India fails to kick out arms
kickbacks By
Sudha Ramachandran
BANGALORE - The
controversy over kickbacks in the purchase of the
Barak anti-missile defense (AMD) system from
Israel has brought under scrutiny the role of arms
agents in India. Although middlemen in defense
purchases are banned in India, they are far from
banished. They continue to play - as the Barak
controversy has revealed - an important role in
greasing palms to clinch deals. A month ago,
India's Central Bureau of Investigation (CBI)
filed charges against former defense minister
George Fernandes for
finalizing a deal with Israel
Aircraft Industries in 2000 to supply seven Barak
AMD systems despite objections raised by the then
scientific adviser and the government-run Defense
Research and Development Organization.
The
CBI charged retired chief of naval staff Admiral
Sushil Kumar with recommending the Barak system
based on misrepresentation of facts. According to
the CBI, arms agent Suresh Nanda paid about
US$450,000 to senior functionaries of the Samata
Party - to which Fernandes belonged - to get the
Defense Ministry's nod for the contract.
The CBI, which is investigating 48 defense
contracts finalized during the previous
administration, swooped down on several arms
agents and raided their offices and residences
across India. The three big guns among India's
arms dealers - Suresh Nanda (son of retired
Admiral S M Nanda), Sudhir Choudhrie and Vipin
Khanna - were the focus of the raids.
In
India, middlemen figure in arms deals not so much
because they provide technical information
regarding the product but because of their value
in smoothing the decision-making process. They
grease palms in the political establishment and in
the civil/military bureaucracy and in the process
swing decisions in favor of the product/company
they represent.
Outlook magazine's Saikat
Dutta points out that middlemen can influence
decisions at various stages of the decision-making
process. They can influence the Procurement
Directorate's quality requirements to ensure that
only the company they represent qualifies for the
contract. They can influence members of the Price
Negotiating Committee or lobby politicians for a
particular weapons system. Most important, they
can facilitate the payment of commissions to
politicians, bureaucrats and officers of the armed
forces involved in the procurement process.
This makes them useful cogs in the
defense-procurement process and impossible to get
rid of, as they are valuable to the arms supplier,
in whose favor they swing decisions, and to
decision-makers, as they serve as the conduit
through which irregular payments are routed.
Their work might be clandestine, but the
identity of India's arms dealers is hardly a
mystery. These are men who are well known and well
connected. They have close ties with politicians
across the political spectrum. Some are relatives
of ministers and senior officers in the
bureaucracy and the military. They are regulars on
the diplomatic circuit.
Four of the arms
agents raided by the CBI recently are honorary
consuls general representing Latvia, Belize,
Guinea and Luxembourg in India. That ensures them
invitations to parties at the highest level and
access to foreign dignitaries and top
decision-makers in the country.
The Indian
government's response to defense-deal scandals has
been to try to eliminate middlemen. It has not
succeeded in doing so. Middlemen were banned in
the mid-1980s. But the blanket ban, instead of
eliminating middlemen, only served to push them
underground.
Delhi has also tried to
institutionalize the role of middlemen in arms
procurements, but with little success. In 2001,
the government issued guidelines for registering
arms agents in the hope that recognized agents
would bring more transparency into the procurement
process. However, the registration system was a
non-starter. Not a single arms agent came out to
register himself. This was partly because of the
long list of dos and don'ts they had to sign up to
for registration. The conditions that were laid
down led to speculation that sections in the
bureaucracy were actually opposed to registration,
that they wanted agents to remain illegal as they
stood to gain from keeping the business in the
shadows.
Besides, agents too were
reluctant to reveal details of their bank
accounts, the amount of commission received from
companies and so on as they feared extortion from
politicians and officials of investigating
agencies. More important, they feared that if they
came out in the open it would become more
difficult for them to interact with
decision-makers and grease palms without being
identified and getting noticed.
The most
recent step to ban middlemen is spelled out in the
Defense Procurement Policy-2006, which makes it
mandatory for suppliers to sign pre-contract
integrity pacts with the government under which
they "unequivocally" confirm that no individual or
firm was employed to facilitate the deal.
Contracts will become void if there is evidence
that middlemen were involved.
With almost
every defense deal mired in controversy, the need
for transparency in the procurement process has
been obvious for several decades. Successive
governments have repeated the "no middlemen, no
commissions" mantra as if removing middlemen would
automatically eliminate commissions and as if
middlemen can be removed.
"If agents
cannot be done away with, it is very much better
that we should know who the agents are, and some
mechanism like their registration should be
explored," Prime Minister Manmohan Singh said a
little over two weeks ago. Drawing attention to
the integrity pact that binds arms suppliers not
to use middlemen in deals, Foreign Minister Pranab
Mukherjee (who was then defense minister)
reiterated that "a ban is in force on middlemen".
But the ban would not be applicable to duly
registered arms agents, he said.
There is
obvious confusion in India's policy on arms
agents. Each time the government claims to bring
clarity to the policy, more rules and regulations
are imposed, strengthening the hand of civil and
military officials. "These rules might have been
okay if they tightened the process, preventing
kickbacks from determining who gets the deal,"
said a retired military officer. "The problem is
that the rules make the process more opaque,
raising the amount of kickbacks paid and the
number of officials and politicians among whom it
is distributed."
Despite a ban on them,
middlemen remain ubiquitous in defense deals
because the political establishment does not want
to banish them. After all, the political and
military establishment gains the most from keeping
the middlemen around and in the shadows.
It is not the middlemen alone who are to
blame for kickbacks in arms deals. As much if not
more to blame are the politicians, the civil and
military officials who demand kickbacks at every
step of the procurement process.
The
government would like to regulate middlemen by
fixing the rate of commission for them. But will
it address the demand for commissions by
politicians and officials? More important, is the
political establishment willing to forsake
commissions from defense deals?
Sudha Ramachandran is an
independent journalist/researcher based in
Bangalore.
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