Game Of Shadows

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Do you know that agents acting for Russian and Israeli military companies may have done more to torpedo India’s indigenous defence industry? Or that agents routinely bribe, steal information and plant stories to defeat rival contractors? Welcome to the shadow world of India’s defence agents . BY RAHUL BEDI

The murky import of 12 Agusta Westland AW101 helicopters for the Indian Air Force (IAF) from Italy has, once again, focused attention on the role of defence agents, or middlemen, in obtaining domestic military deals.

The issue of agents remains a complex and thorny matter, one that successive governments have grappled with ever since the alleged corruption in procuring 410 Bofors FH-77B howitzers for the Indian Army from Sweden, surfaced in 1987. In retrospect, the reported Rs. 64 crore in kickbacks in the Bofors purchase, supposedly disbursed to senior politicians, officials and company agents, is paltry compared to subsequent inducements paid, over years, to the same types of people, for numerous other military acquisitions.

The Bofors case dragged on for 25 years, costing the exchequer Rs. 250 crore, before it was formally closed in early 2012, without any indictments, with several of those charged for wrongdoing having died. MoD and military officials concur that it’s more than possible that the AgustaWestland, and other materiel procurement cases that the Ministry of Defence (MoD) is ‘discreetly examining’ too, will similarly end, inconclusively.

The larger fall out of the Bofors scandal, however, was that it triggered the rout of late prime minister Rajiv Gandhi’s Congress Party government in the 1989 general elections. It also made the howitzer purchase a euphemism for shadowy arms deals involving cloak and dagger manoeuvres by defence agents or middlemen. And though all such intermediaries were immediately proscribed, they resumed their operations soon after, functioning between the lines to execute a vital, almost indispensable, connect between overseas materiel vendors and India’s MoD and military, struggling to modernize itself.

AGENTS ARE NEEDED

All three services are seeking to replace their Soviet-era equipment, which had long reached collective obsolescence, by expending $100-120 billion by the end of the 13th Defence Plan in 2022.

It’s a cosy relationship between agents and officials that has endured over decades and nobody wants it disturbed irrespective of the political rhetoric by successive administrations

Employing an assortment of retired military officers and former MoD officials, these agents ably assist their principals in navigating India’s byzantine weapon acquisition guidelines, complicated further in successive editions of the Defence Procurement Procedure (DPP), first introduced in 2002. Armament industry executives said the periodically revised DPP and associated, albeit equally complex Defence Offset Guidelines, were so convolutedly structured that few locally or aboard, could fully comprehend or decipher them.

To further complicate matters, the latest DPP 2016, released on March 28, is incomplete in critical aspects dealing with offsets, regularizing agents, blacklisting of vendors for alleged malpractice and aspects relating to indigenous equipment manufacture, under the inchoate Make in India initiative.

Consequently agents-essentially entrepreneurs with an understanding of local procedures, flair for public relations, man-management and the omnipresent ‘Jugaad’, emerge as indispensable entities in India’s procurement process. And, since India imports nearly 70% of its military requirements, despite assertions by successive administrations of becoming self-reliant, the agents’ role in this sphere is pervasive. Through experience, patience and tenacity in dealing with India’s military bureaucracy and the MoD’s hidebound systems, these agents unravel the multi-tiered procurement processes for their principals for handsome retainers, working expenses and a hefty commission, disbursed overseas, on deal closure.

Successful agents, of which there are around 200-odd in Delhi and an equal number across the country, had even perfected the tactic of marshaling their clout to intervene in rival contracts nearing closure, in a process that former army Chief General V K Singh had likened to a game of snakes-and-ladders. The motive in this high stakes pursuit, in which it took years to climb to the top and just days, if not hours, to slide back down again, was simply to extract a major payout from a competitor, desperate to close his deal after years of expensive penance.

In these intricate processes, the agents and their foreign principals became amazingly wealthy, as do their ‘clients’ in the military, the MoD and an assortment of skillfully networked politicians and bureaucrats.

