Italian helicopter scandal: India may pull multimillion dollar contract

The chief executive for Finmeccanica, an Italian defense and aerospace giant, was arrested in Milan on Tuesday on charges that he paid bribes to snag a key contract with India.

India will consider canceling a multimillion-dollar defense contract and taking criminal action if an investigation finds bribes were paid by Finmeccanica to steer a helicopter contract to the Italian defense firm, the defense minister said Wednesday.

A.K. Antony told reporters that the government was waiting for the result of an investigative report into the €560 million ($670 million) contract before taking action against any company found to have paid a bribe to clinch the deal.

India's defense ministry has ordered a separate investigation into the defense agreement with Finmeccanica after the Italian defense and aerospace giant's chief executive was arrested in Milan on Tuesday on charges he had paid bribes to snag the Indian contract.

Antony said he ordered the Central Bureau of Investigation, India's equivalent of the FBI, to examine all aspects of the deal for the supply of 12 helicopters intended for ferrying Indian officials around the country.

"I can assure you, the moment we get a report from the CBI, we will take the strongest action provided in the integrity pact that includes cancellation of the contract, blacklisting the companies and criminal action," Antony said.

"Nobody will be spared. If a company violates the conditions, they are liable for criminal action," he said. "The company is liable to be blacklisted."

India signed the contract with Finmeccanica's AgustaWestland helicopter division for the purchase of 12 helicopters in February 2010. Three of the helicopters were delivered in December.

Giuseppe Orsi, the CEO of Finmeccanica, was arrested by Italian investigators on Tuesday. Orsi and Bruno Spagnolini, the chief of AgustaWestland, are being investigated on charges that they paid bribes in India.

Indian defense ministry officials said the helicopter contract with AgustaWestland included an integrity clause against bribery or the use of undue influence. Under the terms of the clause, if any person or the company was found to have bribed officials or made any kind of payoff, the agreement could be scrapped, and the firm blacklisted.

The defense ministry has put on hold the delivery of the remaining nine helicopters from the company.

Meanwhile, former Indian air force chief Shashi Tyagi on Wednesday denied media reports that members of his family had received payments from the Italian group to facilitate the helicopter deal.

"I deny these allegations. I am innocent. Such a big contract is not determined by one person alone. Everything will become clear once the CBI probe is complete," Tyagi told NDTV.

India is expected to spend $80 billion over the next 10 years to upgrade its military.

The country has become the world's top arms and defense equipment buyer in recent years due to its concerns about China's growing power in the region and its traditional rivalry with neighbor Pakistan.

India accounted for 9 percent of all international arms imports from 2006 to 2010, and is expected to keep the top spot for the foreseeable future as it upgrades its air force, army and navy.

However, arms deals in India have often been mired in controversy with allegations that companies have paid millions of dollars in kickbacks to Indian officials to procure lucrative contracts.

In the 1980s, then-Prime Minister Rajiv Gandhi's government collapsed over charges that the Swedish gun manufacturer Bofors AB paid bribes to supply Howitzer field guns to the Indian army.

Following the Bofors scandal, India banned middlemen in all defense deals.

India's main opposition Bharatiya Janata Party attacked the government for its failure to act once it became known that bribes had been paid to clinch the deal.

"The government has not been able to explain why it was silent for one year on this deal despite the details being available in the public domain," said Ravi Shankar Prasad, a BJP spokesman. "I see the making of a second Bofors in this scam."