of exporting defence equipment, but India is far away from meeting global standards such as those in the US, Germany or Italy. “A sea change is warranted,” says Bhan, adding that “ease of doing business in India should not simply be on paper”.
India cannot expect global giants to transfer technology to India, or set up manufacturing units in the domestic market, unless the industry is regulated and easier processes are put in place, says Bhan, who adds that “[the process] will take its own time”.
He says it is difficult to identify what needs to be done to make the system foolproof. “Transparency helps, and governments around the world are working towards it,” he points out. However, defence contracts are hush-hush affairs because governments do not want to let the world know what they are procuring, or how they are building up their defences or preparing for war.
“The elephant in the room is the role of the agent,” says Bhan. While there is no harm in having middlemen, given their negotiation skills and industry knowledge, their role should be regulated, he says. Earlier, agents were banned from playing any role in India’s defence procurement.
Other countries do allow agents but they are better regulated than in India, says Bhan. “We do not encourage our clients to deal with agents because their role is still unclear.”
The Briefing is prepared by Freny Patel.