Israeli defence contractors, on the other hand with worrisome access to India’s military sector, particularly the DRDO, pursue a ‘buckshot’ approach in securing contracts, convinced that one if not more of the ‘pellets’ or agents would eventually hit their target

“The DPP is a complex, process-driven document, which perforce encourages the involvement of agents to unravel and manage,” military analyst Major General Sheru Thapliyal (Retd) said. However, official endeavour aimed at keeping agents out of the weapon acquisition process, he added, was in inverse proportion to their deep involvement in the arms business.

A senior MoD official too admitted that India’s highly bureaucratic and secretive procedures for materiel procurement encouraged the involvement of agents or middlemen or local company representatives, to decode and manage. “Innumerable intertwined links in the arduous selection process,” he said, declining to be identified “need to be understood, oiled and motivated before procurements proceed and contracts are inked.” It’s a cosy relationship between agents and officials that has endured over decades and nobody wants it disturbed irrespective of the political rhetoric by successive administrations, he added.

LUCRE, LIFESTYLE

MoD and military officials privately concede that the official ban on agents imposed a needless ‘hypocrisy’ upon them. This became even more duplicitous when vendors inking contracts were required to sign the Integrity Pact, stating that no middlemen or agents had been employed to secure the deal. Under the pact, introduced in 2004 by the Bofors-tainted Congress Party soon after it returned to office, all defence contracts can be terminated if proof emerged that this declaration had been contravened at any stage of the deal, even long after its conclusion.

It also provided the MoD the authority to recover punitive damages, in addition to all previous moneys paid for the tender, as was accomplished by the MoD in the AgustaWestland contract, even though it was under arbitration.

Three arbitrators, one each from the MoD and AgustaWestland and third appointed by the International Chamber of Commerce in Paris, will eventually adjudicate on the deal and determine the future of three AW101 helicopters which the IAF had received in December 2012. These platforms have been mothballed at the IAF’s base at Palam in New Delhi, unable to operate to transport VVIP’s.

One agent confessed that at times the officials’ greed was embarrassing and shameless. One MoD officer, he admitted, even demanded new tyres for the car he had been given earlier as a ‘sweetener’ to facilitate a deal, over a year after it was inked

“It’s a dog eat dog business and only jungle rules apply,” said a leading arms dealer, who has successfully worked the MoD procurement system for decades.

Reminiscing about the old days, he said that before the Bofors scandal erupted, fewer service and MoD officers were corrupt, grateful for the odd Scotch whisky bottle, a carton of cigarettes or for the more discerning, an expensive fountain pen or Habana cigars, from vendors or their agents. But once the Bofors scam unraveled, highlighting the percentages allegedly paid out by the Swedish armament makers to various officials and politicians, venal MoD officers and deprived military men jumped onto the gravy train.

They began demanding a percentage of the overall contract deals for ‘processing and progressing’ procurement files from their desks, amassing large amounts, which were either disbursed in overseas accounts or in cash, or via a combination of

the two.

”L’affaire Bofors illuminated the pathway to money making for all those involved in defence procurements, and a large number in the military acquisition chain have not looked back since,” the dealer declared. It’s only got worse and more competitively corrupt, with the vendors and their agents being the main drivers and propagators of this greed, he added.

Media accounts glamourizing agents, their expensive accouterments and playboy lifestyles are, in reality, somewhat exaggerated. In actual fact, there is little allure attached to their work, which is grueling and often, a soul killing and humiliating enterprise. It requires each one of these agents and their minions, to ingratiate themselves with grasping military men, unscrupulous MoD officials, politicians and power brokers. They are required to continually flatter them, in addition to proffering incentives for clearing their deliberately delayed paperwork in labyrinthine MoD departments in South Block, nearby Sena Bhawan and multiple other associated agencies.

According to a conservative estimate, approvals from 18 MoD and related divisions are needed before any procurement can be progressed, providing ample scope for corruption at each stage that agents have to manage.

A B Vajpayee’s National Democratic Alliance government in November 2001, decided to regularize defence agents by formally registering them. At the time the MoD declared that their working needed ‘stricter regulation’ to prevent them from influencing decision makers and issued ambiguous and contradictory guidelines to list the agents

Other than cash, enticements include jewellery, real estate, top-end cars and SUVs, overseas education for the offspring of military and MoD officials, and often, even paying for their lavish weddings, anniversaries and birthdays. Other enticements include regular and deviant sex, esoteric alcohol, fully paid-up overseas family holidays, golf sets, rare dogs and cats for the indulgent officials’ offspring and crystal-ware, esoteric cutlery and crockery, antiques and imported furniture for their acquisitive memsahebs.

