Here comes a chopper... After arms chiefs are accused of bribery in a $750m AgustaWestland deal

Andrew Buncombe reports on a history of corruption in India

In the spring of 2011 India passed a remarkable milestone. Data revealed that the nation of Mahatma Gandhi had overtaken China to become the world's largest importer of arms. Between 2006 and 2010, the Stockholm International Peace Research Institute said, India accounted for 9 per cent of global arms purchases and was planning to spend $50bn (£32bn) over the next five years modernising its armed forces.

At the same time that India has become one of the most important markets for global arms dealers, it has remained a place where palms are often greased to do business. For some involved in trying to secure the most valuable deals, the temptation may be too great.

That, at least, is the allegation of investigators in Italy, who arrested the head of the Italian defence group Finmeccanica over allegations that bribes were paid to secure a $750m deal to supply 12 helicopters to India.

The company's chief executive and chairman, Giuseppe Orsi, was detained and his home north of Milan was searched as investigators pursued inquiries over bribes said to have been paid when Mr Orsi headed the company's AgustaWestland subsidiary. The current head of AgustaWestland, Bruno Spagnolini, was also arrested.

As news of the arrests broke, the Prime Minister, Mario Monti, went on television to say the government was looking at management issues at the firm, in which the state has a 30 per cent stake. "There is a problem with the governance of Finmeccanica at the moment and we will face up to it," he told state television, according to Reuters.

The deal to provide 12 AgustaWestland helicopters to India, to be used to transport so-called VVIPs, including the Indian Prime Minister, was signed in February 2010. In securing the deal, the Anglo-Italian AgustaWestland, a wholly owned subsidiary of Finmeccanica, beat off stiff competition, most importantly from the US company Sikorsky. Three of the choppers have reportedly been delivered.

Yet almost since the deal was struck, there were rumours and speculation that irregular payments were involved and Italian investigators announced an investigation a year ago. Finmeccanica and Mr Orsi have always denied any wrongdoing.

India has a long history of corruption scandals and the defence industry is no exception. One of the most infamous incidents concerned the receipt of kick-backs to award a multimillion-dollar deal for the purchase of artillery guns from the Swedish company Bofors in the 1980s.

It was claimed that the then Prime Minister, Rajiv Gandhi, and other ministers received substantial sums. The claim was always denied and no charges were ever laid, but the scandal was one of the reasons behind the defeat of Mr Gandhi's Congress party in the 1989 general election.

The government of the current Prime Minister, Manmohan Singh, has repeatedly been rocked by corruption scandals, and allegations that someone received bribes to award the deal to the Italian company would be deeply damaging.

With India's main opposition party, Bharatiya Janata, seizing on the news of Mr Orsi's arrest, the Defence Minister, AK Antony, said he was asking the federal investigation agency, the CBI, to carry out its own inquiry.

The ministry issued a statement saying that when it became aware of media reports about alleged kickbacks, it sought information from the British and Italian governments. "Since no specific input has been received so far, the MoD has decided to refer the case to CBI for inquiry," it said. (An official at the British High Commission in Delhi said it had advised the Indian authorities to speak directly with Italian investigators.)

It remains unclear precisely how much money is said to have changed hands. Some reports said the sum involved was 40 million rupees (£470,000), although some observers said such a sum appeared too small.

The Delhi-based representative of one international arms manufacturer, who asked not to be identified, said: "That might have been the amount paid to just one individual. Many of the deals here involve someone getting paid. The cleanest deals are the government-to-government deals where there's no real chance of corruption."

Amid the murky allegations, it may also be that politics has a role to play in both Italy and India, especially since the arrest of Mr Orsi comes just two weeks before the Italian general election. When he was appointed to head Finmeccanica in 2011, Mr Orsi received the backing of the Northern League party, an ally of the then Prime Minister, Silvio Berlusconi.

As it was, he was appointed to replace Pier Francesco Guarguaglini, who was also implicated in the bribery investigation. Mr Guarguaglini and his wife, who ran a Finmeccanica subsidiary, are accused of setting up slush funds to funnel money to political parties. When the spotlight came to focus on Mr Orsi, centre-left politicians repeatedly called for him to step down.

The arrest of Mr Orsi and the announcement of an investigation by India will be of intense concern to Finmeccanica, which is undergoing a restructuring.

Under Indian arms procurement rules, companies found to have been involved in corruption can be punished with blacklisting and fines, and being excluded from the Indian market at this point would be a major set-back as its other big markets, Italy, the UK and the US, all face defence spending cuts.

For now, however, the company is trying to put on a brave face. In a statement it said business would continue as normal. It added: "Finmeccanica expresses support for its chairman and CEO."

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