Whenever news of an ample scam breaks, all the usual noises are made: a thorough CBI probe has been ordered; the guilty will be booked; evidence has been sought from foreign governments. This is in play in the Finmeccanica matter as well. The unfortunate part is that this standard operating procedure rides roughshod over the nuances involved in pursuing and concluding any serious investigation. This article will examine two central themes surrounding the Finmeccanica issue: (i) the path to obtaining information from foreign governments to progress investigations in India; and (ii) what the defence procurement regime in India envisions in such scenario.
THORNY PATH OF LETTERS ROGATORY
Like many other corruption cases with a cross-border angle, it is only when Finmeccanica’s chief executive Giuseppe Orsi was arrested in Italy that the Ministry of Defence (MoD) ordered a CBI probe. News reports indicate that the Defence Minister has “criticised Italy for not responding to requests for information about the allegations uncovered by Italian investigators”. This begs the question, at what stage and upon the completion of what actions by the CBI is the Italian government bound to release the requested information.
The Indian Criminal Procedure Code clearly lays down that any criminal court in India may on an application made before it issue a letter of request (also referred to as letters rogatory) to a foreign court or government to make available documents or persons located within its jurisdiction which would aid the investigation of an offence in India. Further, the Ministry of Home Affairs will need to approve any such request by the CBI before it approaches the competent court for issue of such a letters rogatory. This two-step process has numerous hoops to jump through in terms of collating documents, including making out a case for a launch of investigations and what factors point out to the need for cross-border investigations.
The fact that India does not have a Mutual Legal Assistance Treaty (MLAT) with Italy is sometimes cited as a hindrance in obtaining information. While MLAT is certainly a helpful device where it exists, it is still no substitute for preparing a robust letters rogatory application, which is then presented efficaciously to the Italian authorities. Accordingly, pure use of diplomatic channels may not yield the desired result, since a letters rogatory from an Indian criminal court will in all likelihood, from past experience, be taken with due seriousness by a foreign court. Thereafter, an Italian court may compel an Italian authority to release information.
And in all of this, secrecy is a great virtue since it is not uncommon for people in relation to whom letters rogatory are being requested, to enter before courts challenging such a process. Even though the Supreme Court of India has conclusively settled this matter in the Bofors case, that an accused has no right to be heard at the stage of issue of letters rogatory, there are still instances where applications are made which only serve to delay and frustrate investigations.
In light of the above, broadcasting aloud that information has been sought from a foreign government is irresponsible at best and tipping off at worst.
While letters rogatory take time in terms of winding their way through the corridors of courts and investigative agencies in both countries, it is worth examining what the defence procurement rules have provided for where it is determined that agents and bribes were involved in a concluded defence deal.
The Defence Procurement Procedure 2011 (2011 DPP) governs all capital procurements like the helicopters in question presently. As the sketchy reports in the media suggest, use of agents and payment of bribes by Finmeccanica appear to hold centre stage in this discussion. Let us examine both from within the defence procurement rules in India.
The 2011 DPP outlaws the use of agents in facilitating the awarding of defence procurement contracts. The 2011 DPP requires that any contract entered into with a seller shall include a confirmation and declaration from such seller that it has not engaged agents to intercede or in any way to recommend the award of the contract. Further, the seller is also required to confirm that it has not paid, promised or intended to pay any such agent in respect of any such intercession. This confirmation is given at the time of responding to a Request for Proposal and is deemed to form part of the main contract.
Even prior to the issue of the 2011 DPP, engagement of agents by foreign manufacturers was only permitted on a case by case basis, subject to accreditation from the Directorate General of Supplies & Disposals, which was the nodal agency for registration of Indian agents. Such accreditation was infrequently granted. Whilst the previous policy enabled registration of accredited agents, this was, in theory, only allowed for foreign manufacturers and not for foreign suppliers. In practice, however, registrations were not generally forthcoming.
In the event of a breach of an undertaking mentioned here, the following consequences will apply:
(a) If it is subsequently established to the satisfaction of the buyer that the seller had engaged an agent or intended to pay any amount to such person, whether before or after the signing of the contract, the seller will be liable to pay a sum equal to such amount to the buyer.
(b) Further, the seller will be debarred from entering into any supply contract with the Government of India for a minimum period of five years.
(c) The buyer in such cases will also have the right to terminate the contract without any compensation to the seller, and in the event of such termination, the seller will be required to refund all payments made under the contract along with interest at the rate of 2% per annum above LIBOR rate. The buyer will also have the right to recover such amount from any contracts concluded earlier between the Government of India and the supplier.
The 2011 DPP also requires execution of a Pre-Contract Integrity Pact (PCIP) between the bidder and the buyer. The PCIP is a legal requirement for all contracts having a value in excess of Rs 100 crore (approximately US $22 million). The PCIP requires a statement by each bidder that it has not paid, and will not pay, any bribes and an undertaking to disclose all payments made in connection with the contract in question to anybody (including agents and other middlemen as well as family members, etc., of officials). Any breach of the provisions of the PCIP by the bidder entitles the buyer to initiate several remedial actions including the contract being terminated and the bidder being debarred from any government bid for a period of five years.
Therefore, the path to the aforementioned consequences for Finmeccanica is strewn with difficulties, but unless some of the processes listed here are invoked, it is likely that many years hence we would still be no better off in finding the truth, since just posturing before the media is likely to be just that.
First published in The Sunday Guardian on 17 February 2013.
Author: Saionton Basu, Partner at Duane Morris LLP, London, United Kingdom
Previously with Penningtons Manches LLP, White & Case LLP, Amarchand & Mangaldas & Suresh A Shroff & Co
Educated at National Law School of India University