5 minute readRheinmetall still blacklisted after corruption acquittal

Promotional handout of Rheinmetall’s Gladius infantry equipment | Photo: Rheinmetall

German-Swiss defense company Rheinmetall Air Defence has managed to beat off criminal charges of a conspiracy to bribe Indian officials to remove the company from a defense ministry blacklist.

Late last month, a Delhi court dismissed the charges against the company, a former employee and two alleged go-betweens, saying India’s Central Bureau of Investigation (CBI) had not been able to prove the case against them.

Rheinmetall, along with employee Gerhard Hoy, Indian national Abhishek Verma and his wife and colleague, Anca Neacsu, were accused of conspiracy to pay bribes to have the company removed from the defense ministry blacklist.

In it’s order, the Delhi court said:

The facts and evidence relied upon by the prosecution do not lead to the conclusion that the offence u/s 8 of the Prevention of Corruption Act, 1988 has been committed by the accused persons in conspiracy. In view of aforesaid discussions, I conclude that material on record does not suggest that prima facie case is made out against any of the accused and therefore, they deserve to be discharged. Accordingly, all the accused persons are discharged from this case.

Dismissal of these criminal charges, however, does not mean Rheinmetall would be able to do business with the defense ministry.

The company was placed on a defense ministry blacklist in 2012, following a CBI investigation into allegations of corruption leveled against the then Director General Ordinance Factories, Sudipta Ghosh. And although the trial against Ghosh and his associates is still underway, Rheinmetall was not charged with any crime in the matter.

In fact, Rheinmetall had challenged the blacklisting in 2012, in the Delhi High Court. That trial, too, is still underway and unless the court rules in their favor, or the defense ministry, itself, decides to remove the company from the blacklist, the company will continue to be unable to do business in India, in spite of the absence of any criminal charges in the country.

Under the rules of Indian defense procurement, companies can be blacklisted from defense acquisition programs without being found guilty in a court of law, if the defense ministry is persuaded by the evidence before it.

The period of blacklisting is typically ten years. It is not inconceivable that even at the end of this period in 2022, the trial against Ghosh and his associates, which gave rise to the placement on the blacklist, might not be complete.

The defense ministry has been known to change it’s mind, as well. South Africa’s Denel, for instance, was blacklisted for ten years but came off the blacklist a few months early because the investigators were unable to find enough evidence to charge them in a court of law. But Denel was unable to pursue business in India for more than nine years.

Recently, however, the defense ministry has chosen to be more circumspect about blacklisting companies accused of wrongdoing in India.

After the experience of the AgustaWestland corruption scandal involving the procurement of 12 AW101 helicopters for VIP transport, the Government of India has been slow to respond in the earlier standard manner of ‘blacklisted until proven innocent’.

As a result of an investigation conducted by U.S. authorities, Brazil’s Embraer admitted, last year, to the payment of kickbacks to Indian officials in the sale of aircraft to India. The BBC‘s Panorama also exposed last year the alleged payment of kickbacks by Rolls-Royce for the sale of Hawk Advanced Jet Trainer (AJT) aircraft to India.

Far from blacklisting the two companies, which would have been the defense ministry’s usual response, the Government of India has barely acknowledged the allegations, which in the case of Embraer, have actually been admitted. Embraer has even paid a fine of USD 200 million to the U.S. government to settle the matter.

Even with blacklisted companies, the defense ministry has chosen to be less strict than earlier, allowing them to supply subsets of larger orders, as well as, permitting sister concerns to become suppliers. The BAE Systems M777 light artillery on order incorporates the gun-mounted ring laser-gyro Laser Inertial Artillery Pointing System (LINAPS), which is a day and night, all-weather navigation system for artillery deployment, built by Selex, which used to be a subsidiary of Finmeccanica. Finmeccanica is now called Leonardo and Selex has merged with it’s electronics division. AgustaWestland is now Leonardo’s helicopter division.

In fact, under new guidelines issued last December, ‘allied concerns’ of debarred companies may only be blacklisted by specific directions of the defence ministry.

Further, no company will be blacklisted if there is no alternative supplier or on grounds of national security.

The tenure of the debarment is also no longer a sweeping ten years. In cases involving integrity issues, the minimum period suggested is five years. Such period will not ‘ordinarily exceed three years’ in case of underperformance.

Permission to conduct business will only initially be suspended for one year with a review within six months, to determine the the requirement of a further six-month suspension and a debarment will only be ordered if a company accepts wrongdoing, the CBI files charges or if a court or tribunal finds the company guilty.

In any case, even a blacklisted company will be allowed to bid for orders for spares, maintenance or upgrades for systems supplied earlier.

Other large international companies currently blacklisted in India include Israel Military Industries and Singapore Technologies, both of whom were barred from doing business in the the country in 2012, at the same time as Rheinmetall. At the time, both companies had challenged the order placing them on the blacklist in court, but lost their cases.

India is the largest arms bazaar in the world and represents lost opportunities for sales to companies it blacklists. The Stockholm International Peace Research Institute (SIPRI) said in report earlier this year, “India was the world’s largest importer of major arms from 2012-2016, accounting for 13% of the global total,” adding, “Between 2007-2011 and 2012-2016, it increased its arms imports by 43%.”

Rheinmetall says it is ‘ready to invest in India in building up large scale engineering and production facilities following the Make in India” policy’ and says it’s ‘priority products for localisation are Air-Defence systems, ammunitions of any kind, armored vehicles and tanks as well as active protection systems’.

So what do you think?