One agent confessed that at times the officials’ greed was embarrassing and shameless. One MoD officer, he admitted, even demanded new tyres for the car he had been given earlier as a ‘sweetener’ to facilitate a deal, over a year after it was inked.

“We meet frequently with agents of foreign armament vendors to exchange information, discuss requirements and above all liase for trials on a ‘no cost, no commitment’ basis” a three-star army officer said.

Equipment trials, in themselves, are a hugely complex affair, requiring innumerable arduous clearances from various departments like the Intelligence Bureau and Home and External Affairs ministries, all of which the agents facilitate. But their darker side includes generating ‘biased’ reports from the respective services, which in several instances have been manipulated by the agents to suit their particular weapon system.

These highly classified trials reports are the sole preserve of Army Headquarters and not shared with the MoD. The reports of howitzer trials featuring the FH-77B Bofors gun, for instance, were never revealed to the MoD or the investigating agencies inquiring into the corruption case. It’s an open secret in Delhi’s military circles that agents long retained by state-run Russian defence enterprises were probably the most significant, with decades of entrenched influence, followed closely by those working for Israeli companies, India’s third largest defence equipment provider.

Agents representing European and sundry other suppliers brought up the rear in the materiel supply stakes, whilst US companies provided India equipment almost entirely via the Foreign Military Sales (FMS)-or government-to-government-route, which precluded agents.

Industry sources said Russian and Israeli agents were capable not only of sabotaging indigenous weapon development programmes to push their wares, but of neutralizing competition and influencing respective Service headquarters to formulate qualitative requirements (QR’s) fashioned specifically around their products.

Russian agents working in tandem with Indian officials were also believed to be responsible for securing an average 14 per cent mark-up on the purchase price of virtually all Moscow-sourced equipment, dividing the proceeds equally between them.

Military sources said just before any such deal was inked, a smoothly orchestrated operation roped in non-state actors and in a well-practiced manoeuvre, disbursed this ‘bonus’ amount overseas. Conversely, political cabals in Delhi amply compensated these disbursers, by awarding them with other lucrative contracts, at times, not in the defence sector.

Army sources said one of many such known instances was the February 2001 deal for the import of 310 Russian T90S main battle tanks (MBTs) for around $800 million. Extended negotiations for the MBT had faltered around mid-2000, principally over payment of the accepted 14 per cent commission, though publicly the reasons proffered for the breakdown in discussions were never fully clarified.

Thereafter, a top MoD official visited London, where he allegedly met with a prominent business family of Indian-origin with extensive Swiss banking interests. This ensured that payments were made to people involved with the MBT contract from either side, following which the T90S deal was miraculously signed in early 2001. Soon after, the London-based business group was awarded a lucrative MoD contract for transport vehicles, besides a share in the $1.2 billion import of 57 additional BAE Systems Hawk 132 advanced jet trainers for the IAF.

Israeli defence contractors, on the other hand with worrisome access to India’s military sector, particularly

the DRDO, pursue a ‘buckshot’ approach in securing contracts, convinced that one if not more of the ‘pellets’ or agents would eventually hit their target.

They engage a multitude of lesser-known operators, junior military officers, low key businessmen and former civil servants, all approved by SIBAT, Israel’s Foreign Defence Assistance and Defence Export Organization on a case-by-case basis, offering them differing incentives to finalize deals in what, over years, has earned them great success. However, a little known incongruity in India’s military procurement process were the Indian Supply Missions, attached to Indian embassies in Tokyo, Washington and London.

ROLE OF DPSUs

Till the early 1990’s, these Missions were authorized to acquire military goods through officially acknowledged agents for the Defence Research and Development Organization’s (DRDO’s) Integrated Guided Missile Development Programme; the only difference was that the principal was required to identify the agent, who then was legally paid commission in rupees through the Reserve Bank. Paradoxically, outlawing agents after the Bofors scandal spawned another new, albeit safe defence broker, the Defence Public Sector Units (DPSU’s).

