Helicopters for India and a three-country procurement corruption scandal?

There’s a current revealing but disappointing example of how corruption in procurement matters can have a wider and more serious effect than might be initially apparent.

The Italian manufacturer Finmeccanica has been accused of bribing officials in the Indian Air Force to secure a $750 million deal in 2010 to sell the AW-101 medium-lift helicopters. Giuseppe Orsi, the chairman and chief executive of Finmeccanica, was arrested the other week, along with Bruno Spagnolini, the chief executive of AgustaWestland (a Finmeccanica subsidiary) on corruption and tax fraud charges.

David Cameron, the UK’s Prime Minister, said the issue of whether bribes were paid to win a contract was a matter for India and the Italian company, Finmeccanica . But it is not as simple as that - the reverberations are being felt way beyond Italy and the Indian military. The machines would actually be made at the AgustaWestland helicopter plant in Yeovil, in the south-west of England. Hundreds of jobs are now at risk if the order is cancelled. And the British Prime Minister’s trip last week to India, aimed in the main at drumming up more trade between the countries, has been negatively coloured by the whole affair.

The Indian Defence Minister A.K. Antony said that if a probe reveals proof of bribery, the Italian company and its Britain-based subsidiary “are liable for criminal actions; they are liable to be prosecuted; the company is liable to be blacklisted.”

Military equipment is one of the UKs export success stories, but there have been previous allegations (and more definite cases) of corruption involving a number of firms and trading partners. But this looks like it might have particularly serious implications beyond the immediate participants.

There are also implications in India. The country needs to update its military arsenal, but defence procurement is well known for its extreme slowness. 10 years is not unusual for a contracting process! (And Francis Maude worries about 9 months in the UK...)  So as well as the concern for jobs in the UK, this could lead to further paralysis in India, in terms of major military and perhaps other government procurement.

All this shows that however much we might get frustrated with certain aspects of public procurement rules and regulations, the effect of breaking those rules, particularly in cases involving bribery and corruption, can have hugely negative effects. As indeed do similar events in the private sector, even if they rarely break into the public view.

So whilst we can never eliminate problems, in both public and  private sectors, there are precautions  that can help. Robust, clear procurement processes, automation to help with transparency and audit trail, and skilled, capable individuals are all bulwarks against the risk of corruption.

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