Probe sought into THE OTHER AGUSTA DEAL

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A complaint has been lodged with the government to probe offshore receipt of commission earned from the sale of 21 civil helicopters worth Rs 7,000 crore by Agusta.

Agusta-Bribe

AgustaWestland, the Anglo-Italian helicopter company owned by Italy’s Finmeccanica seems to be
in for some more trouble after the much publicized arrest of its CEO and Chairman Giuseppe Orsi for paying  bribes  to  sell  12  military choppers to India.

A complaint has been lodged with government agencies asking them to probe the sale of civil helicopters by the company in India. Government agencies are already probing the sale of 12 military helicopters acquired by India for use by the VVIPs.

According to sources, a complaint has been filed seeking an investiga- tion into the sale of 21 civil helicop- ters worth over Rs 7,000 crore by AgustaWestland between 2005-2013 in India.

As per the complaint Agusta Westland has been selling civil  helicopters in India through its agent Sharp Ocean Investments Limited, which has its registered office at Suit 605, China Insurance Group Building, 141, DRS, Vorux Road, Central Hong Kong. The company is promoted by twin brothers Nayan Anuj Jagjivan and Nakul Anuj Jagjivan.

Sharp Ocean Invetments Limited is the exclusive distributer of, inter alia, civil helicopters of AgustaWestland. To sell Agusta Westland choppers in India, Sharp Ocean has been using the services of another company, OSS Air Management Private Limited, which has its registered office at Kasturi Building Second floor, 171/172, Jamshedji Tata Road, Mumbai.

It is alleged that all sale and service activities are handled by Indian company,OSS Air Management Pvt Ltd, but the commission for the sale of helicopters are received by Hong Kong-registered company, Sharp Ocean Investment Ltd. Proof of link
between OSS Air management and Sharp Ocean has also been provided to the authorities in the form of copy distributer agreement between Sharp Ocean Investments Ltd and OSS Air Management Pvt Ltd.

Tax authorities in India have been asked to probe the possibility of tax evasion on the commission received for the sale of helicopters and foreign exchange deprivation to the country by off-shoring payments for the sale of helicopters in India.

As per the complaint, all sales and marketing matters relating to AgustaWestland civil helicopters are handled by OSS Air Management Pvt Ltd, but the finalized sales agreement is signed by Sharp Ocean and the commission too is received by
Sharp Ocean. Authorities have been asked to find out if there is any illegal arrangement to avoid tax on the receipt of commission from the sale of choppers.

The complaint says that Sharp Ocean has another company called Heligo Charters Pvt Ltd, which operates helicopters under non-scheduled operator permit. Sharp Ocean has also invested in a company called BRICS Leasing and Finance International Limited (BLFL) which is registered in Dublin, Ireland.
In a letter dated December 6, 2007, Sharp Ocean informs a client that Sharp Ocean and BLFL, Ireland are part of the same family and the two entities have common ownership, and, as such, BLFL will lease choppers to clients in India. Here too, Indian tax authorities have been asked to probe possible tax evasion by off-shoring payments.

On its part, Sharp Ocean does not see anything wrong in the way it is conducting its business. In the same letter dated December 6, 2007 to its client, Sharp Ocean says that they’ve been advised that taking payments abroad for services rendered/goods sold in India “is the most tax efficient way of operating in India”.

Between 2005 and 2013, 21 civil helicopters of Agusta have been sold in India. (See Table next page). Meanwhile, in the 12 VVIP helicopter deal now that a Joint Parliamentary Committee has been constituted to probe the charges of corruption Realpolitik went into the genesis of the contract right from where it started and where it landed.

Italian prosecutors began their probe after a tip-off by a whistleblower about use of illegal means by Finmeccanica in the Indian contract. What followed led to uncovering of a trail of money laundering, deceit and bribes.

The investigators pursued two persons — Guido Haschke, a Swiss national, and his partner Carlos Gerosa – whose services were allegedly used by Finmeccanica to win the Indian contract of 12 helicopters.
They spilled the beans through their phone conversations that were recorded. And investigators used all the modern means to stitch together broken pieces that eventually led to the arrest of Finmeccanica’s former CEO Geuseppe Orsi on February 12 after more than a year of probe.

During the investigations, the prosecutors submitted their investigation report in July 2012 in the court of Naples. It was a detailed 566-page report comprising essentially the recorded conservations of the main players that played crucial part in Finmeccanica’s UK-based subsidiary AgutaWestland winning the Indian contract worth Rs 3,600 crore.

