Friday, March 1, 2013

Bribes are always paid in arms deals

The military-corruption complex

Amitabha Pande; former secretary to the Government of India

I have been quietly amused by the pother over the AgustaWestland helicopter scam, as though bribes were paid because the government exercised its choice in favour of that company and someone "tweaked" the requirements to limit the choice. This shows a lack of understanding of corruption in defence. This case (like others before it) will follow a predictable course: investigators will earn junkets to Rome, honest reputations will be damaged, major procurement will halt and procedures made even more tortuous and centralised. Meanwhile, rent-seeking, like water, will seek new outlets.

How we squander each opportunity for systemic reform by opting for the short-term excitement of hunting the corrupt! We so easily overlook two cardinal factors. First, in our defence procurements, most bribes are paid not for choosing X over Y but for simply proceeding with the procurement process and crossing the hurdles placed. The choice of vendor is generally made on reasonably strong professional grounds and merit is almost never sacrificed, because it is well established that whoever is selected will pay. Second, in a system where responsibility for a decision is so widely dispersed, the big fish invariably escape and small fish are caught for all the wrong reasons.

In this case, there appear to be two red herrings. First, that money was paid for tweaking the requirements and much is being made of who tweaked the requirements, and when. This does not sound right. Money is normally paid for restricting competition and tailoring specifications to favour a particular vendor, not for expanding it and allowing more vendors to compete. While being given a chance to compete may command a price, it does not guarantee eventual success, particularly when AgustaWestland's competitors may have had an edge in terms of capacity to pay bribes.

The second red herring is to draw attention to the role played by Air Marshal Tyagi and his relatives. Quite apart from the fairly convincing denial offered by Julie Tyagi and the former air chief, this was not an air force related procurement, where the air chief would have had a prominent role. This was a civilian requirement and the air force played, at best, the role of technical advisor to facilitate the SPG in meeting its requirements. In any procurement process, the determining role in laying down specifications (GSQRs) or in tailoring processes to benefit favourites is that of the buyer, not of those giving technical advice. Why should any payment be made to someone whose role was so peripheral?

There are three tracks of corruption in defence procurement. The first* is demand estimation, demand vetting, demand projection and inter se priority determination; the second* is technical, from framing the GSQRs to preparing the engineering specifications, technical trials, user trials and techno-commercial evaluations before the procurement process commences. Both are the jealously guarded turf of the services and brook no interference from outsiders. Neither the processes nor the practices are audited or subjected to independent professional scrutiny. However, this case being an SPG requirement, these tracks are irrelevant.

The focus should be on the third* track, the actual procurement, where the onus shifts to the ministry. In all transactions, there is an established hierarchy of rent collectors along the approval chain. This approval cycle is so complicated and lengthy that the opportunity for each functionary to collect his share of the booty along the chain is maximised. At no stage does anyone need to circumvent the procedure, because following the procedure itself provides the opportunity. Up to a certain stage, all that is needed is to keep the process moving forward, for the rent gets automatically paid at each stage of the transaction. These relatively small payments are meant to keep the ball in play.The beneficiaries are generally junior- and middle-rung babus, the network of personal staff attached to officers dealing with procurements, sometimes the officers themselves, service representatives at the middle level who participate in the PNC (Price Negotiation Committee) meetings, etc. The main commodity on sale is information.

Things start getting hotter as the negotiations move towards a conclusion. This is when the main political-level decision-maker needs to get closer to insider information through his trusted person, as he needs to know in advance who the likely winner will be. This is the time to summon the probable winner or his agent, the chief deal-broker, the political fixer and legal and financial facilitators and work out the final details of the pay-offs, sharing arrangements and routing. There is a flurry of official briefing meetings so that the decision-maker(s) can keep ahead of the vendors in the information game. At this stage, all the vendors have to open something like a letter of credit so that whenever the final decision is taken, the payments are automatically credited to the designated accounts.Occasionally, last-minute theatrics occur because of a falling out among the agents and the principal deal-brokers and fixers. If one of the major deal-brokers is antagonised, he can ensure (through selective media leaks or a sudden review of priorities) that the deal is either scuttled or pushed back sufficiently to enable him to regain control. However, such instances are rare and normally it is in everyone's interest to cross the final hurdle.

Corruption is deeply embedded in the architecture of defence transactions and anything short of a complete transformation of structures, systems and processes will not make any difference. There is no deal in which middlemen do not play a role and hefty commissions are not paid. Investigators needlessly focus on why a particular vendor was chosen or on procedural infirmities in the hope of catching the wrongdoer. Corrupt deals will always be procedure-perfect: ironically, if there are procedural flaws it is likely to be a rare, clean transaction. The focus should shift to looking at the money trails, who paid whom and when, the specific role of big-time deal-fixers and their political connections. Yet, in all the major investigations so far, the role of these brokers has never been properly investigated.

This is why the focus on nailing the corrupt ends up paralysing the honest and ensures that the corrupt find more ingenious ways of making money. Only systemic reform can change things. Naturally, that has few takers. Who would like to shut off such an important source of revenue?

The writer is a former secretary to the government and handled army procurement in the 1990s

1 comment:

  1. Couple of points :
    i) once a vendor is selected, very little track is kept about what happens thereafter (which is when stuff happens). This would be like a success fee scenario, except as clarified by the post, it doesn't matter who wins - everyone has this budget would be a fair assumption
    ii) specific to herring #1. i did some checking. Choppers don't fly at 18,000 ft normally. Most are expected a lower alts. with 15,000 being a ceiling height for most. The alleged tinkering of the height parameter is a pretty stupid allegation - but then who every accused our media of being diligent or smart?