Being state-owned, the eight DPSU’s were immune from the agent ban and consequently their role in brokering deals, often accompanied by a transfer of technology (ToT), increased exponentially, guaranteeing them huge profits. These DPSU’s included Bharat Electronics, Bharat Dynamics, Electronic Instrumentation India, Bharat Earth Movers, Hindustan Aeronautics, Mazagaon Dockyard and Garden Reach Shipbuilders and Engineers, all of who brokered deals with foreign Original Equipment Manufacturers (OEMs) under the MoD’s ‘Buy and Make’ category.

However, successive parliamentary defence and other watchdog committee reports revealed in excoriating reports, often ignored by the media or reported cursorily, that the ToT aspect of these deals was symbolic. It added little or nothing to indigenous capacity building or enhancing self-reliance in materiel needs. At best, these technology transfers, over years served to boost respective DPSU’s engineering skills to produce non-critical components. Critical items continued to be directly imported for assembly for a host of platforms, missiles, aircraft and other defence equipment, once again via the ubiquitous agents.

“By acquiring defence equipment through the DPSU’s, the MoD merely legitimized agents through the back door,” a MoD official conceded. He said the DPSU’s, after striking a deal with local agents representing foreign OEMs, entered into contracts with the MoD to supply the Services this same equipment, but at inflated rates. “In the process the DPSU’s neither built their technology base, nor struck a blow for the much vaunted self-reliance touted by every government,” the official stated.

REGULARIZING AGENTS

After much tortuous soul searching, aimed at regulating the functioning of defence agents, whose efficacy was officially, though grudgingly conceded, prime minister A B Vajpayee’s National Democratic Alliance government in November 2001, decided to regularize defence agents by formally registering them. At the time the MoD declared that their working needed ‘stricter regulation’ to prevent them from influencing decision makers and issued ambiguous and contradictory guidelines to list the agents.

It sought to record, amongst other minutiae, their contractual, banking and financial details and supplementary conditions were so harsh, invasive and draconian that not a single agent lined up to register, preferring instead to function in the comfortable twilight zone.

“It was an impractical policy, as the MoD sought to micro-manage the role of agents by going to the extent of saying that the amount of commission paid to them will have to be in keeping with its guidelines and recorded in the contract,” said Amit Cowshish, former MoD acquisition advisor. The policy remained inoperative, as the guidelines for regulating agents’ payments was never issued, he declared. The procedures further stated that the principals would be liable for any wrongdoing by their representatives, an ominous aspect, enough to spook anyone even remotely contemplating registration with the MoD, he added.

Defence Minister Manohar Parrikar admitted that company representatives or agents were a convenient channel of communication between materiel vendors and the MoD, which would impose extensive checks and balances on them, by demanding comprehensive information from their principals regarding their fee structure

Some years later even prime minister Mamohan Singh, in his first term, publicly acknowledged on his way back from an overseas trip, the indispensability of agents for defence imports, but did little to further their legitimacy.

“To state that agents can corrupt officials shows a lack of confidence in the integrity of government functionaries,” said retired Major General Mrinal Suman, India’s foremost authority on defence procurements and offsets in response to Singh’s observation. It implied that all officials dealing with military procurement are predisposed to corruption, and hence must be kept away from temptation, he stated. It’s a sad reflection and tacit admission of the administration’s failure to find functionaries, whose integrity is beyond reproach he added.

Defence Minister Manohar Parrikar too has bowed to the inevitability of legalizing defence agents, by reiterating that the MoD would formulate policy on sanctioning them in the DPP 2016 that awaits completion.

“We will allow (defence ) company representatives (in India). They should be formalized and legalized,” he stated in December 2014 at a conclave hosted in Delhi by the Aaj Tak Hindi television news channel and restated it numerous times since.

Parrikar admitted that company representatives or agents were a convenient channel of communication between materiel vendors and the MoD, which would impose extensive checks and balances on them, by demanding comprehensive information from their principals regarding their fee structure and methods of payment. “We would require a clear agreement, deposited with the MoD in advance with heavy financial penalties if this was violated” he said.

