Wednesday, November 24, 2010

France's Sub Scandal Resurfaces - Asia Sentinel

Originally posted here.

France's Sub Scandal Resurfaces

Written by Gavin M. Greenwood and John Berthelsen
Monday, 22 November 2010

Torpedoes Running!

Questions over the sale of French-built Scorpène submarines to militaries across the world may finally ensnare some of France’s highest-ranking leaders.

They include former French President Jacques Chirac, former Prime Ministers Dominique de Villipin and Edouard Balladur and the country’s current president, Nicholas Sarkozy in addition to an unknown number current and former French defense executives. In addition, Malaysian Prime Minister Najib Tun Razak should be starting to get nervous, along with officials in India, Chile and Brazil.

Lawyers for the families of 11 French engineers killed in a 2002 bomb attack in Karachi were quoted Friday as saying they would file a manslaughter suit against Chirac, allegedly because he cancelled a bribe to Pakistani military officials in the sale of three Agosta 90-class submarines to that country’s navy. Sarkozy was Minister of the Budget when the government sold the subs, built by the French defense giant DCN (later known as DCNS) to Pakistan for a reported US$950 million.

Prosecutors allege that Pakistani politicians and military officials and middlemen received large “commissions” with as much as €2 million in kickbacks routed back to Paris to fund Balladur's unsuccessful 1995 presidential campaign against Chirac. As budget minister, Sarkozy would have authorized the financial elements of the submarine sale. At the time he was the spokesman for Balladur’s presidential campaign and, according to French media, has been accused of establishing two Luxemburg companies to handle the kickbacks.

It is alleged that when Chirac was re-elected, the president canceled the bribes to the Pakistanis, which resulted in the revenge attack on a vehicle in which the French engineers and at least three Pakistanis were riding. For years, the Pakistanis blamed the attack on fundamentalist Islamic militants, including Al Qaeda.

“Our complaint is going to target how the decision was arrived at to stop the commissions,” Morice told AFP, saying the suit was prompted by recent testimony from arms executives in the case. Morice also called for Sarkozy, who witnesses have told investigators was linked to the bribes, to be questioned. The French president angrily denounced the allegations. As president, he has immunity and can refuse to be questioned while in office.

Nonetheless, l'affaire Karachi, as it is widely known in France, has been called the most explosive corruption investigation in recent French history, according to AFP. It may well be far bigger than just the unpaid bribes to the Pakistanis. Executives of DCNS embarked on a global marketing drive to sell the diesel-electric Scorpène-class subs, a new design. They peddled two to the Chilean Navy in 1997, breaking into the market previously dominated by HDN of Germany.


DCNS also sold six Scorpènes in 2005 with the option for six other boats, to India, whose defense procurement agency has been involved in massive bribery scandals in the past. Defense Minister George Fernandes was forced to step down in 2001 after videos surfaced of procurement officials taking bribes. In 2008, Gen. Sudipto Ghosh, the chairman of the Ordnance Factory Board, was arrested and seven foreign companies were barred from doing business in India as a result of a bribery scandal.

In 2008, DCNS also won a bid to supply four Scorpènes to Brazil. DCNS is to provide the hull for a fifth boat that Brazil intends to use as a basis for developing its first nuclear-powered submarine.

DCNS sold the Scorpènes to Pakistan in 1994. At about the same time the French engineers were murdered in 2002, Malaysia placed an US1 billion order for two Scorpènes in a deal engineered by then-defense minister and Deputy Prime Minister Najib. In exchange, a company wholly owned by Najib’s close friend, Abdul Razak Baginda, was paid €114 million in “commissions,” according to testimony in the Malaysian parliament.

It is unclear why Malaysia decided to acquire the two boats. A new naval base is being built to house the two at Teluk Sepanggar in the East Malaysian state of Sabah because the waters around peninsular Malaysia are generally too shallow for optimal submarine operations. In addition, the boats were delivered without advanced navigational and weapons gear, which the Royal Malaysian Navy is acquiring at a high cost from individual suppliers.

That episode has been widely reported. Caught up in it, besides Najib and Razak Baginda, was Altantuya Shaariibuu, the Mongolian translator who was murdered in 2006 and whose body was blown up with military grade explosives. Razak Baginda, her jilted lover, was charged along with two of Najib’s bodyguards but was acquitted under unusual circumstances without having to put on a defense. Before she was murdered, Altantuya told witnesses she was to be paid US$500,000 for her role in the submarine deal.

After his release Razak Baginda immediately decamped for Oxford University and apparently hasn’t set foot in Malaysia since. On Nov. 5, Malaysian prosecutors closed the book on the case, despite statements by a private investigator that tied Najib to Altantuya’s murder.
The case, however, remains alive in France. In April, three French lawyers, William Bourdon, Renaud Semerdjian and Joseph Breham filed a case with prosecutors in Paris on behalf of the Malaysian human rights organization Suaram, which supports good-governance causes.

Breham journeyed to Malaysia later in April to interview further witnesses. In an email, Breham said he and Bourdon are returning to Southeast Asia to ask more questions next month. If the three lawyers — or any other French or Malaysian prosecutors for that matter — want a witness, Razak Baginda remains in the UK.

The efforts by prosecutors to link Sarkozy to corruption allegations in the Karachi affair may well have ramifications beyond French politics. France's commercial competitors in tightening global defense markets can also be expected to seek advantage from the affair.

The decision in mid-November by DCNS and Navantia of Spain to end their collaboration on building the Scorpène-class of boats purchased by Malaysia now make the companies commercial rivals. This seemingly bitter split may unleash new insights into past business practices, notably from the Spanish side as they seek to promote their S80 submarines against the Scorpènes. France can also expect little support from Britain, where suggestions that the two navies share aircraft carriers as a cost cutting measure have been met with a mixture of rage and derision.

Further, any revelations of systemic corruption within the French naval shipbuilding sector could present opportunities for in Britain seeking an escape from seemingly watertight contracts with French and shipyards for the construction of two large aircraft carriers.

Any investigation into corruption at the levels now underway in France is inherently unpredictable given the interests involved. What began as a ripple in Paris may yet build into a tsunami threatening individuals and plans previously thought impervious to such a threat. Questioning Abdul Razak Baginda might be a place to start.

Gavin M. Greenwood is a security consultant with the Hong Kong-based security risk management consultancy firm Allan & Associates. John Berthelsen is the editor of the Asia Sentinel.

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