The French Connection

(Asia Sentinel) A Paris investigation opens up a vast network of defense industry bribes in Asia

After nearly two decades, Taiwan's 1991 purchase of six French Lafayette-class stealth frigates has finally come back to haunt pretty much everyone involved in the deal.

Both countries, plus the French defense contractor Thales and DCN, the government-owned naval manufacturer that built the frigates have been snared in the mess. A French court ruled last week that Thales and the French government must pay Taiwan as much as US$861 million for bribery charges and repayments for nonperformance.

But according to widely published facts investigated by separate teams of French magistrates and lawyers, pulled together into a single narrative, the story appears to go well beyond Thales, Taiwan and France to reach deep into the governments of India, Pakistan, Malaysia and others. French government officials and defense contractors appear to have engaged in an intensive campaign to outfit many of the world's governments with frigates and Agosta-class Scorpene submarines manufactured by DCN's subsidiary Armaris.

The key to bringing the frigate scandal into the open was Article 18 of the contract, which made vendors liable to repay all bribes, plus associated interest and legal fees. The standard anti-corruption clause is thought to be in the contracts governing sales of Scorpenes to India, Pakistan and Malaysia, Renaud Semerdjian, a French lawyer investigating the Malaysia case, told Asia Sentinel, although he said he doesn't have access to the contracts. If the clause appears in Malaysian and other contracts, it could help bring other scandals into the open – although, unlike Taiwan, Malaysia has shown no inclination to investigate the case.

"The French state's perception that bribery and corruption, and the use of perhaps more extreme ‘direct action' when required, can be an advantage to business reflects the country's recent past," said a UK-based security specialist. "Within this context, securing arms deals with public money that serve the political interests of a narrow elite while subsidizing industries otherwise struggling to survive is viewed as less of a crime and more of a duty."

Nowhere is that more fully borne out than in the Taiwan story. According to published accounts it involves allegations of the murders of as many as eight people and reaches up to such luminaries as the late French President Francois Mitterand, the former general secretary of Taiwan's ruling Kuomintang Party during its previous tenure in power and the Central Committee of the Communist Party in Beijing.

The case was stymied for years in French courts for "lack of evidence" although a variety of French officials including former Foreign Minister Roland Dumas had told newspapers that Mitterand okayed the payment of US$500 million in bribes to secure the frigate contract. But what has begun to emerge with the court judgment is a story of corruption so pervasive that it seems more like a movie plot than a real case and paints a picture of French politicians and government defense officials as having placed a separate cash register on arms sales designed to benefit themselves and corrupt governments around the world.

According to published sources, the story began when the French state-owned Elf Aquitaine conglomerate standard paid bribes through Thomson-CSF, which changed its name to Thales in 2000. The money was to persuade Taiwanese officials to drop a plan to buy cheaper South Korean frigates and for French authorities to approve the sale of more expensive Lafayette-class ones equipped with Thomson-CSF electronic gear. A plan to have the frigates built in Taiwan was also scrapped shortly after the deal was signed, and the work was reassigned to France.

The vast overpricing caught the eye of a Taiwanese Naval Captain named Yin Ching-feng, who is believed to have been ready to blow the whistle on the case in 1993. Yin's body was found floating in the ocean a few days later. Although Taiwanese officials called the death an accidental drowning, an autopsy paid for by the family discovered his head had been bashed in. Thomson-CSF's Taiwan agent Andrew Wang was eventually charged in absentia with the crime. He has long since disappeared.

Lin's nephew, who was helping Yin to investigate, also died an unusual death, as did a Taiwanese bank official acting for the naval dockyards, according to a book by a French investigating magistrate named Thierry Jean-Pierre. Later, Thierry Imbot, a French intelligence agent who had been following the frigate negotiations for the French secret service, fell to his death from his Paris apartment under suspicious circumstances. A year later, a former Taiwan-based Thomson employee named Jacques Morrison, who told associates he feared for his life because he was a witness to the talks, also fell or was pushed to his death.

In 2005, according to the publication Defense Aerospace, Taiwan asked Switzerland to return US$520 million frozen in Swiss banks, on the grounds that this represented their damages. Switzerland has provided Taiwan and two other involved countries with a collection of bank files including 46 bank accounts under the names of Andrew Wang, his three sons and Wang's company, all of whose accounts had been frozen by the Swiss Federal Court. Authorities in Liechtenstein froze a further US$27 million.

