| ONE |
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.
“You name the company and they have all got front offices here, every single major and mid-sized and small company, and they are all employing locals,” said Rahul Bedi, the India correspondent for Jane’s Defence Weekly, the industry’s premier trade magazine. “In the past seven or eight years, the number of Indian faces that you see at events like the Air Show or Defexpo”—where arms companies assemble to show off and sell their wares—“has grown exponentially, because an outsider can’t understand these very, very complex rules and procurement procedures, and all the bureaucracy that is involved. The more complicated the procedures, the more the scope [for agents] to make money.”
As a result, there are more and more fingers in the pie—while the pie keeps getting bigger and bigger. Over the past six years, India has been the world’s number-one importer of arms and ammunition, ahead of China, South Korea and Pakistan, according to the Stockholm International Peace Research Institute (SIPRI), which tracks the global arms trade. India now buys 12 percent of all the weapons and military hardware sold on global markets. India has the eighth-largest defence budget in the world—still dwarfed by the United States and China—but while those countries manufacture most of the equipment they buy, the failure to develop an indigenous arms industry has left the Indian Armed Forces’ massive modernisation drive dependent on imports.
The 2013-14 budget included a small 5 percent increase in defence allocation, for a total figure of Rs 2.03 lakh crore ($37.4 billion), equal to 1.79 percent of the GDP; the budget for capital acquisitions—the big ticket items—represents 42 percent of that figure. (For comparison, the total union government allocation for health and education combined is Rs 1.03 lakh crore, or $19.09 billion.) In the coming years, contracts worth several billions of dollars are expected to be signed—for fighter jets, helicopters, transport planes, and artillery guns, among others. With the world’s second largest standing army, and an exhaustive and expensive shopping list, India has quickly become the hottest and most competitive market for major defence firms from Israel, Russia, France, Italy and the United States. In this international stampede for a lucrative share of the Indian market, whose participants will do whatever it takes to edge past their rivals, hiring the right agent is a crucial part of the game.
| TWO |
ON 17 MAY 2009, six weeks after Sudipta Ghosh retired as the chairman of India’s Ordnance Factories Board—the government’s defence manufacturing division—the CBI registered a First Information Report in a Calcutta court charging him with corruption. On the basis of four months of tapped phone calls, the CBI accused Ghosh of illicit collaboration with three Indian middlemen: Ashish Bose, Pradeep Rana and MS Sahni, all of whom appear on the government’s list of Undesirable Contact Men. The CBI alleged that Ghosh had received payments from the middlemen on behalf of their foreign and domestic clients to fix contracts with the OFB, and “accumulated huge wealth” in the process.
Two months later, while the CBI investigation was still underway, the Ministry of Defence took the unprecedented step of halting “all procurement acquisition cases in the pipeline” with seven foreign and domestic firms who were accused of employing middlemen to make payments to Ghosh. The companies fought the move in the Delhi High Court, which ordered the MoD to issue notices to the accused firms and await their responses before taking further action.
In the meantime, the CBI filed a chargesheet in June 2010, naming Ghosh, the three middlemen, and six others. A raid on Ghosh’s properties had turned up Rs 1.4 crore in cash, and the chargesheet presented snippets of phone conversations which showed Ghosh demanding payments that had been promised to him by the three middlemen for negotiating and signing contracts with the named firms.
Over the next two years, the firms filed their responses to the MoD; on the basis of the ongoing investigation, three companies were dropped from the list, and two others added. But in July 2012, after considering their replies, the MoD handed down an unusually severe punishment to six firms, banning them from any business with the ministry for a full ten years. The banned firms included a few of the world’s major defence manufacturers, who had substantial contracts with India: the state-owned small arms manufacturer Israel Military Industries, the German firm Rheinmetall Air Defence, and Singapore Technologies Kinetics, which makes weapons and specialty vehicles.
Critics argued that blacklisting the firms before the investigations were completed was an overreaction that would delay and disrupt India’s sluggish defence modernisation process. But the ministry had for the first time sent a very strong message to companies accustomed to operating in the unscrupulous Indian market—demonstrating that there might actually be real consequences for anyone caught using middlemen to fix deals in India. The decision bore the unmistakeable fingerprints of the current defence minister, AK Antony. A lifelong Congress loyalist who is nevertheless allergic to the slightest hint of corruption, Antony enjoys the unique distinction of being the only politician in India who is criticised for his excessive probity.
The former Kerala chief minister, who took charge of the defence portfolio in 2006, has been pilloried by critics for holding up contracts over any whiff of impropriety. Antony refuses to meet with visiting defence company CEOs, and is reputed to berate his personal secretary if guests are allowed to slip any gifts through the front door of his office. In 2011, he created a diplomatic controversy by refusing to meet with the US Secretary of Defence because American companies were still in the midst of competing for a $12 billion fighter plane contract.