This report was the basis of a Milan court ordering arrest of Orsi and naming of others, including former air chief S P Tyagi as one of those bribed by the middlemen to swing the Indian contract. It was also established that Tyagi’s three cousins – Rajeev (also identified as Docsa), Sanjeev (Julie) and Sandeep – were the main link between the air chief marshal and middlemen Haschke and Gerosa.

Apart from Hashcke and Gerosa, the Italian company had hired another middleman Christian Michel, a London-based businessman whose father Wolfgang was known to have links with the Indian political leaders in the 80s and 90s.

The main charge of the Italian prosecutors is that AgustaWestland’s helicopter AW-101 was not meeting the technical requirements stipulated by the Indian Air Force for the contract. The IAF had sought a helicopter that can operate at an altitude of 6000 meters but AW-101 was not capable of performing at those heights. The middlemen were used to get this specification changed enabling AW-101 to compete in the tender.

It has been alleged that this alteration in the technical requirement was altered through Hashchke and Gerosa who had been the business partners of Tyagis. The three cousins facilitated meetings between the middlemen and the Finmeccanica officials with air chief marshal SP Tyagi under whose tenure most of the deal, eventually signed in 2010, was shaped.

For this service, the Tyagis and others were allegedly paid Rs 360 crore. Christian Michel was paid separately. Other than Haschke, Gerosa and the Tyagis, Chandigarh-based IT company Aeromatrix is also under scanner. Aeromatrix is alleged to be a front company through which Hashchke transferred the money. The company had done business with Finmeccanica earlier also and was also listed as one of the entities identified by AgustaWestland as offset partner as part of the contract obligations.

Aeromatrix head Pravin Bakshi and lawyer Gautam Khaitan, whose name figures several times in Italian prosecutors’ report are also at the centre of the investigations.

The Italian prosecutors have alleged that the illegal funds were transferred through fictitious companies in Tunisia and Mauritius. There are also hints about Tyagis holding Swiss bank account though it has not been established. While the Italian investigators have tried to established that illegal funds were transferred to entities in India, the government in New Delhi and the Indian Air Force ruled out the possibility of operational requirements of the helicopters being tweaked.

Going further into the details of the contract, one would have to go into the back story and analyse the process that was followed to buy helicopters to ferry country’s VVIPs which essentially meant the president and the Prime Minister.

It was on August 5, 1999 when a case was made to find replacement of Mi-8 helicopters which were to be phased out by 2010. The helicopters had other problems as well, including inability to operate beyond 2000 meters, limitations of utilizing small and temporary helipads, high cabin noise, poor airconditioning and limited range of 250 to 300 kms.

After much deliberation, tenders were floated on March 8, 2002 for the purchase of 8 helicopters for VVIPs. The tender had listed 55 mandatory and 19 desirable operational requirements and a response was sought from 11 vendors, including Boeing (for CH-47 model), Sikorsky (S-76, CH-53 and S-92), AgustaWestland, Bell (412), Karvan (SH-2G), EH-101 of UK, NH-90, AB 139, Eurocopter (AS332 and AS532) and three entries from Russia – Mi-172, Mi-171 and Kamov KA 32.

Out of these four – Bell 412, Mi- 172, Eurocopter EC 225 and AgustaWestland EH-101 responded.

On July 5, 2002, the technical evaluation committee of the IAF recommended Mi-172 and EC-225 for conducting trials as Bell 412 had failed to fulfill 12 mandatory requirements including range, cruise speed, service ceiling and single engine performance. EH-101 could not make it on the basis of altitude ceiling of 6,000 meters required in the tender.

Trials of Mi-172 were held in Russia and South Korea while EC- 225 was evaluated in France. The Field Evaluation Team recommended EC-225 as it met all the mandatory operational requirements while Mi- 172 failed on many counts leading to a single vendor situation.

On 26 May, 2003, the FET report was submitted to defence ministry and PMO’s views were sought on August 21, 2003 specifically in respect to the cabin height of EC-225 which was between 1.39 meters and 1.45 meters.

A presentation was made to PMO on November 8, 2003 following which principal secretary to PM Brajesh Mishra took a meeting on 19 November 2003 to discuss the issue. In this meeting the IAF was pulled up for not including Special Protection Group in the selection process. It was also mentioned that the Prime Minister or the president hardly made visits beyond 4500 meters. The meeting concluded that single vendor situation should be avoided, SPG should be included in the process, altitude ceiling should be brought down from 6000 meters to 4500 meters and cabin height should be  increased.

