arms middlemen...written in 2005, valid even today

Meddling With Arms

Despite a government ban, arms middlemen thrive in India

Deepak Parvatiyar

(An edited version was published in 12th May 2005 issue of Sahara Time, New Delhi)

Even as the government is preparing the ground for investigating the  arms procurement deals during the tenure of George Fernandes as defence minister, it is becoming increasingly clear that most of  the arms procurement still occur through arms dealers. Even Fernandes has gone on record stating that middlemen are involved in defence deals. This despite a ban on taking commissions to push across arms sales and a structured defence procurement procedure.  The country  has no effective mechanism to deal with arms brokering and  even though authorities  pretend to be oblivious to middlemen playing important roles  in  any major arms deal.

The issue of arms procurement  has come into focus once again following revelation in the South African daily  Cape Argus that the South African anti-corruption agency was investigating allegations that state-owned arms company, Denel, paid commission to a British firm to win business worldwide.The  report also alleged that Denel paid a 12.75 per cent commission to Varas Associates “to influence India’s decision to choose Denel as the supplier of “200 anti-material rifles (bunker busters) and 100,000 rounds of ammunition” for the Indian Army. The cost of the deal has been placed at $3.86 million.

The report states that $393,720 were paid on December 8, 2002 as “fees for consulting and technical services as per agreement” with respect to “Project AM2 and AM3”, the codenames for the contract for the Denel-produced rifle and its ammunition.

South Africa's multibillion-rand arms acquisition process had put under scanner the role of its President Thabo Mbeki with the mounting allegations of corruption that surrounded the arms deal.  New Delhi regularly purchases arms from Pretoria. Sources in the Indian government say that the Government is examining the integrity of over dozen foreign arms suppliers who had allegedly paid bribes to officials to get secret documents.

Yet, there is much at stake. For instance in India’s enhanced defence  budget for 2004-2005, Rs 33, 483 crore out of  an outlay of Rs 77,000 crore is set apart for procurement alone. Middlemen and “local links” are considered absolute necessities to acquire spares, and foreign arm manufacturers often “misuse” these middlemen by invariably appointing them as their agent for pushing through their deals with the armed forces.

“The whole matter is circumstantial in nature where ad hocism prevails. I have personal evidence that there is no internal monitoring in government (defence) departments with regard to defence procurements despite this very big global shopkeepers’ net,” Air Vice-Marshal (retired) Surenji Goyal said.

P.R. Chari, a former additional defence secretary and former director of the Institute of Defence Studies and Analyses, says that the after-sales maintenance and ancillary equipments, which is extremely necessary for the armed forces, is the major grey area in the defence procurement process. Citing personal experience, he said there was an urgent requirement of spares and other consumables within a-year-and-half of the purchase of certain aircrafts. “So it is necessary to have a local body (read middleman) to get the spares,” he says. Goyal, in fact referred to an armsprocurement deal way back in 1957, where “a combine between foreign agents and individuals led to complications.”

The revelation defies the general perception that middlemen are often those who neither resided in the country from which the weapons originated, nor lived in the countries through which the weapons passed or for which they were destined. This had made these “third party” arms brokering notoriously difficult to trace, monitor or control.

The history of defence scandals in India can be traced to the late Fifties when V.K. Krishna Menon was the defence minister. Allegations of his involvement in a jeep scandal had created ripples in Parliament. During the Janata Party rule in the Seventies, when Jaguars were procured from the United Kingdom, fingers were raised at Jagjivan Ram, the then defence minister, putting a question mark on the fairness of the deal.

Yet, it was in the Eighties that several hurried deals frequently stirred the nation. Besides the Bofors guns and HDW submarines, the major acquisitions included MiG-27 and MiG-29 fighters, MI-17, MI-25, MI-35 helicopters and EKM class submarines from the erstwhile Soviet Union. Similarly, Mirage-2000 multi-role combat aircraft from France and aircraft carrier INS Viraat together with Sea Harrier jump jets and Sea King naval helicopters were purchased.

Negotiations for the mammoth SU-30 deal with Moscow were completed during the P.V. Narasimha Rao regime, though the H.D. Deve Gowda government gave the final nod. Rao’s decision to release an advance of Rs 500 crore to the Russians in 1996 before demitting office was roundly criticized.  Further, a list of spare parts submitted to the Delhi high court in connection with a writ petition also showed that the Indian navy had bought them at exorbitant prices.

During the NDA regime, though George Fernandes had to quit as defence minister in the midst of an intense political turmoil. Still, he  did request the Central vigilance commissioner to probe defence deals since 1985 when there were allegations of the self-styled godman, Chandraswami, teaming up with international arms dealers to procure the advanced jet trainer Hawk.  In South Africa, the company supplying the Hawk trainer was suspected to have already paid a huge bribe to get the contract.