Antony’s defenders argue that complaints about his extremely deliberative manner reflect the vested interests of defence firms and hardware-hungry generals; they contend that capital spending, and the modernisation project it supports, are proceeding at a reasonable pace. “At the end of the day, you are still procuring 50,000 to 60,000 crore per year—the stuff is coming in, and you see it everywhere,” a retired senior MoD official who served under Antony told me. “The armed forces will always want more, of course. But defence procurement always takes time, and it’s bullshit to say our forces aren’t prepared. The fact is, you know, the rifles the army has are good enough to kill a Pakistani. Now what more do you want?”
Since Antony took office seven years ago, the MoD’s vigilance division has initiated more than 500 inquiries into allegations of impropriety, about 100 of which have been forwarded to the CBI for further investigation. Officials inside the ministry said there are instructions to pursue every complaint apart from those submitted anonymously, but even they are sometimes followed up. Several figures in the defence industry told me that they had been called up by the ministry or threatened with bans on the basis of frivolous complaints by their rivals, but there is no doubt that Antony has taken vigorous action against anything that might threaten his reputation for cleanliness.
“He takes these complaints very seriously,” a retired MoD bureaucrat involved in the procurement process said. “It gets very edgy. He takes decisions only when there is an overwhelming majority on the decision. If there is even a slight possibility of someone raising a dissenting voice, he will not take a decision. He will just sit on it. Which is good. Which is bad.”
Antony’s crusade to eliminate any appearance of corruption appears to have shifted the atmosphere inside the ministry to an even higher level of vigilance. (Detractors would call it paranoia.) Vijay Singh, the former defence secretary, said that the credentials of every person seeking an appointment had come under more serious scrutiny. “It was very clear, of course, that we would never meet anyone who was not an official representative of a company,” he said. “Before giving an appointment, we had to satisfy ourselves that the person coming was a full-time employee, not someone just engaged in a fly-by-night capacity. We were extremely conscious of the need to avoid accepting anything that could be construed as a gift or a favour.”
A QUICK SCAN OF THE NEWSPAPER HEADLINES will make it clear that Antony’s compulsive cleanliness has not ushered in Ram Rajya at the defence ministry. But over the past decade, the practice of fixing deals in India has become gradually more difficult: the days when a personal connection to a top official or party treasurer could swing contracts in your direction appear to be gone. To some degree, this reflects the relentless international competition for deals in India. But the more significant development has been the ongoing expansion of the Defence Procurement Procedure (DPP), which has been revised seven times since its first major overhaul in 2002 to add additional layers of checks and controls that make it harder and harder (or much more expensive) to manipulate the outcome.
On the face of it, all these elements have made life more complicated for defence companies. But a closer look at the DPP, whose guidelines define the rules of the game for agents and officials alike, shows how the proliferation of new procedures, committees and approvals has multiplied the avenues for intervention. It has also, therefore, arguably increased the incentive for companies—especially foreign firms—to employ agents to navigate (or manipulate) the unfriendly Indian bureaucracy.
The intricate details of the DPP don’t make for thrilling reading, but they are crucial to understanding how agents and middlemen earn their living. The basic process for foreign acquisitions, to take one relevant example, now has 11 mandatory steps, each of which requires multiple inputs, approvals and recommendations—in essence, a series of sub-steps within every step. The process begins with the writing of what’s known as an SQR (for Services Qualitative Requirements), essentially a document setting out the necessary specifications for the prospective purchase. But before the SQR can be made—this is done by the individual services—the DPP mandates that a Request for Information must be issued and circulated to manufacturers, vendors, and Indian defence attachés abroad. On the basis of the information received, about the capabilities or parameters of equipment available on the global market, a draft SQR is formulated by the service headquarters, and circulated among a handful of other directorates, departments and agencies within the military. Then their inputs come before each service’s Staff Equipment Policy Committee (SEPC), which finalises and approves the SQR. And that is step one.
Already, it’s possible to see how and where outside parties might begin to exert influence: if an agent, through his contacts, can induce even a subtle shift in the required specifications, the playing field can be quickly tilted toward his client. Amit Cowshish, who served as the financial advisor for acquisitions in the MoD, told me that there are still vulnerabilities throughout the process. “Even a slight alteration—very very minor—in the SQR can lead to a massive change in the situation, which can produce a single-vendor situation or benefit a particular company,” he said. “One single feature in the SQR is a potential game-changer: if a certain specification is changed from ‘desirable’ to ‘essential’, then everything can change dramatically.”
“The manipulation starts at the beginning, when the SQR is drawn up,” the Times of India’s Josy Joseph told me. “Until last year, the SQR would be changed again and again, and used as a barganing tool with arms companies by officers in key positions. The government realized this, and the rules were changed to freeze the SQR until the next stage in the process is completed.”
“From the beginning to the final signing,” Joseph added, “arms agents and their men are the ones who ensure that the contract is not derailed by their rivals or the labyrinthine Indian system.”
There are opportunities for lobbying at every subsequent stage: as the initial specifications are incorporated into a request for proposals, as the proposals are accepted and evaluated, as the equipment is subjected to field trials, as the results of those trials are evaluated by senior staff, and on and on. The recent Comptroller and Auditor General (CAG) report on the VVIP helicopter scandal—which, in keeping with the usual pattern, emerged only after an Italian investigation into bribes paid in India—contains several examples of presumed manipulation: amendments to the initial specifications, modifications to the requests for proposals, and irregularities in the field trials, all of which steered the deal toward a specific vendor.
