India’s emergence as the largest importer of weapons in the world has coincided with well-intentioned efforts to clean up a procurement process with a history of bribery problems.
However, a blacklist system to ban errant arms dealers has potentially weakened efforts to modernize India’s outdated military and done little to actually stem corruption. It has certainly created a headache for foreign companies hoping to cash in on the arms boom in India.
Companies can find themselves barred from bidding on defense contracts in India for a decade with little opportunity to defend against allegations. There is no clear path to challenging such a ban. At least six major arms companies are on the blacklist.
Indian officials have openly admitted that the blacklist has hobbled modernization efforts, something that has kept the AgustaWestland off the list despite its scandal-plagued contract to supply helicopters to ferry Indian government officials. Several executives of AgustaWestland were arrested, and executives of its parent company Finmeccanica are under arrest and face trial on charges of bribing Indian officials to win the contract.
The company has found itself in a netherworld between the blacklist and business as usual, with the company reportedly unable to find anyone in the government to discuss the status of its contracts. AgustaWestland has consequently launched an arbitration to force the government to discuss the situation.
AgustaWestland is fortunate to have arbitration to help it navigate. Military equipment suppliers in India otherwise face the economic danger of falling into the country’s blacklist system while they try to parse the murky world of Indian defense procurement.
According to an excellent article in the Indian magazine Caravan, those selling arms in India should be aware of the piquantly named “Undesirable Contact Men.” The article says India’s Central Bureau of Investigation (“CBI”) has identified them as being “persons who are suspected to be resorting to corrupt or irregular practices in their dealings with official agencies.” Apparently, there are no Undesirable Contact Women.
Russell Stamets is a Contributing Editor of the FCPA Blog. He was the first non-Indian general counsel of a publicly traded Indian company and was general counsel for a satellite broadcasting joint venture of a large Indian business house. He can be contacted here.