Interestingly, it was as late as in 1992 that the procedure for defence procurement was laid down to “demonstrate highest degree of probity and public accountability, transparency in operations, free competition and impartiality”. But the subsequent acquisitions during the Kargil war, and the controversies it generated, have proved  the inefficacy of the procurement procedures also the lack of political will to correct it.

Of late, the Defence Procurement Procedure is being reviewed to make it “more effective” and a committee set up under the Chairmanship of Dr. Vijay Kelkar, noted economist and a former adviser to the finance minister, to examine and recommend changes in the acquisition procedures among other things, now calls for a “new institutional architecture” for defence acquisitions.

As of now, while the Defence Acquisitions Council (DAC) headed by the Defence Minister give ‘in principle’ approval to Capital acquisitions, the decision of defence minister based on DAC deliberations flows down from implementation to Defence Procurement Board, Defence Production Board and Defence R&D Board. However, the approval in principle should be seen as first step in the process of ‘acceptance of necessity’ by the concerned Administrative Wing in MoD in consultation with Defence(Finance) and as a recommendation for eventual consideration of Finance Ministry/Cabinet Committee on Security (as required).

Sources, however, say there are inordinate delays in arms purchases and reportedly no honest official wants to sign on quickly on defence purchases for fear of being investigated.

So much so that despite the prescribed war time rates where inventory must be stocked for 30 days at war time, during Kargil, there was no stock of particularly the artillery shells, as per the required provisions.

Defence experts concede that defence purchases can “never be foolproof” given the vast money involved as well as the national security consideration. Hence, such deals lack transparency, they claimed. To buttress their argument, they point out that this was demonstrated throughout the modern history, starting from the US President Ronald Reagan, who had problems with armsdeliveries to Iran in ‘80s to the arrest of former Argentinean President Carlos Menem accused of violation of the UN embargo onarms deliveries to Croatia in ‘90s.

In recent times, a major controversy had surrounded the purchase of weaponry to high speed attack crafts of the Sri Lanka Navy from Israel which the Opposition had alleged to be ‘fraudulent’. Even in those countries where stringent arms export laws exist and are enforced, arms brokers can still operate, finding ways to circumvent domestic regulations. For example, the United States operates stringent re-export laws whereby purchasers are required to sign a statement undertaking not to re-export arms of US origin without the prior authorisation of the US State Department. However, arms brokers in the United States reportedly have taken advantage of the less stringent application of these controls with regard to NATO partners in order to forward arms to countries or agencies which could use these weapons for  dangerous schemes. In April 1998, the US State Department threatened to revoke all export licences for firearms to countries of the EuropeanUnion because, it was claimed, thousands of high-powered, semi-automatic US pistols and rifles sent there were being re-exported to countries of concern, such as Algeria or Turkey.

Similarly, in the UK, there had been consistent criticism from the National Audit Office of inefficiencies within defence procurement spending following which, the Strategic Defence Review (SDR)had sought to streamline the process.

Analysts say the increasing privatisation of the international arms trade has contributed to the reliance by many arms exporting governments and companies on private brokering and shipping agents for the transfer of conventional arms across state borders but the lack of regulation in this field meant that the extent of the involvement of brokering and transportation agents in underhand dealings was difficult to ascertain.

Given the concern about the unregulated activities of arms brokers, the issue is now being addressed by individual governments and by the United Nations itself. The UN Firearms Protocol includes an article recommending that states “consider establishing a system for regulating the activities of those who engage in brokering”.

However, in practice, given that very few countries have in place a system of authorization of brokering activities, brokers find themselves in a ‘grey zone’ in which their actions are effectively unregulated. Experts say that provisions in the 25 countries,including Germany, Sweden, the Netherlands, Luxembourg and the USA, with brokering regulations in place vary considerably, particularly in their scope of application, both within and outside the national territory of controlling states. “There is a lack of consensus with respect to the definition of activities that are subject to licensing and the criteria for assessing brokering licence applications,” said an analyst.

In Indian context though, a ban on commission agents that was clamped by the Rajiv Gandhi government soon after the Bofors controversy in 1989, has failed to yield desired results and the government had since rejected a recommendation that more transparency was needed in the agency business rather than ban it. Despite the fact that there existed an official ban onarms agents, former defence minister, Mulayam Singh Yadav, had once stated that power brokers had tried to pressure him on defence contracts. A committee headed by A.P.J. Abdul Kalam, the then scientific advisor to the defence minister, was also set up to explore ways to eliminate middlemen.

“Instead of not having agents, it makes sense to register them, charge a license fee from them and channelise their entire activity,” Chari said.