“These middlemen operate in many ways, starting from creating a demand by impressing the SQR makers,” Cowshish said. “Or you can make it so that a trial is deemed successful when it was not. There are many areas in which the human interface can sway the entire course of the decision making, and all these are vulnerable areas.” With each step, the number of people with input on a given proposal multiplies. “How can you monitor so many people?” Cowshish said. “Who is there to ensure that the SQR is not influenced? Ultimately, there are only so many vendors, and there is cutthroat competition. So they will do their best to get the contract and influence the decision making.”
But Cowshish insisted the new system had made it harder for middlemen to operate. “Now, with the DPP, it is difficult—but not impossible,” he said. The new rules, with their additional layers of oversight, thousand-page reports, and committees upon committees, haven’t made the procurement process impregnable, but Cowshish insisted it was stronger than ever before. “It is a beautiful system,” he said. “And I am convinced that given the circumstances in India, it is the best there can be.”
| THREE |
IT IS CLEAR THAT A MORE ROBUST DPP, however improved, cannot by itself cleanse corruption from the system. For a start, the increasing complexity of the process has dramatically increased the value of information, which has always been the basic currency of the middleman’s trade. Even the smallest and most basic facts—about the military’s equipment needs, the preferences of senior officers, or the movements of a file—are precious assets for the middleman, who must advertise his superior knowledge of the inner workings of the system to pitch his services to clients.
The heart of this world is the nexus between serving bureaucrats and officers and their retired colleagues, who have become highly sought after as consultants and executives for defence companies wishing to do business in India. Agents will often hire, or partner with, retired officers and officials, who retain access to the middle rungs of the ministry—which is where most of the wheeling and dealing now gets done.
Earlier this year, I went to meet one of India’s more prominent private arms manufacturers, a man well-known in Delhi social circles, who operates from a plush office in Vasant Kunj. His business involves making military hardware, and he runs a registered company that does considerable business with the Ministry of Defence. The more rigorous procurement regime, he argued, had done little to improve matters.
“The people who are corrupt will continue to be corrupt,” he said. “Whether it is from the seller’s side or the buyer’s side, they will continue to be corrupt.” He drew a sharp distinction between legitimate agents and representatives—who are full-time employees of specific companies, running or working for offices in India—and a class of “freelance” middlemen, who offer their services (or contacts) to anyone they think will pay for their influence.
“A middleman is a friend of someone who is important or highly placed,” he said. “A lot of these middlemen are not working for a company—they are working for a corrupt bureaucrat or a corrupt minister.”
The “freelance” middlemen, the arms manufacturer said, take the information they gather from their sources on the inside, and then go about trying to sell it, and themselves, to companies who want to do business with the ministry. “They are miles ahead in getting the information,” he said. “When a contract is about to happen, there will be all of these phone calls. For instance, I got called recently by multiple people in connection with the same deal, all of them said, they would get me the contract if I paid them.”
“The middleman is a blackmailer, essentially,” he continued. “Let’s say he asks his friend, ‘There’s a file for a contract worth 50 crore, can you find out what’s happening to it?’ So then he will gather this information, and then go to some company in Bulgaria or somewhere, and tell them, ‘Listen, it’s very difficult to get the contract. But I will be able to do something to help you get it, for a commission of five per cent.’ The company will say, ‘Show your strength,’ and then he will show them, for instance, the terms of reference or something that he has gathered from the MoD. Or they will ask him to prove his connections. If he claims he knows a minister, or an officer, they will expect him to not only invite the contact to a party or a social gathering, but also for the contact—an officer, minister, or bureaucrat—to signal his connection, to hand over a particular book or something.”
Even when it comes to complaints and investigations, he said, middlemen find a way to play a role. “Every time a contract is about to be signed by some company,” he said, “the agents for the losing companies will start a campaign to blacklist them—they’ll spread rumours, or even try to conduct a sting operation and send the tape anonymously to the ministry—just do anything to get the company blacklisted.”
I heard similar tales from another private arms manufacturer—once a very big name in the business, but now officially “retired”—who met me on the rooftop of Delhi’s Taj Mahal Hotel and puffed on e-cigarettes as we spoke. He also argued for a division between agents and middlemen, and insisted that formalising a system of agents—rather than shunning them, as is officially required—would clean up considerable muck from the process and marginalise the “freelance” middlemen currently doing business.
“Everywhere in the world, in every country, agents are used,” he said. “There is no country where agents are barred. Even the Indian government-owned defence companies use agents for their sales abroad. The problem here is the fact that you don’t want to recognise the agent. If you legalise the agents, 99 percent of the scandals are gone. It’s a very simple fact.”
The role of an agent, he argued, was entirely legitimate. “I believe agents cannot be used to manipulate the process to the extent that is made out,” he said. “What happens today is this: I am bidding for a contract, and I don’t know what’s happening. As a foreign company, I have no idea what’s going on. So I’ll hire someone, and his job is to find out what’s happening—where is my file. Because it’s such a guarded thing. If I am bidding, and there are five other bidders, at least we should have access to know what’s going on. So the agents are actually used to give info on where the movement of the file is.”