MoD and industry officials, however, are skeptical whether, like previously, any agents would step forward and register themselves, as the proposed requirements remained unrealistic. Besides, there was a proliferating ‘trust deficit’ between the agents and the MoD that was only ballooning, as the government doggedly pursued past defence purchases with a political agenda which threatened to adversely impact India’s military modernization. “It’s time the defence procurement system became real and formally regularized agents to increase transparency,reduce corruption and speed up acquisitions,” a senior army officer said. Otherwise vested

interests will continue to be perpetuated resulting in a stalemate and little or no military modernization, he warned.

Summary

  • Decades after the Bofors howitzer scandal, defence agents continue to operate in the shadows, bribing, offering inducements and battling rivals
  • Agents work for every foreign firm but those working for the Russians and Israelis are seen as having done maximum damage to India’s indigenous effort
  • In the wake of the AgustaWestland affair, there is a renewed effort to bring defence agents from outside the pale, but will it work?
  • MILITARY SCANDALS

    Scams in India go back a long way, all the way to independence and have carried on since then. One fact stands out, its rare for anybody especially politicians, to get caught

    Jeep scandal 1948:

    Independent India’s first brush with high level corruption involving Krishna Menon, then high commissioner to London. Ignoring standard protocols in such cases, he signed a deal worth Rs.80 lakh with a British firm for the purchase of 200 jeeps for the Indian Army. The money was paid upfront but only 155 jeeps were delivered. Then home minister GB Pant dismissed demands for a judicial inquiry and Menon, on his return to Delhi, was appointed minister without portfolio in Nehru’s cabinet, later becoming defence minister.

    Bofors scandal 1987: Former Prime Minister Rajiv Gandhi was at the centre of the Bofors scandal after allegations that Rs 64 crore was paid to middlemen to facilitate the deal for the 155mm howitzers from the Swedish firm Bofors. The allegations were first made by Swedish radio. It was alleged that OttavioQuattrocchi, who was close to the family of Rajiv Gandhi, acted as a middleman in the deal and received kickbacks. The deal for 400 Bofors guns was worth $1.3 billion.

    HDW submarine scam 1987: In 1979 the Morarji Desai government approved a plan for four hunter killer submarines with a maximum diving depth of 350 metres at an estimated cost of Rs.350 crore. The navy shortlisted four foreign suppliers led by the Swedish firm Kockums, second on the list was the Italian Sauro class built by Fincantieri. Germany’s HDW was ruled out since it had a maximum diving depth of only 250 metres. But HDW catapulted to the top when Mrs. Indira Gandhi returned to power in 1980 and the deal was signed the next year. The scandal exploded in 1987 when VP Singh was defence minister. He received word from the Indian Embassy in Bonn that a seven per cent commission was paid for the deal. He ordered an inquiry and within days was out of office.

    Coffin scam 1999: During the 1999 Kargil war, aluminium coffins were purchased from a US firm that were of the wrong specifications. In the uproar that followed, it was alleged that then defence minister Fernandez benefited from it. It later turned out that a typographical error, where the word gauge was substituted with the world kg in the procurement order, was responsible for the mixup and wrong delivery. The Supreme Court last year dismissed the case involved in the case.

    Barak missile scam 2006: Former president APJ Abdul Kalam had opposed the purchase of the Israeli Barak missile, which was being acquired at a cost of Rs. 1,150 crore. The CBI registered an FIR in the case in 2006, wanting to know why it was being bought despite Kalam’s objections. The CBI says the missile was being acquired at a cost more than what Israel had initially quoted. Then defence minister Fernandez was reported to have overruled Kalam.

    Sudipta Ghosh case 2009: In 2009 the former Ordnance Factory Board director general Sudipta Ghosh was arrested by the CBI. He had allegedly taken bribes from two Indian and four foreign companies which had been blacklisted by then defence minister AK Antony.

    Tatra trucks scam 2012: Former Army Chief General VK Singh alleged that he was offered Rs 14 crore as bribe to clear the purchase of Tatra trucks. The trucks were acquired from the public sector BEML through intermediaries at an inflated price. The trucks were also left hand drive.

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