Mixed Verdicts in Indian AW101 Corruption Case

 - October 15, 2014, 7:25 AM
India canceled its AW101 order after allegations emerged that the deal was the result of international corruption.

On October 10 an Italian judge found former Finmeccanica CEO Giuseppe Orsi and former AgustaWestland CEO Bruno Spagnolini not guilty of international corruption, but convicted the pair for the lesser crime of “false invoicing” and sentenced them to two-year prison terms and fined each €1.5 million. The sentence is suspended pending an anticipated appeal.

Italian prosecutors had charged the duo with being part of a plan that used middlemen to funnel bribes to Indian officials in relation to a $734 million sale of 12 AW101s to that country’s government in 2010. The Indian government canceled the contract after it received three of the 12 when the corruption allegations surfaced and is continuing its probe of local officials. Indian law enforcement officials said the Italian verdict would not affect the ongoing investigation of the matter there. This August, Italian prosecutors dropped related corruption charges against AgustaWestland after the company agreed to pay a €7.5 million ($9.3 million) fine. Days later, India banned AgustaWestland and its parent company, defense conglomerate Finmeccania, from participating in future government tenders. For now, that ban remains in place. Earlier this year the Indian government took measures to recover $380 million held by Italian banks as a 45% advance on the AW101 deal.

Finmeccanica CEO Mauro Moretti hailed the verdict and said he would travel to India soon to get the ban against his company lifted. "This removes a shadow that has caused us so much suffering," he said. Orsi also seemed to take the verdict as a victory, proclaiming, "We've always known that there hasn't been any corruption." He further claimed that his acquittal on the more serious charge, by implication, automatically clears suspect Indian officials and former officials.

India has a $13 billion annual defense budget and is the world’s largest arms importer, purchasing $6 billion in finished defense goods in 2013. Finmeccanica’s exclusion from new contracts in India would be a major blow to the company, which is 30 percent owned by the Italian government.

Italian prosecutors claimed that Orsi and Spagnolini approved invoices totaling $67 million for “engineering services” to international middlemen who then used the money to pay bribes in India. One of those alleged middlemen, Guido Ralph Haschke, cooperated with prosecutors as part of a plea agreement, providing testimony and extensive documents used in the trial. However, in rendering her verdict, Judge Luisa Bovitutti said she dismissed the international corruption charges because “there was no case.”

India’s case is progressing, albeit slowly. However, on September 23, India’s Enforcement Directorate (ED), the federal law enforcement agency charged with fighting white-collar crime, did arrest Delhi-based lawyer Gautam Khaitan for suspicion of money laundering related to the case and seized his computers and mobile phones. Khaitan sits on the board of Aeromatrix, a firm that allegedly served as a financial front in the deal according to The Times of India. Khaitan’s attorney maintains his client’s innocence.

India’s Central Bureau of Investigation (CBI) also is involved in its own official investigation, but has yet to bring charges.

As a replacement for the AW101s, which remain in storage, the Indian air force is presently upgrading six Mil Mi-17V5s for VIP use.

Additional reporting by Neelam Matthews.