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Home > General > Can anything put India’s defence middlemen out of business?

Can anything put India’s defence middlemen out of business?

12 October 2013

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The Caravan, 1 September 2013

Boomtown: Can anything put India’s defence middlemen out of business?

by TORAL VARIA DESHPANDE

FOR A FEW HOURS ON A FRIDAY EVENING in March, the ballroom of London’s ritzy Westminster Park Hotel was worth more than 15 billion pounds. Or so proclaimed the organisers of the 16th annual Asian Business Awards, who had assembled some of the United Kingdom’s wealthiest South Asians and those who wished to network among them, promising “a unique platform for companies to engage with High Net Worth Individuals and Ultra High Net Worth Individuals from across the globe”. Among the men in tuxedos and the women flashing enormous diamond solitaires were NRI tycoons like the Hinduja brothers (who edged past the steel magnate Lakshmi Mittal to top this year’s “Asian Rich List”, released in conjunction with the awards), the generic pharmaceutical billionaire Yusuf Hamied, and the Labour Party parliamentarian Keith Vaz. The UK’s home secretary, Theresa May, was the night’s guest of honor. It was, more or less as advertised, a gathering of “Britain’s most high-profile and affluent Asian business moguls with an eclectic guest list of politicians, film stars, sporting celebrities and key influencers within the community.”

Awards were handed out for the Businesswoman of the Year, the Nursing Home Operator of the Year, the Social Entrepreneur of the Year, and a half-dozen other categories. But the night’s highest honour was the award for lifetime achievement, which went to Sudhir Choudhrie, the vice-chairman of C&C Alpha Group, who was introduced as “a pioneering entrepreneur with interests in hospitality, health care, aviation and real estate”. Choudhrie, a dapper man of 63 with a plume of graying hair, walked up to the stage after a flutter of warm applause and collected his honour from Theresa May. After the awards ceremony came to a close, the evening’s final event was a 20-minute conversation between Choudhrie, Cipla’s Yusuf Hamied, and Gopichand Hinduja, moderated by the BBC 1 host DJ Nihal.

It was a rare public interaction for Choudhrie, who typically shuns the media, though he did not reveal too much in the process. “We have four principles,” Choudhrie said, describing the secrets of his success. “You must have a dream, you must have an idea, you must plan, you must implement, and then only you can harvest.”

Choudhrie’s business interests are wide and varied, but one notable facet of his career—and the initial source of his considerable wealth—went unmentioned over the course of the evening: his longstanding reputation as one of India’s most influential arms agents. Due to his suspected involvement as a fixer in several defence deals, Choudhrie’s name figures prominently on the government of India’s current list of 23 “Undesirable Contact Men”—a rogues’ gallery compiled by the Central Bureau of Investigation (CBI), of “persons who are suspected to be resorting to corrupt or irregular practices in their dealings with official agencies”. (The list is officially secret, but copies are not difficult to obtain.) Government ministries and departments are forbidden from conducting business with these alleged lobbyists and bribe-dispensers, officially or unofficially—the instructions dictate that officials must “avoid associating with them socially and accepting hospitality or gifts from them.”

Some of the “Undesirable Contact Men” operate in areas other than defence: many have come under suspicion for their dealings with the income tax department, or ministries like coal, steel and petroleum. But one part of the list is a veritable who’s who of India’s most notorious arms brokers: men like Suresh Nanda, Mohinder Pal Sahni and Choudhrie, whose names surfaced repeatedly in defence corruption cases during the last decade, though to date the CBI has not secured a single conviction against them—or any other major defence middleman. (Hundreds of smaller players have managed to avoid investigation altogether.)

The work of a middleman eludes precise definition—and the men accused of facilitating deals through bribery or other inducements would never accept the name. Some operate their own arms companies; others simply represent foreign manufacturers as agents or consultants. Many are retired officers in the services they now lobby, while others have family connections to senior defence personnel or powerful politicians. The middleman rarely figures in a deal for his technical or operational knowledge of the product being sold. What he brings to the table is his network of connections in the military, bureaucratic and political establishment: his ability to grease the right palms, charm the big players, and navigate the confounding labyrinth of India’s defence procurement process—which has of late become even more complex and rigorous in an effort, as yet unrealised, to put the middlemen out of business.

If the tightening of rules has done nothing to thin the agents’ ranks, attempts to punish them in connection to crooked deals have fared even worse. Adding an alleged middleman to the UCM list, or blacklisting firms, is a measure of last resort for the government—a tacit acknowledgement that while cases against these men have not yet succeeded in court (if they even reach the courts), something must be done to obstruct their continuing operations. Even when an investigation is opened, the nature of the business makes it difficult for Indian agencies to collect evidence and prove criminal activity. It is possible to show, for example, that proper procedures have not been followed, and that a particular company has benefited. But even when foreign investigators have found concrete evidence of bribes and commissions, the money trail can rarely be traced.