France has continued to stonewall the investigation, which was dropped two years ago for lack of evidence. That seems improbable in the face of several confessions, however, including a statement to Le Figaro newspaper by France's former foreign minister, Roland Dumas, that US$500 million in bribes for the frigate contract was approved by Mitterand, that $400 million was paid to the secretary-general of Taiwan's ruling KMT party and that US$100 million went to the Chinese Communist Party's Central Committee in Beijing.

In the Pakistan case, supposedly an Al Qaeda bomber blew up a van carrying 11 French engineers employed by DCN in 2002. Although two men were sentenced to death for taking part in the attacks, their convictions were overturned. Later, it appeared that Pakistani officials were suspected of having ordered the bombing attack because massive bribes promised over the purchase of Scorpene submarines had never been paid.

According to the allegations, kickbacks were returned to the campaign funds of then-French Prime Minister Edouard Balladur, who challenged Jacques Chirac for the presidency in 1995. Nicholas Sarkozy, now France's president, was managing Balladur's campaign. Called before the French parliament to explain how the funds got into his campaign coffers, Balladur said they were donated by individuals at political rallies. However, Semerdjian, the investigating lawyer, told Asia Sentinel that the total amount – 10 million French francs (US$1.929 million at current exchange rates) was all in identical 500-franc notes, which seems rather unusual for random campaign enthusiasts to deliver.

Balladur denied any impropriety. However, one of the lawyers investigating the case said magistrates had a top-secret memo from DCN which contained the allegations. The memo, shown on French television in 2008, said France stopped paying the bribes to Pakistani officials after Chirac triumphed over Balladur in the 1995 election. The unnamed Pakistani officials continued to pester them for the money for several years until, according to the memo, they organized the attack on the French engineers, who were working on the submarine project. One document found by the lawyers spoke of the Pakistani intelligence service, the Directorate for Inter-Services Intelligence, which has close ties to hard-line militants.

There have been no allegations of bribery or kickbacks in the purchase of six Scorpenes in 2005 by the Indian Navy, although delivery has been delayed by three more years due to "teething problems, absorption of technology and augmentation of Mazagon Docks Ltd," according to the Defence Minister, AK Antony, in remarks to parliament earlier this year. The boats now are not due to be delivered before 2013.

And, while there have been no public allegations made on this particular contract, Indian defense spending is rife with corruption as Asia Sentinel reported on March 25, 2010. In the 1980s, Mazagon Docks was forced to abruptly terminate a contract to build four German subs for Howaldtswerke Deutsche Werft (HDW) to be used by the Indian navy after it transpired that HDW had paid massive kickbacks to secure the deal, worth Rs4.20 billion.

Finally, as Asia Sentinel reported on April 28, a team of French lawyers is seeking answers to how a company with close ties to Malaysian Prime Minister Najib Tun Razak managed to acquire a €114 million (US$151.1 million) commission to buy two Scorpene subs from DCN and to lease a third for US$1 billion as a result of a contract signed in 2002.

The first of the submarines arrived in Malaysia in January. Joseph Breham, a member of the French legal team, told reporters in Kuala Lumpur on April 28 that the company, Perimekar, was believed to have been established in 2001, shortly before the submarine contract was signed, solely to receive the commission to be able to pay kickbacks both in Malaysia and France. The wife of Abdul Razak Baginda, the then-defense minister's best friend, was listed as the director of the company, which was owned by Baginda.

Despite repeated requests for information by opposition leaders in Malaysia's parliament, Najib and other top members of the government have refused to answer.

As with the Taiwan and Pakistan cases, the Malaysian purchase involves murder, this time of a 28-year-old Mongolian translator named Altantuya Shaariibuu, who in a letter found after her death said she had been blackmailing Razak Baginda for US$500,000. She did not give a reason in the letter for why she had been blackmailing him. Two of Najib's bodyguards were found guilty of the murder, which may have been related to a failed love affair she was having with Razak Baginda.

After Breham's Kuala Lumpur press conference, government spokesmen simply said there was no case to answer and did not elaborate. Nonetheless, Breham and his colleagues are continuing to pursue the case both in Malaysia and France.