The announcement of a large defense deal often means that a report of a corruption scandal is not far behind. The latest addition to the list of defense deals mired in corruption is the sale of 12 helicopters by Finmeccanica, a large Italian aerospace and defense company and one of Italy’s largest employers, to the Indian Air Force through its wholly owned Anglo-Italian subsidiary, AugustaWestland. The CEO of Finmeccanica, Giuseppe Orsi, allegedly paid a bribe of almost 3.5 billion Rupees ($66 million) to secure the contract worth nearly $749 million. One of the prime accused by the Italian prosecutors is the former chief of India’s Air Force, S.P. Tyagi. The terms of the contract and bidding process were allegedly doctored to ensure that AugustaWestland would emerge as the winner. India’s Central Bureau of Investigation is also conducting a probe into the scam. At present, there is no evidence of the involvement of politicians from India or Italy but there is a likelihood that more names could emerge. Though the Indian government is yet to receive details from the prosecutors in Italy, it is likely that it will scrap the deal between the Air Force and AugustaWestland.
This scandal is one of a succession of corporate scandals that have emerged in Italy in recent weeks. Italy’s third largest bank, Banca Monte dei Paschi, was hit by a derivatives scandal that resulted in losses amounting to nearly €730 million. Additionally, Saipem, an Italian oil services company and a subsidiary of Italy’s largest industrial company, Eni, is also under investigation over kickbacks paid to secure contracts in Algeria. The scandal is also likely to have political implications in Italy since the Italian government holds a 30% stake in Finmeccanica. Furthermore, the appointment of CEO Giuseppe Orsi in 2011 was supported by the Northern League Party, a political ally of then Prime Minister Silvio Berlusconi. This detail may grow in importance as the date to Italy’s general election inches closer.
In India, the consequences are not only likely to be politically damaging but also likely to temporarily stall the modernization of India’s army. While India is no stranger to corruption in defense deals, its race to acquire weapons to modernize its armed forces may have run into some traffic. India is one of the largest importers of weapons in the world and the government’s plans to scrap the helicopter deal from the Anglo-Italian manufacturer implies that India’s army will have to continue their age-old reliance on equipment from Russia. The Indian Navy is currently in advanced negotiation stages over the acquisition of multi-role helicopters in a deal worth nearly $2 billion. If AugustaWestland, one of the bidders vying for the deal, gets barred from the process by the Indian government, there is a strong likelihood that the negotiations will be stalled.
The controversy is still in its early days and more heads are likely to roll as details emerge. The implications of this scandal are undoubtedly large and we can be rest assured that we haven’t heard the last of it.