Copter scam puts defence agents back in spotlight

With the latest AgustaWestland helicopter import scandal, it is time to re-examine the role of the ubiquitous but ostensibly banned defence agents, middlemen, intermediaries, brokers, consultants, weapon merchants or reps as they are variously known, says Rahul Bedi

Allegations of corruption in the Rs 3546 crore purchase of 12 AgustaWestland AW101 helicopters for the Indian Air Force’s VIP squadron, once more raises the controversial and angst-ridden issue of employing agents to facilitate India’s materiel procurements.

The helicopter import, now being inquired into by the Central Bureau of Investigation, allegedly involved at least three agents -- two Italians and one Briton -- who reportedly paid out around Rs 370 crores in bribes to various officials to secure the contract.

Defence Minister A K Antony has declared that if the CBI inquiry eventually unearthed any evidence of corruption, India will ban Finmeccanica SpA, AgustaWestland’s parent company, and cancel the deal.

"I can assure you, the moment we get a report from the CBI, we will take the strongest action provided in the Integrity Pact,” the minister stated in New Delhi on February 13.

While inking defence contracts all vendors are required to sign the “Integrity Clause” stating no middlemen or agents -- proscribed under Indian Defence Procurement Procedures -- were employed to secure the deal.

Introduced in 2004 by the Congress party-led federal coalition soon after returning to power, the clause affirms that the contract will be terminated at any later stage if this declaration proved incorrect. The money too would be refunded by the vendor.

This pact, however, has never been invoked over the past nine years, signed routinely by vendors unmindful of its content or consequences.     

"If anybody is guilty, they will have to pay the price, we will have to take action; no one will be spared,” Antony thundered.

“If a company violates the (sale) conditions they are liable for criminal action," he declared.

It is, however, highly unlikely that these inquiries will reveal anything substantial as in the past the CBI has proven itself wholly inept in dealing with dodgy defence purchases.

In April 2005, for instance, the MoD under Pranab Mukherjee ordered the CBI to inquire into 38 military contracts worth over Rs 1700 crores awarded to foreign vendors by the outvoted National Democratic Alliance administration. Nothing emerged from the investigations.

Besides Antony, the MoD and the IAF are silent on how they will proceed if anything incriminating emerges from the inquiry as three of 12 helicopters have already been delivered, with the remaining nine to be handed over by July.

Will the MoD keep the AW101s and ask for the entire payment to be reimbursed? Or will they return the three platforms and demand their moneys be returned?

For either option, the MoD will need extended arbitration that could take years to adjudicate and even then the result may not be to its liking. 

And, as hysteria mounts on television news channels over the AgustaWestland import scandal, it is time to re-examine the role of the ubiquitous but ostensibly banned defence agents, middlemen, intermediaries, brokers, consultants, weapon merchants or reps as they are variously known.

In Indian military circles it is axiomatic that the Byzantine complexities of  Defence Procurement Procedures revised each year impose a needless hypocrisy on the MoD, as its officials frequently and openly meet agents to exchange information, discuss equipment requirements and, above all, liaise for trials which in themselves are a hugely complex affair.

Undertaken on a ‘no cost, no commitment’ basis by the vendors they necessitate a raft of permissions from innumerable departments, a procedure which, in itself, lends itself to corruption.

Additionally, it requires at least 18 MoD departments or agencies to provide clearance for materiel acquisition. Consequently, procurements that are projected to take 48 months under DPP guidelines often take around seven-eight years, if not longer, further triggering corruption.

The dilemma over defence agents has haunted successive administrations, particularly after the 1987 Bofors howitzer scandal -- formally closed only last March, after 21 years of inconclusive investigation, and costing Rs 250 cores, that indicted no one.

And each government has been unable to either deal with it or neutralise it by rendering the inherently corrupt and highly bureaucratic system easily negotiable and genuinely transparent. 

After assuming office in 1999, former defence minister George Fernandes reinforced the ban on agents and ordered an inquiry into all military purchases, including spares acquired since 1985 worth over Rs 700 crores. 

The Central Vigilance Commission, the CBI and the Comptroller and Auditor General were tasked with probing the alleged involvement of middlemen and to recommend efficient and corruption-free procurement guidelines for acquiring military goods. 

The CVC's subsequent recommendations to legalise defence agents, by registering them in order to initiate transparency and efficiency in the laborious and graft-ridden military procurement procedures, led in September 2001 to ambiguous and contradictory guidelines to register them with the MoD by recording their contractual, banking and financial details.

But the registration rules were so stringent that over the past 12 years not a single agent has registered with the MoD, fearful of becoming a scapegoat in case anything untoward occurred in the contract -- like in the AgustaWestland import.  

Defence agents, of which some 150-200 operate with impunity in Delhi, however, concede that their business is nothing but a public relations game, in which catering to the greed of relevant officials ensures success.

They remain convinced that they will continue to facilitate the bulk of India’s defence purchases -- estimated at $80-100 billion till the end of the 13th Five-Year Defence Finance Plan in 2022.

Over the past decade almost all major overseas defence vendors had opened offices or liaison bureaus in India, employing local representatives to exploit this opportunity.

Many of these companies employ a raft of retired military officers and civil servants who, operating between the lines, have emerged as being vital to India’s weapons acquisition process.

Banning Finmeccanica SpA will not be without operational consequences for India’s military, as many of the Italian company’s subsidiaries annually conduct $ 300- 400 million worth of business in the country.

Oto Malera, for instance, supplies 76/62 mm guns to the Indian Navy whilst Selex supplies navigation and communication systems to varied IAF platforms. Selex radars are also fitted onto the Rafale presently under purchase by the IAF in support of its 126 Medium Multi Role Combat Aircraft acquisition.

Alongside, Fincantieri SpA, another Finameccania company, signed two two USD 30-40 million contracts with the navy in 2005 for the design and propulsion system integration of its indigenous Project 71 Indigenous Aircraft Carrier under construction at Kochi, Kerala. Finacantieri also sold the navy two 27,000-ton fleet tankers -- INS Deepak and INS Shakti -- that joined service in 2011.

“Banning Finameccania will result in additional problems as India’s military struggles to modernise itself,” former brigadier Arun Sahgal, joint director of the Institute of National Security Studies in Delhi, said.

The MoD must revise its procurement procedures, making them more realistic and less cumbersome in order to reduce corruption and facilitate quick purchases, he added.