But that information, however routine, is still an expensive commodity. Cowshish, the former financial advisor for defence acquisitions, who had no interaction with agents during his tenure, said that some middlemen do business by promising to keep the files moving. “They are people who ‘speed the cases’,” he said. “If I am a vendor, and I’ve submitted a bid, the price cannot be valid forever. So it’s in the vendor’s interest to get the order processed as early as possible—or to find out if I’m not going to get the order, so I don’t tie up my resources. So there are people who will run around, meet people, network, go from place to place and get the required information—on things even like where and how fast a particular proposal is moving.”
The retired arms manufacturer was insistent that all this was a normal part of the business; you could hardly ask companies to carry on without any awareness of the system in which they were working. “My company was an officially registered MoD company,” he said, “and I had people who were officially working with us, and they used to know people in the ministry and talk to people there all the time. Because you were always, uh, finding out what was happening with your file. Nothing illegal. For me to know where my project is, there’s nothing illegal about it.”
“There is nothing wrong with people being given information,” he continued. “If I go [to someone in the ministry] and ask, ‘What’s going on with that bid?’, or I meet someone at a party—it’s all interactive stuff. You know, all the air force officers have dinner together, all the army guys, many of them are in these clubs, the Gymkhana Club and others, they’re all there, and no one is revealing any official secrets.”
But the tightly woven networks of serving and retired officers—or their counterparts in the bureaucracy—are a tantalising target for anyone seeking to make money in the defence field. The bigger deals, for planes and missiles, may receive the most scrutiny, but they’re only one component of the bigger pie. “Even apart from capital acquisitions, there’s a huge amount of other things,” said Vijay Singh, the former defence secretary. “You know, bulletproof jackets, ammunition, replacement parts. That adds up to 30,000 or 40,000 crore each year. It’s a huge amount, and we were always mindful that there is a nexus—all these dealers, all these agents—who are operating.”
| FOUR |
ONE AFTERNOON IN APRIL 2005, an anonymous complaint arrived at the office of the Air Force’s director of air defence, containing allegations sensational enough to send the service’s top officials into a huddle. The anonymous letter provided specific details that suggested a joint director in the Air Defence Directorate, Wing Commander SL Surve, was leaking vital secrets to two retired senior officers, Ravi Shankaran and Kulbhushan Parashar, and an arms dealer, Abhishek Verma.
So began the investigation into what has since become known as the Naval War Room Leak—the most sensational case of commercial espionage in the Indian arms business. The CBI’s documents in the case, which is still under trial, offer a rare and detailed account of how the nexus of serving and retired officers can be manipulated for illicit financial gain; the case also demonstrates that the trade in secret information—rather than the old-fashioned brokering of influence—is now at the heart of the middleman’s game.
About a month after the anonymous complaint arrived, air force intelligence officers raided Surve’s office and home while he was out of the country, and recovered a 128 MB pen drive. Forensic analysis revealed that the USB drive contained sensitive details on an air force surface-to-air missile system, as well as a host of deleted files relating to naval operations. By the end of 2005, Surve had been dismissed from service after a naval board of inquiry found he and others had “parted with information of commercial value primarily pertaining to requirements of equipment being procured by the Navy”. Soon after his dismissal, three other officers were terminated from service, accused of having “collectively as well as individually compromised the security of classified naval information and thereby jeopardized the interests of the State.”
But this was just the beginning. Further investigations would reveal the full scope of the crime, which had taken place inside two of the most secure and protected offices in the Indian defence establishment: the Directorate of Naval Operations (DNO), located in two rooms on the first floor of South Block, and the Air Defence Directorate, inside Air Headquarters at nearby Vayu Bhavan. Access to both locations is heavily restricted and closely monitored, so that only authorised personnel with electronic swipe cards can enter; the computer systems in both locations are on heavily protected networks, with some sensitive computers isolated from the network entirely. Only a small number of officers are permitted to carry mobile phones to their desks, and the use of pen drives is carefully controlled.
By April 2006, the investigators had begun to close in on Surve’s accomplices. When Parashar, a retired navy lieutenant commander, landed in Delhi after a trip to London, he was arrested by a team of CBI officers; after a number of other arrests, raids were conducted on almost 20 locations, in which pen drives, hard disks, computers and bundles of classified documents were seized. Parashar’s partner, the retired navy lieutenant commander Ravi Shankaran, had already fled the country. (He remains in London, where he is fighting to evade extradition to India.)
Shankaran had taken premature retirement from the navy in the early 1990s, and convinced Parashar to join him in a business called Shanx Oceaneering, which obtained a variety of naval contracts—for underwater ship repairs, spares and equipment—until it was blacklisted after a fire broke out while it was doing work on a navy ship. But as is the norm throughout this business, being blacklisted was barely an obstacle: Shankaran and Parashar set up several new companies, and began representing foreign firms selling naval and diving equipment. “The two had set up a web of front companies,” a CBI officer who was involved in the investigation told me. “Some of them were non-existent. At least two of the visiting cards used by Parashar were for fake companies.”
