Editor’s note: First, a big reminder for founding members! We’re overbooked for the AMA with star chef and restaurateur Manu Chandra on Saturday, April 10th at 6 pm. And the 50 slots reserved for founding members are nearly gone. So please sign up here while you can.
Rafale scandal grows and grows
The TLDR: As we explained earlier this week, a French news site Mediapart is doing a three-installment investigation into the 2015 deal to buy Rafale fighter jets made by Dassault Aviation. The latest episode is damning for the Modi government.
A quick recap
The deal: In 2015, the Modi government inked a Rs 590 billion (59,000 crore) deal to buy Rafale fighter jets made by Dassault Aviation.
The allegations: are that a) the government overpaid for the jets and b) leaned on Dassault to pick Anil Ambani’s company Reliance Defence as its ‘offset’ partner. What this means: The agreement included an ‘offset’ clause, requiring Dassault to invest 50% of the contract value in Indian projects—and therefore pick Indian partners to fulfill this requirement.
The middleman: The first installment of the Mediapart investigation showed that Dassault paid €1,017,850 (Rs 87 million) to a company called Defsys Solutions for the manufacture of 50 large-size replicas of the Rafale jets—at an eye-watering unit price of €20,357 (Rs 1.7 million). There is no evidence that these replicas were either made or delivered. The man who owns that company—Sushen Mohan Gupta—is currently under arrest on charges of bribing officials in another defence deal: A Rs 36 billion (3,600 crore) deal inked under the UPA in 2010 to buy 12 helicopters from AgustaWestland.
Ok, now you’re all caught up. If you want more background, check out our earlier explainer.
The tainted negotiations
The deal was signed after protracted negotiations with Dassault—with the French government acting as a facilitator. Two earlier Hindu investigations revealed:
One: A Ministry of Defence note to then Defence Minister Manohar Parrikar raised objections to “parallel negotiations” being carried out by the Prime Minister’s Office. It claimed that this interference had “weakened the negotiating position of MoD [the Ministry of Defence] and Indian negotiating team”—and asked the PMO to essentially stay out of it.
Two: The government made eight amendments to the standard defense contract stipulated by official procedure. One amendment removed a critical anti-corruption clause. The other eliminated the requirement for an escrow account maintained by the French government—which would release India’s payments to Dassault, and ensure proper use of funds.
The Mediapart bombshell: Mr. Middleman Gupta accessed confidential documents prepared by the Indian side—and turned them over to Dassault during the negotiations:
“Mr. Gupta, obtained documents which included the minutes of meetings by the Indian Negotiating Team (INT), the arguments they had prepared to present to the French, and detailed notes on the calculations of the costs and the methodology employed. Mr. Gupta even obtained an Excel sheet created by one member of the INT for calculating the purchase price.”
Point to note: According to internal calculations, the purchase price for the Rafale jets ought to have been €5.06 billion (Rs 445 billion). We ended up paying €7.87 billion (Rs 692 billion)—a price the same team had rejected six months earlier. But it is also the price suggested by Gupta as a consultant to Dassault:
“On one of these [spreadsheets], created [by Gupta] on January 20th 2016, one of the columns concludes a suggested overall purchase cost of 7.87 billion euros. That was precisely what the French negotiating team proposed to the Indians during a negotiations meeting the following day.”
Adding to the shadiness: are hints of how Gupta was compensated by Dassault. His company Defsys Solutions became one of the ‘offset’ partners as part of the deal. But the company had also been funneling millions of dollars to him for years leading up to the Rafale contract:
“The problem is that the money was not paid into the Indian-registered consultancy firm of the Guptas, but was instead transferred, in the form of secret commissions, some of which have questionable justifications, into offshore companies.”
Embarrassing kicker for the government
Here’s the big problem for the government: The Mediapart reporting is based on documents from the Enforcement Directorate’s investigation into the AgustaWestland case. Yup, these our own government’s files. And here are the embarrassing implications this revelation entails:
One: The illegal commissions from Dassault went to a software company called IDS—which was instructed to pay it forward to a company called Interstellar, co-owned by none other than Gupta. And Interstellar is named in the AgustaWestland case as the company used to channel kickbacks to Indian officials. In other words, the modus operandi in both deals was exactly the same.
Two: The Enforcement Directorate is aware of this fact. In its complaint that details charges and evidence, the ED says the money received via Interstellar was also used for “bribing officials in India” in the context of “various defence deals.” And according to Mediapart: “A confidential note found in the computer archives of the intermediary suggests that the Rafale deal may have been one of them.”
Three: And yet this is what the official chargesheet said about Rafale, i.e. nothing:
“In the official charge sheet dated May 20, 2019 against Sushen Gupta, the ED wrote that ‘since kickbacks from the other defence deals are not a subject matter of the present investigation’ about the AgustaWestland scandal, ‘separate investigations would be undertaken’ regarding the other deals.”
Important point to remember: One of the eight amendments made to the Rafale contract by the Indian side included removing the anti-corruption clause:
“Those anti-corruption clauses could have had costly consequences for the industrialists, for they allow for India to rip up the contract and/or to demand compensation not only if acts of corruption are discovered, but also if the seller paid an agent in order to ‘intercede, facilitate or in any way to recommend [the seller] to the Government of India or any of its functionaries’.”
The bottomline: For years now, Rahul Gandhi and the Congress party has done their best to pin down the government on the Rafale deal. The news that the damning evidence is right here under our noses—in an ED file, no less—is an early and unexpected Christmas gift.
Reading list
The Hindu and The Wire have details on the Mediapart investigation (which is behind a paywall). Also, The Hindu did two big investigative pieces on the Rafale deal: read part one and two. Our earlier explainer has lots more details on Gupta, his companies and the AgustaWestland case—and its own reading list.