“The payments in this business—the kickbacks—are paid in such complex and convoluted and secretive ways, it’s almost impossible for anyone to track, even for the CBI to track,” said Josy Joseph, a senior editor at the Times of India who has reported extensively on defence corruption and arms agents. “That is why no Indian agency has ever successfully prosecuted a single case, including Bofors. No arms agent has been convicted for a defence deal.”

THE PRESENCE OF DEFENCE MIDDLEMEN is not a new phenomenon: for as long as there have been deals to be done, there have been men with the influence and cunning to profit from fixing them. Officially, they do not exist: for decades, it has been illegal for agents to play any role in weapons contracts, and the rules intended to prevent their involvement have been tightened even further in the two and a half decades after the Bofors scandal blew up in 1987. And yet their numbers have only grown: according to numerous sources inside the government and the defence industry, there are today more “consultants”, front companies, and agents than ever before, all of them competing to find and exploit the remaining cracks and weaknesses in the system ostensibly designed to keep them out. “There are international middlemen looking out for deals everywhere,” said Vijay Singh, who served as defence secretary between 2007 and 2009. “They know that there are chinks in the armour everywhere, and you just have to locate them.”

In the long list of scandals that dominate the history of defence acquisition in India—which began with VK Krishna Menon’s “jeep scandal” in 1948, often described as the first major corruption case after Independence—the middlemen have often played starring roles. First, by facilitating the deal and pocketing the commission. Then, after the scams hit the headlines, for the cosy relationships they are inevitably discovered to have with leading politicians. The Italian businessman Ottavio Quattrocchi, who died this summer without ever facing trial for his role in the Bofors scam, may be India’s most infamous middleman—but it was his proximity to Rajiv and Sonia Gandhi, not the nature of the deal, that made Bofors the defining scandal of its time. Quattrocchi was hardly the first middleman, and far from the most successful. He just happened to be the most visible—and much like the few others who happened to get caught practising the trade, he was first exposed by foreign rather than Indian investigators.

In the wake of the Bofors scandal, defence procurement slowed markedly, and officials began talking about ways to keep middlemen on the sidelines. But at the end of the decade, a raft of new allegations emerged. In December 1999, a member of the Rajya Sabha, Jayant Kumar Malhoutra, used a discussion in the upper house to allege that up to 20 recent contracts had been tainted by the involvement of agents, middlemen and front companies, who continued to operate freely in spite of a ban on the use of their services. At around the same time, Rear Admiral SV Purohit, who had been the assistant chief of logistics at Naval Headquarters, filed a petition before the Delhi High Court to challenge his own stalled promotion, which included further sensational allegations about the outsized role of middlemen and agents in a series of big-ticket contracts.

As the accusations of corruption multiplied—in Parliament, the media, and court—the defence minister in the Bharatiya Janata Party-led coalition government, George Fernandes, came under relentless pressure to clean up the mess. In February 2000, he responded by ordering a sweeping investigation by the Central Vigilance Commission (CVC), which examined every defence contract larger than Rs. 75 crore that had been signed since 1989, when the ban on middlemen was first put in place.

After examining nearly 500 files handed over by the defence ministry, the CVC concluded in its interim report that “the ban on agents in the procurement of weapons and weapons systems ... is, in effect, not a ban at all.” The rules prohibiting middlemen in weapons deals had made no impact. In its investigations into the specific allegations raised by Purohit, which pertained to naval procurement, the CVC found ample evidence that middlemen exerted considerable influence in the purchasing process, even for minor items and spare parts, pointing to unnecessary purchases, “exorbitant” prices, bidding cartels, and the frequent violation of tender rules requiring multiple competing bidders.

In March 2001, the CVC submitted its final report, though the BJP-led government refused to make it public, a decision that was regarded as an attempt to prevent further scrutiny into deals concluded under its watch in the run-up to the Kargil War. By that time, however, a much bigger scandal had taken over the headlines: a sting conducted by Tehelka, known as Operation West End, which secretly taped a series of military officials and politicians accepting bribes to facilitate the purchase of non-existent night-vision devices.

The Tehelka tapes shed additional light on the murky world of arms middlemen—whose names were scattered throughout the recordings in connection with huge payouts to fix major deals, putting figures like Choudhrie and Nanda into the newspapers for the first time. In response to the growing series of scandals, along with revelations about equipment deficiencies and shortages during the Kargil War, the Ministry of Defence laid down stricter rules for foreign acquisitions in 2002—the first major update to the Defence Procurement Procedure (DPP) since the guidelines were introduced in 1992. But as the mandatory steps in the process have multiplied further in the last decade, so have the opportunities for agents and intermediaries, whose services have only become more valuable as the procedures increase in complexity.

See more at: http://caravanmagazine.in/reportage/boomtown#sthash.teMBy1yd.dpuf

P.S.

The large extract from The Caravan is reproduced here in public interest and is for educational and non commercial use