Unlike the big players in the arms business, who have privileged access to service chiefs and high-ranking officers, Shankaran and Parashar operated on a more junior level, using their service backgrounds and tapping into an old boys’ network to extract information that could benefit their business. Parashar used one of his old contacts from a posting in Mumbai to gain access to the Air Defence Directorate; Shankaran found an entry to the DNO through Vijender Rana, with whom he had taken a marine commando course in the 1990s. According to the CBI’s chargesheet, the two men started developing Rana as a source after he was posted to the DNO in 2000; the CBI alleges that Parashar gave him gifts, including mobile phones, paid his bills, and gave him cash.
Soon enough, Shankaran and Parashar came into contact with Abhishek Verma, a Delhi arms dealer with family ties to the Congress Party, expensive tastes, and a tendency for reckless behaviour and voluble boasting about his foreign and Indian contacts. Verma’s father, Shrikant, was a prominent poet and journalist who served as Rajiv Gandhi’s Hindi tutor before being inducted into the Congress by Indira Gandhi; his mother, Veena, was a Congress MP for 14 years. After taking degrees at Hindu College in Delhi and Georgetown University in Washington, Verma had gone into the aviation business, setting up a cargo airline, but his attention soon turned to the defence sector.
At the time Shankaran met Verma, he was representing Atlas Telecom, a British-Canadian company dealing in defence communication equipment. Verma hired Parashar to join him at Atlas Telecom, and, according to the CBI chargesheet, the pair began throwing lavish parties at five-star hotels and farmhouses for serving defence officials, foreign company representatives, and other arms agents. Surve was among the regulars at these parties: according to the CBI, Parashar gave him gifts and favors, and introduced him to a woman (also arrested in the case) who may have been serving as a honey trap.
The CBI documents indicate that the team of Verma, Parashar and Shankaran supplied their contacts, Rana and Surve, with pen drives used to smuggle top secret documents from the DNO and Air Defence Directorate. Forensic analysis of the pen drives revealed that more than 6,000 pages of sensitive information were smuggled out of the most secure offices, and most highly protected computer systems, of the Indian armed forces.
The documents included a file on the operating procedures for the Pechora surface-to-air missile, a Russian air defence system that had been used by the Indian Air Force since 1974 and was due to be upgraded. On Surve’s home computer, investigators found another file with slides from sensitive strategic studies on air defence systems, which identified vulnerabilities and weak points with an eye toward necessary upgrades. Other documents included some 3,000 pages on a classified Indian Navy project for “Network Centric Operations”, a long-term strategic plan for integrating battlefield networks to achieve information superiority, which the CBI alleged had been set back “for up to two decades” by the disclosure.
The potential value of this sort of information—for foreign companies seeking contracts, or a rival nation’s intelligence services—was enormous. On the basis of this and other pieces of smuggled information, the various front companies operated by Parashar, Shankaran and Verma began to bid for multiple contracts with the MoD: to supply secure defence communication devices, two-way radios, underwater digital camera and video systems, and other items. According to the chargesheet, much of the smuggled information could be correlated with Verma’s commercial interest in military communications; the CBI investigation also revealed that a number of compromised officers—who were handling the contracts for the devices and equipment mentioned above—had been invited to Verma and Parashar’s parties or received other gifts and favours.
IN THE END, the significance of the Naval War Room Leak is not so much the specific details of the case, but the fact that those details are even known. The chargesheet, which demonstrates how a team of small-time operators were able to penetrate the inner sanctums of official military secrecy, makes it more than reasonable to assume that this kind of profitable traffic in classified information was hardly an anomaly. It also suggests that even after the tightening of the defence procurement rules—which began in earnest in 2002—there is little that can be done to stop the flow of information.
Verma, who is under trial for his role in the War Room Leak and several other charges, has been back in the headlines of late after one of his former partners, an American businessman who believed Verma had attempted to defraud him, released a cache of incriminating documents to Indian investigators and journalists. Although newspapers and magazines have portrayed Verma as a high-flying deal broker, multiple sources in the industry and investigating agencies made it clear that the only extraordinary thing about him was his propensity to get caught.
Though a now-deleted website for a foundation started by Verma boasted that “his strategic focus on the defence sector business has taken shape with subsidiaries of Verma Foundation AG in Israel, US and India that are defence contracting companies with revenues of in excess of US $2 billion,” the reality is somewhat less glamourous. The CBI’s investigation into the War Room Leak found Verma’s web of companies had only two other employees, only one successful contract (for internet services, not defence), no profits, and financial liabilities of almost Rs 80 crore in income tax, foreign exchange penalties, unpaid travel bills and rents. In spite of his flashy lifestyle—he liked to show off his fleet of cars, which included a Mercedes and a BMW—Verma was basically a showman, who moulded himself in the image of an influential Delhi fixer in an attempt to convince foreign companies to part with their money.