That seems to be a clear option. But it is too dangerous a  political decision to make for any party in power. Fernandes claimed recently that he as defence minister had started registering middlemen. Defence minister Pranab Mukherjee claimed despite he announcing the scheme for registering arms agents but no one was coming forward.

So it can safely be assumed that soon after every multi-crore deal,  charges will fly, like missiles.

No check and balance in the defence procurement: Pranab Mukherjee

Deepak Parvatiyar & Shivnath Jha
New Delhi

(This report was published in Sahara Time in 2005)

Acknowledging the ever-growing role of arms brokers in defence procurements, the government has decided to come out with a procurement manual to bring in transparency in process of defence procurements from both within and without.

Reacting to a Sahara Time story on the unchecked involvement of arms brokers in defence procurements in the country (“Meddling With Arms” - ST 12 May 2005 issue), Defence minister Pranab Mukherjee, in an exclusive interview to this paper, conceded, “right now there is no check and balance in the defence procurement policy”. He asserted, “The UPA government wants to make the entire system transparent and corruption free.”

The procurement manual though being considered a “good beginning” by experts, would largely be ineffective in the absence of other simultaneous programmes for policy implementation. “The Manual can only mention do’s and don’ts. It cannot be a long term solution and besides, no book manual can guarantee good conduct,” Air commodore Prashant Dikshit, Deputy Director, Institute of peace and conflict studies, claimed.

Air vice marshal (retired) Surenji Goyal felt the manual will be “like any other regulations which are hardly implemented”. “I reiterate that unless there is strong internal monitoring, nothing is going to happen. For this purpose the government should appoint someone like a retired General, to do internal monitoring of a particular matter on a weekly basis,” he said.

Defence analyst Deba R Mohanty was of the view that the manual could not be seen in isolation and what was required was a holistic approach. The situation was rather complex since India was moving from exclusively state controlled defence industry to a more open one with 100 per cent private sector participation by Indian companies with FDI permitted up to 26 per cent, both subject to licensing. “To make the private industry aware of the procurement process, a defence white paper is most desirable at the earliest,” he pointed out. Besides, as private industry looks for profit, the government was also required to give clear-cut road map at least for the next 15 years about the specifications on procurement. “Both the manual and the roadmap should go side by side,” he asserted.

The defence minister, however, reiterated that his top priority was to eliminate the role of middlemen and corrupt officials in the procurement of defence materials both from indigenous and foreign arms manufacturers. He said his ministry was framing details of the manual and was all set to introduce a Bill to enact Procurement Manual in the Parliament. “In case of any violation of manual, the concerned officials, irrespective of their posts and positions would be severely punished. The Bill would be tabled in the Parliament soon,” he said.

“The entire manual will be put on the MoD’s website so that the people of this country know how and under what circumstances government procures materials for the forces. In case of violation of the manual, the concerned persons irrespective of their post and positions will be punished,” he said.

Analysts though claimed the broad contours of the country’s procurement policy related to national defence had been included in various policy documents such as the annual reports of the ministry of defence. Besides, the department of industrial promotion in the Commerce ministry too had suggested guidelines for defence procurement.

“I have done several discussions on the subject of procurement and it (the situation) looks helpless,” Commodore Dikshit said.  He pointed out that the present debate (on defence deals) had started with the Denel controversy. “Has any reply come from Denel? No. Denel is an organization only into R&D and manufacture of arms. It doesn’t have a sales wing. With Denel we had small arms deal. We are not even examining why we are not manufacturing small arms. This is ridiculous. We should kick DRDO on getting them going,’ he said.

Yet, analysts say it was not an easy task given the fact that research and development in defence never went beyond 6 per cent of the total defence budget unlike in the US or UK where it was almost 25 per cent of the defence budget.

Defence Minister Mukherjee though claimed his first priority was to “promote” the indigenous arms manufacturers and give them all possible supports to cater to the demand of defence materials. “However, in some cases, where they are not capable, the foreign arms manufacturers will be allowed to participate,” he said.

The minister added that the MoD had also invited reputed defence materials manufacturers to register themselves by the end of this month and that it had also asked the arms manufacturers to get their agents registered with the MoD. “If they fail to do so, they will not be allowed any contracts for supply of defence materials,” he said.

Mohanty though said with the opening up of the defence industry, the role of foreign players could not be denied. “Our emphasis should be more on investment and joint production. Let there be any number of middlemen in such efforts,” he said.
Analysts pointed out that in India the process of registering was very old. According to procedure each vendor is supposed to be investigated. This is there for the last 40 years. “This all failed because the thing you want no body is willing to give to you. Only the needy goes to the provider. The sellers will register only when the need arises, when they are about to sell,” said an analyst.

e.o.m