The government changed in May 2004 following which fresh efforts were made to formalize new operational requirements for the VVIP choppers. In a meeting held by defence secretary on May 9, 2005, 65 service qualitative requirements were deliberated and crucial changes were adopted. This included increasing cabin height to 1.8 meters and reducing the altitude ceiling to 4500 meters.

At this stage, the number of helicopter sought was increased from 8 to 12 at the instance of SPG. It was felt that VVIPs move with their entourage and all the helicopters in the fleet should look similar as part of the security requirement. The air headquarter proposed that 5 helicopters should be purchased in VVIP configuration and 3 for cargo to carry equipment and personnel accompanying the VVIP. But the SPF went for the number to be increased to 12 with 8 in VVIP configuration and the remaining for cargo.

The change in quantity of helicopters was vetted by the defence minister on March 28, 2006 after whichthe Request of Proposal with the changes was issued on September 27, 2006 to six vendors.

Only three responded. Boeing stayed away as it felt that its Chinook (CH-47) was too big for the VVIP usage. The Russian entry, Rosoboronexport refused to sign the pre-contract integrity pact which was a mandatory requirement. In the final evaluation, Sikorsky and Agusta Westland were left in the fray. After being selected, the two companies added extra costs – Sikorsky revising its commercial bid on three counts and Agusta Westland on one. This was accepted by air headquarter.

The other objection was on warranty clause in the RFP. The warranty requirement was for three years or 900 hours of flying, whichever later. Both the vendors suggested that it should be changed to whicheveris earlier. The objection was found to be valid and accepted.

After the acceptance of the basic ground rules, the two companies were asked to present their helicopters for field evaluation. AgustaWestland had fielded the same aircraft which was being developed for the US president.  Sikosrky  proposed to get its helicopter S-92 evaluated in two phases.

The evaluation of EH-101, which was later renamed as AW-101, was carried out in the UK in January-February 2008. The Sikorsky was tried in the US. The evaluation process was completed and AW-101was recommended to be the best choice on March 20, 2008. Sikorsky had failed on several countsincluding service ceiling. After the finalization of AW-101 as the best choice, two major changes were incorporated which were not part of the original RFP. These were introduction of traffic collision avoidance system (TCAS) and extended ground proximity warning system (EGPWS). These two features increased the cost of the contract by Euros 10 million.

They were added at the instance of the SPG as they were essential security features. The air force also accepted as they were to become part of mandatory requirements later. After the evaluation process, AW-101 became the residual single vendor as other contenders could not make it to the final stage. This situation is accepted in the defence procurement procedure as a result of which price negotiations were carried out with AgustaWestland and the contract was awarded to the company in 2010. Three of the helicopters have been delivered and the defence ministry has paid 45 per cent of Rs 3600 crore to the company. As safeguard, the defence ministry has bank guarantees worth 55 per cent of the contract value.

The air force claims that it has selected the best option available after following every procedure prescribed in the rule book. The Italian investigators, on the other hand, claim that middlemen were employed and money exchanged hands. The truth lies somewhere in the middle. Before the CBI could get to the bottom of case it becomes imperative to mention that establishing the money trail could prove to be a herculean task. The probe began in Italy and answers also lie there.

helicopterKey players
Middlemen Guido Haschke and his partner
Ralph Girosa, Tyagi brothers Rajeev, Sanjeev
and Sandeep, Air chief
marshal S.P Tyagi, London-based businessman
Christian Michel, Lawyer Gautam
Khetan, Chandigarh-based software company
Aeromatrix and its head Pravin Bakshi

Case dateline
Helicopter deal finalized in 2010
Investigation begins in Italy in
November 2011
First report filed in Naples
court in July 2012
A Milan court orders arrest of former
Finmeccanica CEO Giuseppe Orsi on
February 12, 2013
The court also names Tyagi brothers and air
chief marshal S.P Tyagi among those paid
bribes along with Haschke, Girosa and
Christian Michel

Money trail
Tyagi brothers paid one million Euros
The total bribe paid 51 million Euros
Money transferred through non-existent IT
companies in Tunisia and Mauritius
Rooted through Indian front Aeromatrix
Christian Michel paid separately

The front companies
Aeromatrix is the starting point of
investigation as it was also the offset
partner of AgustaWestland. The company
had withdrawn ifself from the offset
arrangement after the controversy.
The front companies used in Tunisia and
Mauritius yet to be identified.

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