Though Verma enjoyed a misleadingly high profile, he also exemplifies what one might call the “democratisation” of defence corruption. A minor player who thought his powerful connections and cunning could vault him to the big leagues alongside men like Choudhrie and Nanda, he was one of a crowd of small operators attempting to capitalise on the new landscape for defence dealmaking: tighter rules and more complex procedures that multiplied the “human interfaces” involved in the process; increased competition and ballooning import contracts that led more and more foreign firms to set up shop in India; and a subtle shift from the era in which influence was the primary asset for a middleman to one where information, classified or otherwise, is of equal value. Verma even tried to make money from AK Antony’s move to blacklist firms suspected of employing middlemen, by offering his services as a middleman to a German company that had been banned. (That case is currently under trial.)
One of the CBI officers who interrogated Verma gave me an acid portrait of his modus operandi. “Frankly, he is nothing but a conman,” the officer said. “He will pay 100 rupees for some file that is worth 10 rupees, and use that to win the trust of a company. Then he’ll take 1000 rupees from them for talking big, and never return the money or deliver the goods. He is quite stupid, actually—why do you think he has gotten arrested not once, but twice, and is still in jail? The real players never get caught.”
| FIVE |
A NUMBER OF THE “REAL PLAYERS” came into public view for the first time in 2001, when Tehelka released the tapes from the Operation West End sting. Several of the recordings feature RK Jain, then the treasurer of the Samata Party—an ally in the BJP-led coalition government—who boasted to the reporter, Mathew Samuel, about a number of high-priced deals in which he had taken or facilitated bribes. After a few years of delay (and a change in governments at the centre), the CBI initiated a series of investigations based on the Tehelka tapes, which targeted the country’s major arms middlemen for the first time. But apart from the former BJP president Bangaru Laxman—who was caught on tape accepting a big wad of cash and casually tossing it into his desk drawer with the nonchalance of a man who does it twice a day—there has not been a single conviction.
After the VVIP helicopter scandal broke this February, the CBI came under attack for its abysmal record in investigating and prosecuting defence corruption cases—so much so that it circulated a note to journalists defending itself. Since 2004, according to the note, the agency has registered 22 cases related to defence deals or the leakage of defence information; a chargesheet has been filed in 14, while six are still under investigation and two have been closed for lack of evidence. One of these concerns Sudhir Choudhrie, and it makes an excellent case study in the apparently impossible task of prosecuting a successful middleman—a look at how and why, as the CBI officer told me, “the real players never get caught”.
On the Tehelka tape in question, RK Jain tells Samuel that he first met Choudhrie (whom he calls “Sudeep”) in the Delhi office used by the chairman of MiG, the Russian jet manufacturer. At the time, Jain said, Choudhrie was representing MiG and another Russian aircraft company, Sukhoi—but he was also working for British Aerospace, whose Hawk jet trainer was in competition for an Indian Air Force contract against MiG. “This is India,” Jain said Choudhrie told him when asked why he was representing both companies at the same time. “You never know, anything can happen … at any time. Why should I allow any competitor to come in?”
Jain told Samuel that he had declined to help Choudhrie swing the deal to British Aerospace, but offered his services for any other transactions. In response, Jain said, Choudhrie gave him three names. One was an Israeli company that Choudhrie represented, Soltam, which manufactured artillery guns. “I did that job,” Jain told Samuel. “The file was running from the Narasimha Rao government and nobody was taking a decision. They got the order in the month of March of this year.”
The Soltam deal, Jain added, was worth Rs 600 crore—the CBI later placed the cost at Rs 200 crore—and Soltam paid four percent commission. Jain said that he took three percent for his party, and kept one percent for himself, though he had to give half of that to the man who introduced him to Choudhrie.
Nearly six years after the taped conversations, on 10 October 2006, the CBI raided more than 35 premises in Delhi, Gurgaon, Bangalore, Mumbai and Chandigarh to seize evidence against six major arms agents: Choudhrie, Suresh Nanda, Mohinder Pal Sahni, Vipin Khanna, and two others. It was the first time that any of the country’s most powerful defence middlemen—who had achieved such power with the help of their impeccable political connections—had ever been investigated by the CBI. By this time, however, Choudhrie had decamped to London. One of the CBI officers I spoke to, who investigated the case, said he believed Choudhrie was tipped off that the seizures were imminent.
“He left the country before the raids,” a former CBI director told me. “If he were in the country, he would have been arrested.”
Six months later, the CBI filed an FIR against Choudhrie, which provides an account of how he successfully won the contract in the face of blatant irregularities in the process. The details are bland, but they give a pretty good sense of how a powerful middleman could then bend the system to his liking.
In the late 1980s, India was still employing M-46 130mm artillery guns that had initially been purchased from the Soviet Union beginning in the 1960s. By 1990, only 630 of these guns were still in use, but the army had rejected earlier offers from Yugoslav, Czech and Dutch vendors for “upgunning” to a 155mm barrel, which would deliver a higher range and “greater lethality”. A few years later, the army changed its mind, and asked the MoD to pursue the offers from the Czechs and Yugoslavs, but no action was taken. In the meantime, the country’s first Defence Procurement Procedure came into effect in 1992; it was far less stringent than the revisions that came a decade later, but it laid out a series of required steps for proper evaluation of proposals, field trials and price negotiations—and also barred the involvement of any agents or intermediaries.
