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Helo Bribery Case, Shooting Fray India-Italy Ties

Mar. 18, 2013 - 07:48AM   |  
India's investigation into alleged kickbacks by Italy's AgustaWestland to sell AW101 helicopters to the country has taken a step forward as a separate diplomatic row between Rome and New Delhi worsens.
India’s investigation into alleged kickbacks by Italy’s AgustaWestland to sell AW101 helicopters to the country has taken a step forward as a separate diplomatic row between Rome and New Delhi worsens. (AgustaWestland)
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ROME and NEW DELHI — India’s investigation into alleged kickbacks by Italy’s AgustaWestland to sell AW101 helicopters to the country has taken a step forward as a separate diplomatic row between Rome and New Delhi worsens.

India’s Central Bureau of Investigation (CBI) launched a criminal case March 13 against former Air Force chief Shashi Tyagi and 11 others suspected of taking bribes from AgustaWestland to adjust a tender to favor the AW101.

India bought 12 AW101s in 2010 for 560 million euros ($726 million) for VIP transport. Italian magistrates probing the deal last month ordered the arrest of Giuseppe Orsi, CEO of parent company Finmeccanica, who was CEO of AgustaWestland at the time of the helicopter deal, on suspicion of organizing the bribes. Orsi resigned last month and was replaced by Chief Financial Officer Alessandro Pansa.

Both Tyagi and Orsi deny wrongdoing.

As the Indian probe accelerates, diplomatic relations between India and Rome continued to plummet last week after Italy decided not to surrender to Indian courts two Italian Marines accused of shooting two Indian fishermen dead last year as they guarded an Italian-flagged merchant vessel from pirates in the Indian Ocean.

The men were arrested by Indian authorities but were allowed to return to Italy in February to vote in a general election on the condition they return.

The Italian government then decided not to deliver the men, claiming they should face justice in Italy because the incident occurred in international waters.

On March 14, India’s top court told Italy’s ambassador not to leave the country without its permission after Prime Minister Manmohan Singh warned Italian authorities to “keep their word” and promised fallout for bilateral relations if they did not.

Despite the helicopter probe and the row over the Marines erupting simultaneously, analysts said the Indian government is likely to try to keep the two issues separate.

“It suits the ruling United Progressive Alliance government led by the Congress President Sonia Gandhi to take independent decisions despite the reported anger in India over the Marines episode,” defense analyst Nitin Mehta said.

“The fate of Italian defense companies and the Marines episode are two separate things, and this is the way the government will maintain things in order to ward off heat from the opposition,” he added.

Moreover, Mehta argued that AgustaWestland and Finmeccanica could survive the probe with their reputations intact in India.

Payment of kickbacks in defense is a “known fact,” he said, while Indian Defence Ministry sources added that Finmeccanica would still be in competition for defense deals as long as it is not blacklisted.

But one European analyst did not rule that out, arguing that a conviction in Italy for Orsi could help trigger a blacklisting. “The extreme scenario would be a knock-on effect for partnerships involving Finmeccanica, like MBDA and Eurofighter,” he said.

One U.S. analyst was more sanguine.

“There are enough questions about legal procedures in India to keep Finmeccanica’s reputation from being damaged too badly, although Berlusconi’s comments about bribery didn’t do Italian industry any favors,” said Richard Aboulafia of the Teal Group, a Fairfax, Va., think tank.

Earlier this year, former Italian Prime Minister Silvio Berlusconi said paying bribes is normal and necessary abroad. He walked back the comments shortly after.

“The issue is really about management disruption and distraction, which will have an unwelcome impact on Finmeccanica’s competitiveness,” Aboulafia said.

Alex Ashbourne-Walmsley, a director of U.K.-based Ashbourne Strategic Consulting, said Finmeccanica has work to do when it comes to restoring its reputation.

“I think the ‘damage’ has been exaggerated, but there will still need to be a major PR exercise,” she said.

A French analyst also believed that Finmeccanica would be able to survive the AW101 probe, even if convictions followed, judging by similar episodes in France.

“I don’t think it will have serious long-term implications; this is a problem of international commerce,” said Jean-Pierre Maulny, deputy director of the Institut des Relations Internationales et Stratégiques.

Maulny pointed to the involvement of Thales and DCNS in irregular deals to sell frigates to Taiwan in the 1990s.

“There are also the suspicions that the bomb attack on DCNS offices in Karachi in 2002 was not a terrorist attack, but linked to non-payment of bribes by the French government,” he said.

“Finmeccanica is not the first firm to have problems. Look at BAE [Systems] in the [Arabian] Gulf, where [former U.K. Prime Minister] Tony Blair stepped in to stop the inquiry,” he said. “In the U.S., you pay a fine, whereas in Europe, the press is more aware of the problem, and CEOs go to jail.”

Maulny said Finmeccanica has other problems to worry about.

“The biggest challenge the company has is that two CEOs have now resigned, and they have questions over strategy, over whether to sell assets or not while their two big markets, Italy and the U.S., are not growing,” Maulny said.

One Italian analyst was less convinced.

“The name of Finmeccanica has been particularly contaminated,” he said. He agreed, however, that European methods of investigation could accentuate the damage to reputations.

“The documents have been released before a trial has started,” he said. “Nowhere else in the world do wiretaps get published before a trial, before they can be verified to see if they stand up. It is easy to speak of the 51-million-euro bribe paid, but where are the traces on the balance sheet? For a foreigner, it looks like there is lots of proof, but right now there is little.”

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