Working in a twilight zone

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They move in mysterious ways, hanging around in high-profile circles, all the time staying in the shadows. Rahul Bedi on the secretive world of the arms dealer

Illustration: Rishabh Arora

AS THE debate over India’s military modernisation and defence equipment acquisition veers once more to the role of the ubiquitous but ostensibly banned defence agents, scores of them recently launched well-practiced manoeuvres of emptying filing cabinets and making a bonfire of their contents. Working unhurriedly — having replicated, over years, this exercise at intermittent intervals — India’s army of defence middlemen aimed to clear their workplaces of incriminating military and Ministry of Defence (MoD) documents and piles of glossy weapon brochures linking them to their principals overseas.

They also made a flurry of phone calls to their civil servant and politician benefactors in the MoD and the government as well as their patrons in the three service headquarters in the capital. Many of these calls went unanswered, or were summarily terminated. The callers focussed on just one priority enquiry: were they likely to be targeted in the anticipated crackdown on agents?

Every agent seemed to want to know if his name featured on some “hit list”, aimed at making a show of cleansing the murky weapons procurement process. Some were abruptly told to call back later, predicated on the certainty that in a few weeks the scrutiny would have blown over. At that point, it would be back to business as usual but with substantially increased “risk” or “caution” money implications for either side. The furtive brush-offs were received with equanimity by the coterie of arms agents, based mostly in New Delhi. This clique remains convinced it will continue to facilitate the bulk of India’s defence purchases — estimated at $80-100 billion till the end of the 13th Five-Year Defence Finance Plan in 2022. Over the past decade, almost all major overseas defence companies had opened offices or liaison bureaus in India, employing local representatives to exploit this opportunity.

Many of these agents now employ a raft of retired military officers and civil servants. They alone seem able to navigate the byzantine guidelines elaborated in successive Defence Procurement Procedures (DPP) documents since 2006 and in complex, albeit nebulous MoD guidelines, issued earlier. In the process they and their foreign principals had become amazingly wealthy; but so have their “clients” in the military, the MoD and the political and bureaucratic establishment.

“The DPP is a complex, process-driven document designed largely to support imports,” says Brigadier (retired) Arun Sahgal, Joint Director, Institute of National Security Studies, New Delhi, “and perforce entails the involvement of agents.”

INDIA IMPORTS over 74 percent of its military equipment. This is despite assertions by successive governments from the mid-1990s that the country would become largely self-reliant by 2005. “India’s highly bureaucratic and secretive procedures for procurement encourage the inclusion of agents,” admits a senior MoD official.

The Russian T-90S MBT
Heavy artillery: The Russian T-90S MBT, Photo: AFP

The innumerable and intertwined links in the selection process, he says, need to be “suitably oiled and motivated” before contracts are signed. It’s a cosy relationship between agents and officials that has endured and nobody wants it disturbed. Approval from 18 MoD and related departments is needed to acquire defence equipment. This provides ample scope for corruption.

Successful agents have even perfected the tactic of intervening in contracts nearing closure. General VK Singh has likened this to a game of snakes-and-ladders aimed at extracting a major pay-out from a rival principal desperate to close a deal. “It’s a dog-eat-dog business,” says a leading arms dealer in New Delhi.

Successful agents have even perfected the tactic of intervening in contracts that are nearing closure

The periodically revised DPP and its associated Defence Offset Guidelines are so convolutedly structured that few specialists, whether in India or abroad, can decipher them. Both sets of documents need to read together as all defence purchases over Rs 300 crore are mandated to provide a 30 percent offset investment domestically in the military, civil aviation or internal security sectors.

Consequently the agent, essentially an entrepreneur with a flair for public relations and man-management, has become almost indispensable. Through experience, patience and tenacity in dealing with the Indian bureaucracy and the MoD’s hidebound systems, he has unravelled for his principals the complex procurement matrix. In return he gets a handsome monthly retainer, and a hefty commission disbursed overseas on deal closure.

Bofors was the event that changed the game. “Before Bofors,” remembers an agent, “service officers were grateful even for the odd bottle of Scotch, a carton of cigarettes or an expensive fountain pen.” But as the big numbers of the Bofors deal came to be known, astute MoD officers and military men began demanding a fractional percentage of the overall deal for “processing” files. The amounts began to run into tens of lakhs.

But unlike recent media reports glamourising agents and their playboy lifestyles there is little allure to their work. In reality, this is a gruelling, soul-killing and humiliating enterprise. It requires the agents to ingratiate themselves with grasping military men, unscrupulous MoD officials, politicians and power brokers, continually flattering them and proffering incentives for clearing deliberately delayed paperwork in Sena Bhawan and in the MoD in South Block.

Other than cash, major enticements include jewellery, property, top-end cars and SUVs, overseas education for the children of military and MoD officials and often even paying for lavish weddings and anniversary or birthday parties. Sex is on offer, as are esoteric alcohol, fully paid overseas family holidays, golf sets, even rare dogs and cats or expensive crockery for the memsahib.