At the end of that year, the Israeli company Soltam—whose directors included Choudhrie, according to the CBI—sent an unsolicited offer to the MoD for the contract, even though India had not yet formulated the required SQR or issued a request for proposals. Though “a proper analysis of the Soltam proposal was not done”, the MoD asked Soltam to send their gun for trials; they sent a gun that they had not yet tested themselves, which the FIR calls “an untested and unproven prototype”. The gun performed poorly, and “various wings of Army including DRDO raised serious objections”, which were “deliberately suppressed and ignored”, while a faulty evaluation report favouring Soltam was prepared. Over the next several years, competing proposals at lower or comparable prices, from Yugoslavia, Czechoslovakia, Austria, Finland, South Africa and India’s own Ordnance Factory Board were rejected “on one pretext or another … No effort was made to shortlist the various possible sources and a single vendor situation was deliberately created.” Finally, a false report was prepared to secure the approval of the Cabinet Committee on Security, while frequent meetings were held between representatives of Soltam and army and MoD officials, “in gross violation of the DPP.” According to the CBI, Choudhrie received a payment of $156,940 (equivalent to Rs 1.3 crore today) from Soltam in March 2000 as commission in the deal.
MUCH LIKE THE DETAILS of the Naval War Room Leak, the Soltam case is significant largely by virtue of its discovery: there have undoubtedly been many such deals, very few of which even reach the stage of a CBI investigation. But even in this regard, the CBI was unable to make sufficient progress. “For the entire duration of the investigation, from the first raid in 2006 to the filing of the FIR, we had not once interrogated Sudhir Choudhrie face to face, and that is only the most basic requirement of an investigation,” the CBI officer involved in the inquiry told me. “We could not find much on the man, but I clearly remember that it was very difficult to track his dealings because they were too complex.”
This is to be expected: by its nature, corruption is covert; bribes and commission payments are designed to evade detection. Two years after the CBI drafted its FIR against Choudhrie, it quietly filed a closure report before a judge, who took almost a year to accept it. In his order, the judge accepted the CBI’s conclusion that no criminal evidence could be found against officials in Army Headquarters or the MoD, but recommended Choudhrie’s case be handed over to the Enforcement Directorate (ED) so that it could further investigate the financial transactions.
While the CBI had found that Soltam deposited the payment of $156,940 into his accounts, the ED determined that the payment was connected to an earlier contract with Choudhrie’s company to represent some of Soltam’s other products—“electric and non-electric stainless steel kitchen utensils”.
“What saved Sudhir Choudhrie,” a very senior ED official told me, “was the fact that Soltam also used to deal in kitchenware, and that the amount that was traced was very small.”
“A good businessman not only knows how to make and multiply money,” the senior ED official said. “He also knows how to create the illusion of having made less money by establishing a complex web of companies in safe havens. The investigators then get embroiled in paperwork, demanding information and exchanging correspondence [with foreign agencies] which often takes years, and by then the pattern of holdings has changed.”
(Choudhrie’s spokesperson did not respond to my requests for comment. But when a controversy over his activities in the UK erupted three years ago, in connection with Choudhrie’s large donations to the Liberal Democrats, his spokesman issued the following statement: “The First Information Reports to which you refer date back to 2006 and 2007 and Mr Choudhrie strongly denies the unsubstantiated allegations made in them. They have not resulted in any charges being brought against him despite extensive investigations by the relevant authorities.”)
In the CBI’s note to journalists defending its record in defence deal prosecutions, the agency cites a list of challenges in probing these cases: “the transactions are routed through a number of accounts abroad”; “many of these financial transactions occur in tax havens [where] it is difficult to obtain any evidence”; and “the countries concerned refuse to share evidence”. It does stand to reason that many foreign countries whose defence firms are accused of bribing Indian officials will be less than eager to assist with investigations that will void contracts and get those firms blacklisted. The CBI memo also points out that “most of the middlemen are NRIs and they have their business abroad,” which makes it almost impossible to distinguish between their legitimate income from legal sources and illegal commission payments from defence deals.
It is not hard to imagine that all of these issues were relevant to the closure of the Soltam investigation. The former CBI director, who was involved in the cases opened after Operation West End, told me that it was almost futile for the agency to pursue these defence cases. “Whether it’s Sudhir Choudhrie, Abhishek Verma or Vipin Khanna, I told the government, ‘It doesn’t really help to investigate them, because they are all back in the business within six months,’” he said. “Look at the delays in the investigations, the delays in registering the FIR. It is a very, very uphill task to collect the information, because of the nature of their operations.”
Choudhrie’s financial connections to Soltam, which the CBI had such difficulty tracing, were almost certainly worth more than kitchen utensils. The CBI’s FIR identified him as a director of the company, but a 2009 investigation by Josy Joseph published in DNA found that he and his family held a 50 percent stake in Mikal, the Israeli defence conglomerate in which Soltam is a subsidiary. Choudhrie’s ties to the Israeli arms industry have been widely reported in that country. Yossi Melman, Israel’s leading investigative journalist, who has followed Choudhrie’s investments there for several years, told me, “In Israel, he is seen as a powerful Indian with extensive contacts in Israel’s defence ministry and its intelligence units.” Melman’s own reporting in Haaretz, the country’s most prestigious newspaper, suggested that Choudhrie had also invested in Sukhoi, the Russian aircraft manufacturer. “He is a part owner of the firms that he represents in India,” Melman wrote. “Another characteristic of his activities is the large number of offshore firms he registers in tax shelters in order to make it difficult to follow his activities, as well as his profits.”
