India bribery scandal threatens to ground $750-million copter deal

NEW DELHI – India’s defense minister threatened Wednesday to cancel a $750-million helicopter deal with an Italian defense company if an official investigation proves contracts were secured through kickbacks, in the latest corruption scandal to hit the Congress Party-led government in advance of a 2014 general election.

The threat follows reports by Italian media this week that Roman prosecutors have named former Indian Air Chief Marshal Shashindra Pal Tyagi in a bribery probe of Italian aircraft company Finmeccanica. Prosecutors reportedly suspect that Finmeccanica paid some $68 million under the table, around 10% of the total price, to ensure that its AgustaWestland helicopters won the India contract.

Finmeccanica’s chief executive was arrested Tuesday in Rome, and the head of its British-based AgustaWestland subsidiary is under house arrest. Italy has also issued arrest warrants for two consultants living in Switzerland who allegedly helped broker the deal.

“If we find any evidence of corruption, then we will blacklist the company and even cancel the deal,” Defense Minister A.K. Antony told reporters in New Delhi. “We can get our money back at any stage.”

India on Tuesday ordered the Central Bureau of Investigation, its equivalent of the FBI, to look into the allegations. The 2010 helicopter deal, involving a dozen three-engine AW-101 helicopters, was vetted by India’s finance and defense departments and Prime Minister Manmohan Singh.

Three of the aircraft – designed to ferry the prime minister and other VIPs around -- have been delivered and the rest are due by mid-2014, although future shipments could be suspended pending the outcome of the investigation.

The news quickly reverberated across India, fueling panel discussions, accusations and speculation on India’s hyperactive news channels. Tyagi denied any wrongdoing in appearances on several networks and said he welcomed the investigation. “I’m in shock,” he told reporters, pointing out that he retired three years before the deal was signed. “My conscience is absolutely clear.”

Tyagi acknowledged, however, that three of his cousins had contacts with Finmeccanica officials or intermediaries, some of whom he may have met at a relative’s party in 2010. “The fact is, they are related to me,” he added. “But I have never had discussions about the chopper deal.”

According to media accounts of a 65-page warrant issued by Italian prosecutors, Tyagi’s cousins are accused of helping alter Indian tender documents that lowered the helicopter’s required maximum altitude to 15,000 feet from 18,000 feet and added an engine-failure test, both of which favored AgustaWestland.

Antony accused Italy of dragging its heels in providing requested details of the allegations since they surfaced last year. “Nobody will be spared” in India, he added. “We will not tolerate corruption in defense deals.”

This is the latest in a series of multibillion-dollar corruption scandals involving the telecom, real estate, defense and sports industries since the Congress Party-led government took power in 2004. The next election is due by 2014.

The size, scope and frequency of scandals sparked massive demonstrations last summer across India amid calls for a special ombudsman law under consideration by parliament.

The latest allegations add to the perception that corruption in government is a way of life, analysts said. While Antony and Singh have a reputation for personal integrity, the parade of scandals raises questions about their oversight abilities, they added.

“As far as Manmohan Singh is concerned, this reinforces the perception that he passively watches as others loot,” said Swapan Dasgupta, a political analyst. “It adds to a perception of incompetence.”

An arms dealer in New Delhi who asked not to be identified said it was difficult to secure major contracts in India, the world’s largest weapons importer since 2011, without paying bribes or, for larger companies and countries, wielding political leverage.

The Finmeccanica allegations drew comparisons with a 1980s scandal in which Swedish defense firm AB Bofors paid $11.6 million in kickbacks to top Indian politicians and defense officials in a contract for 155-mm howitzer field guns. This led to the defeat of the Congress Party in the 1989 general election. “New Defense Scam,” said a headline on TV network Times Now. “Selling National Security.”

Defense analysts said lingering questions over the Finmeccanica deal could slow down a range of defense contracts as officials dive for cover. “The normal bureaucratic process is slow enough in India to delay things,” said Mohammad Ahmedullah, editor of Defenseworld.net, a trade website. “You don’t need a scandal in addition.”

Mark.Magnier@latimes.com

Tanvi Sharma in the New Delhi bureau contributed to this report.