India Moves to Scrap Helicopter Deal After Bribery Arrests

India took the first steps to cancel a $753 million deal to buy helicopters from Finmeccanica SpA, as accusations bribes were paid to secure the contract fueled opposition attacks on Manmohan Singh’s government.

The defense ministry in New Delhi yesterday issued a notice giving AgustaWestland, the Anglo-Italian unit of Finmeccanica, seven days to explain why the Indian government shouldn’t terminate the agreement for 12 helicopters under a so-called integrity pact included in the deal.

Finmeccanica Chief Executive Officer Giuseppe Orsi was arrested Feb. 12 on accusations of corruption and tax fraud as authorities investigate alleged illegal payments tied to the contract for the sale of AW101 helicopters to India in 2010. The company has denied wrongdoing. Three of the helicopters have been delivered.

India’s defense ministry has asked the Central Bureau of Investigation to investigate the purchase and suspended further payments to AgustaWestland. “With today’s show-cause notice, the operation of the contract has been put on hold,” the ministry said in the statement.

AgustaWestland acknowledged the request for information in an e-mailed statement today, denying it was a cancellation. “AgustaWestland is preparing its answers to timely meet the Indian Ministry of Defence’s request,” the company said. “AgustaWestland is confident that the full compliance with the relevant laws as well as the good conduct of its past and present senior executives and managers will be demonstrated as soon as practicable.”

‘Strongest Action’

Finmeccanica, Italy’s biggest defense contractor, Feb. 14 promoted Alessandro Pansa to CEO to succeed Orsi. Analysts in the Indian capital said the fall out from the helicopter purchase could hit other deals between the Italian company and India’s government.

“Blacklisting of Finmeccanica can’t be ruled out and if it happens it’s a lose-lose situation for the company and India’s defense ministry,” said Deba Ranjan Mohanty, chairman of the Indicia Research & Advisory, a New Delhi-based defense research organization. The company provides other equipment for India’s armed forces.

Defense Minister A.K. Antony, whose personal probity helped him win charge of the department that has in the past been plagued by scandals, said Feb. 13 “strongest possible action” will be taken if investigations uncover evidence of corrupt payment. “We will not tolerate corruption in defense deals.”

Singh Pressure

Prime Minister Singh and his government have come under intense fire from opponents led by the Bharatiya Janata Party following the arrest of Orsi and local media reports, citing Italian court documents, that bribes were paid to Indians to secure the helicopter deal.

Allegations of graft surrounding the sale of artillery by Sweden’s Bofors AB contributed to the defeat of the Congress party government of then premier Rajiv Gandhi at elections in

1989. Congress, elected in back-to-back elections in 2004 and 2009, is now headed by Gandhi’s Italian-born widow, Sonia.

The government headed by Singh has been assailed by rivals over corruption charges since 2010 as scandals linked to the hosting of that year’s Commonwealth Games and an earlier sale of mobile-phone permits emerged. The accusations against his administration -- which led to a cabinet minister being jailed and put on trial -- helped trigger a two-year logjam in policy making and an economic slowdown.

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