WHO ARE these agents? Besides known names like Suresh Nanda, Sudhir Choudhary and Vipin Khanna there are scores of others whose roles become essential once requests for proposals (RFPs) are dispatched to overseas vendors detailing the Qualitative Requirements (QRs) for varied equipment. Almost immediately, these RPFs find their way back to agents in New Delhi — if they haven’t already been faxed or emailed by friends in the MoD.

“We meet frequently and openly with agents of foreign vendors,” admits a senior military officer, “to exchange information, discuss requirements and above all, liaise for trials on a ‘no cost, no commitment’ basis. These in themselves are a hugely complex affair requiring innumerable bureaucratic clearances.”

These agents, he confesses, form a vital link in the procurement chain and without them acquisitions would simply not be possible. Even Prime Minister Manmohan Singh in his first term had publicly acknowledged the indispensability of agents for defence imports. “To argue agents can corrupt officials shows a lack of confidence in the integrity of government functionaries,” say Major-General (retired) Mrinal Suman, among India’s foremost authorities on defence procurements and offsets.

The 155 mm Bofors gun
The 155 mm Bofors gun, Photo: AP

MoD AND military officials privately concede the ban on agents imposes a needless hypocrisy upon them. Vendors inking contracts are mandated to sign the “Integrity Clause” stating no middlemen or agents were employed. Introduced in 2004 by the Bofors-tainted Congress soon after returning to power, the clause affirms the contract would be terminated at any later stage if this declaration proved incorrect. The money would be refunded by the vendor. This has never happened.

Meanwhile, agents retained by staterun Russian defence companies remain probably the most powerful, with decades of entrenched influence. They are followed by those working for the Israelis, the second largest provider of military hardware to India. Agents representing European, American and sundry other suppliers are at the end of the chain.

Industry sources say Russian and Israeli agents are capable of not only “sabotaging” local weapon-development programmes but also of influencing the appropriate service HQ in formulating QRs fashioned specifically around their products. Agents working in tandem with Indian officials are also allegedly responsible for securing an average 14 percent mark-up on the purchase price of virtually all Russian-sourced equipment, dividing the proceeds equally between them.

Army sources report one of many such instances was the February 2001 deal for the import of 310 Russian T-90S main battle tanks (MBTs) for around $800 million. Extended negotiations for the MBT had faltered around mid-2000 principally over payment of the accepted 14 percent commission. Publicly, the reasons proffered for the breakdown in discussions were never clarified.

Thereafter, a top MoD official visited London where he met a prominent business family of Indian origin with extensive Swiss banking interests. They ensured payments were made to people involved with the MBT contract, following which the T-90S deal was miraculously signed in early 2001. Soon after, the London-based business group was awarded a lucrative MoD contract for transport vehicles, besides involvement in the $1.2 billion import of advanced jet trainers for the Indian Air Force.

Even Manmohan Singh had acknowledged the indispensability of agents for defence procurements

Annually, India conducts $1.5 billion worth of defence business with Russia. Since the early 1960s, it has bought military equipment worth $40 billion from Moscow. In 2007, the army acquired an additional 347 T-90S tanks and contracted to locally building under licence, another 1,000 MBTs at the Heavy Vehicles Factory at Avadi near Chennai. Do the math.

Israeli defence contractors, on the other hand, have “alarming” access to India’s military institutions, particularly the Defence Research and Development Organisation (DRDO). They follow a “buckshot” approach in securing contracts, convinced that one, if not more, of the “pellets” or agents would eventually hit the target.

The Israeli arms lobby in New Delhi has hired a multitude of lesser-known operators — junior military officers, low-key businessmen and former civil servants. All this hiring has been approved by SIBAT, Israel’s Foreign Defence Assistance and Defence Export Organisation, on a case-by-case basis. Differing incentives are offered to close different deals.

THE MoD and the Finance Ministry have long grappled with the dilemma of legalising agents. The question resurfaced after the Bofors 155 mm howitzer scandal of 1987, formally closed recently following 21 years of inconclusive investigation. That investigation cost Rs 250 crore but indicted no one.

After much tortuous soul-searching aimed at regulating the functioning of defence agents, whose efficacy was officially — though grudgingly — conceded by the MoD in 2000, the Central Vigilance Commission (CVC) and the Comptroller and Auditor General were tasked in 2001 with recommending measures to regularise them.

The CVC’s subsequent recommendations of formally registering agents in order to initiate transparency and efficiency resulted in the MoD issuing guidelines in November 2001. But these guidelines were ambiguous and contradictory. They sought to list agents by recording among other minutiae their contractual, banking and financial details. The MoD also reluctantly conceded that though agents performed “useful functions”, their working needed “stricter regulation” to prevent them from influencing decision-makers.

But the conditions imposed for their registration were so harsh, invasive and draconian that over the past 11 years not one has applied. The defence agents prefer instead to function in a twilight zone that is ultimately to everyone’s advantage.

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