It is almost inconceivable that Israeli authorities would offer Indian investigators much assistance in untangling those details: as Melman told me, Choudhrie’s efforts on behalf of Israeli firms have been incredibly valuable, and they are not shy about intervening on his behalf, as the example of a legal dispute between Choudhrie and one of his erstwhile business partners makes clear. According to Melman’s reporting, Choudhrie had invested around $30 million into a company called Aeronautics Defence Systems, which manufactured medium and small drone aircraft. “He was a secret investor,” Melman said. “It wasn’t mentioned anywhere, but it was an open secret among Israeli arms manufacturers, traders and at the Ministry of Defence. They knew it.”
Before long, however, Choudhrie had a major falling out with the Aeronautics CEO, a shrewd operator in his own right named Avi Leumi. In 2006, Melman revealed that Leumi had concluded a secret deal to sell drones worth $250 million to Nigeria. When the Haaretz report was published, Melman said, “Choudhrie realised Leumi was dealing behind his back, because the Nigerian money was not deposited in the company’s regular bank account. Choudhrie went bananas, and sued Leumi in an Israeli court.”
But when Leumi filed a countersuit, threatening to reveal details of Choudhrie’s dealings on behalf of Israeli firms in India, the Israeli Ministry of Defence put a gag order on the court proceedings, claiming that state secrets damaging to Israeli-Indian relations would be revealed. Instead, the Ministry of Defence brokered a deal between the two men, sealed by a confidentiality agreement, in which Leumi bought out Choudhrie’s share of the company for an amount rumoured in Israeli defence circles to be $40 million. When I contacted Leumi by phone, he confirmed that he had a business relationship with Choudhrie prior to their acrimonious split, but declined to say anything more. “That was a thing of the past,” Leumi told me, “and I do not wish to comment any further on it. It’s over.”
| SIX |
TO ALL THE OBSTACLES THAT ALREADY STAND in the way of prosecuting middlemen can be added one final daunting challenge: the fact that almost all of them enjoy personal relationships with powerful politicians, a class not known for its reluctance to bend the law to protect its associates.
The Tehelka tapes suggested the valuable connections between leading arms dealers like Suresh Nanda and figures in the BJP-led National Democratic Alliance government, including the aforementioned RK Jain, George Fernandes, and the former National Security Advisor Brajesh Mishra. A number of top middlemen have family relations with leading Congress politicians: Choudhrie’s niece is married to Kamal Nath, the union minister for urban development; Vipin Khanna, who was implicated by Operation West End and charged in connection with the UN oil-for-food scandal, is a close relative of Amrinder Singh, the former chief minister of Punjab, where Khanna’s son Arvind served as Congress member of the legislative assembly.
To make matters more complicated, major defence deals are themselves deeply embedded in politics, for reasons both illicit and legitimate. “Whenever there is a defence deal, it always has a political connection,” the former CBI director told me. “It is bound to, because any defence acquisition is strategic in nature. We also have a situation where the political relationship with the country concerned will also be a major factor.”
One deal that embodied the combustible blend of domestic and international politicking was the Barak missile scandal, another questionable contract first mentioned indiscreetly by RK Jain, which involves Choudhrie, Nanda and the state of Israel. Jain boasted to Tehelka that he had pocketed another few crore for the Samata Party from Suresh Nanda, who paid bribes to ensure that opposition from the government’s chief scientific advisor was overruled by George Fernandes.
The Barak deal, for ship-mounted surface-to-air missiles, was much bigger than Soltam—the contract was signed in October 2000 for $266 million (worth Rs 2,300 crore today)—and the preliminary investigation conducted by the CBI identified suspicious payments to Nanda from companies linked to Israel Aerospace Industries (IAI), the state-owned manufacturer of the missiles. The FIR also records that IAI had “a close business relationship” with two companies run by Choudhrie, a distant relative and former associate of Nanda, which had “received a number of suspicious remittances to the tune of millions of dollars from IAI during the years 1998 to 2001.”
But like so many others, the Barak case has still not reached a conclusion. Nanda is awaiting trial, while Choudhrie, despite being identified as a possible beneficiary in the FIR, was not even named as an accused by the CBI. “One needs to understand that in the CBI even a preliminary enquiry is launched after lengthy discussions,” one of the officers who investigated the case told me. “I remember that we had got details about the remittances [to Choudhrie’s companies] but we could not get evidence to prove the claim. Our file of investigations kept doing the rounds, from one senior’s table to another, for nearly a year before the FIR was filed. Eventually, since we did not have enough evidence we were instructed to keep his name off the accused list.”
“You must not forget,” he added after a brief pause. “These are very very influential people that we are talking about.”
Toral Varia Deshpande is a trainee staff writer at The Caravan.