More on the Quattrocchi link

The CBI's counter-affidavit to Ottavio Quattrocchi's petition before the Delhi High Court indicts late Prime Minister Rajiv Gandhi and his core power circle for engineering the Bofors scandal.

WHEN Ottavio Quattrocchi petitioned the Delhi High Court in March 1998 asking that the Central Bureau of Investigation (CBI) end its efforts to bring him to justice, it is unlikely that he anticipated the outcome of his action. The CBI's counter-affidavit to Quattrocchi's petition, filed on April 13, is more than just a reply to his plea. The 30-page document provides a lucid account of how payoffs and political influence shaped the award of the Bofors contract. This account unequivocally indicts late Prime Minister Rajiv Gandhi and his core circle of power for engineering the corruption scandal. If the material in the counter-affidavit is not in itself new, the document is the first official confirmation of the involvement of Rajiv Gandhi and his confidants in the Bofors payoffs.

In essence, Quattrocchi's petition to the High Court had asked that Interpol red-corner alerts issued against him at the CBI's request be withdrawn, and that he be excluded from the Bofors investigation. The businessman claimed that he was "being falsely involved presently in the said case as being one of the persons who received commission from Bofors." "This fact," the petition continued, "stands clearly belied by the documents received during the course of the investigation as also from the Swiss Government." The petition added: "There has been no communication even between Bofors and the petitioner." Quattrocchi claimed that the red-corner alert had ended his right to travel. The businessman's motives in filing the petition were not entirely clear, since he had evidently been sitting pretty after he fled India in July 1993, six days after news broke that he was an appellant in the Swiss courts against the disclosure of Bofors-linked accounts to the Government of India.

The CBI's counter-affidavit, based on the confidential report of its Special Investigation Team working on the Bofors case and the Swiss documents, attacks Quattrocchi's propositions by telling the story of the payoffs from the beginning. The Government of India, the CBI counter-affidavit records, had "declared as early as 1984 its policy of totally eliminating middlemen and agents from defence contracts." "The Government apparently proceeded on the basis that the commission payable to a middleman or agent would necessarily have to come from its pocket as, obviously, the foreign party would add the agent's commission to the price of the product sold by them." Indeed, paragraph 3.9 of the counter-affidavit records, the "then Defence Secretary, Mr. S.K. Bhatnagar, had specifically conveyed in May 1985 to the President of AB Bofors and the other bidders for the 155 mm howitzer guns that in no circumstance can an agent be employed."

But on November 15 that year, just six months after Bhatnagar's instructions, AB Bofors proceeded to flout them. AE Services, a shadowy company with no previous experience of such business, was given a "consultancy" contract by the Swedish armaments firm. This contract required AE Services "to support the company (Bofors) in its bid for the contract," and "to keep the company informed of the up-to-date situation and progress of negotiations for the contract." If AB Bofors did win the howitzer contract before April 1, 1986, AE Services was to be given a 3 per cent commission. The contract itself, the counter-affidavit points out, was evidence that a criminal conspiracy to defraud the exchequer was on. AE Services could only report on negotiations with the Defence Ministry and others which Bofors was not a party to: a fact which leaves no room for doubt that bureaucrats and politicians knew that they were dealing with agents for the company.

Of AE Services' real purpose, the CBI has no doubts. The counter-affidavit points to the deposition of the company's director, Myles Stott, before an examining magistrate in Geneva. Explaining the background to the Bofors-AE Services agreement, Stott said that "in this matter, the initial approach came from Mr. Ottavio Quattrocchi (Q), who I surmised has a consultancy role." AE Services, he continued, was wholly a subsidiary of Quattrocchi's firm CAV, and acted in the Bofors matter purely as a "trustee". Stott's evidence was affirmed by bank documents. Bofors remitted 50,463,966.00 Swedish kroner (then $7,343,941.98) into AE Services' newly-opened account number 18051-33 at the Nordfinanz Bank in Zurich on September 3, 1986. Thirteen days later, AE Services transferred $7,123,900 from the Nordfinanz account to an account held at the Union Bank of Switzerland in Geneva by Colbar Investments Limited, a Panama-based company.

Colbar Investments' account, the CBI learned when the Swiss Government made over relevant documents to it in January 1997, was controlled by Quattrocchi and his wife Maria. The CBI found that both were in Switzerland at the time the account documents were signed, and that they had given a fictitious New Delhi address. Careful enough to anticipate possible trouble, the businessman sought to cover this track further. The funds in the Colbar Investments account was again moved on July 25, 1987 to the account of Wetelsen Overseas, another Quattrocchi-run holding at the Union Bank of Switzerland. From this account, funds were transferred on May 21, 1990, to account number 123893 of the International Investment Development Company in the Ansbaccher CI bank at Guernesy in the Channel Islands. Within 10 days of their receipt there, they were again moved to fresh accounts in Switzerland and Austria which the CBI is currently engaged in locating.

WHY was Quattrocchi brought into the deal in the first place? Bofors' compulsions at the time, the CBI counter-affidavit records, were no secret. At the time the AE Services-Bofors agreement was entered into, "the competitive offers available with decision-makers did not indicate any preference for Bofors gun system over other competing gun systems." "Rather, on the other hand, Sofma Gun system was preferred technically." The choice of Quattrocchi, the representative of a petrochemicals corporation with nothing resembling knowledge of the armaments business, was founded on other premises. "Investigation has shown," the counter-affidavit records, "that the families of the then Prime Minister of India and Mr. Ottavio Quattrocchi were on very intimate terms to each other and they used to meet frequently." "Mr. Quattrocchi and family had free access to the Prime Minister's house. The closeness of the two families is also proved by some of the family photographs collected during the investigation."

That closeness was soon put to work. "The process of negotiations which was going on with (sic.) fits and starts since 1984 suddenly picked up after the Army Headquarters report dated 17.2.86 rating the Bofors gun as number 1," the counter-affidavit records. "Within the next about 25 days after completing the whole process, the Negotiating Committee recommended for the issuance of Letter of Intent in favour of M/s Bofors on 12.3.86. It may be mentioned that the Army's first preference all along had been for the Sofma gun except the preference shown in its report dated 17-02-86." Within 48 hours of the negotiation committee giving its clearance, a note on issuing a letter of intent to Bofors had been cleared by 11 Ministers and officials of six departments - beginning with Defence Secretary S.K. Bhatnagar, through the two Ministers of State for Defence, Sukh Ram and Arun Singh, past several tiers of the Finance Ministry, and finally the Prime Minister in his capacity as Defence Minister.

CBI investigators found that other aspects of the Bofors controversy also suggested the working of Quattrocchi's unseen hand. The negotiation committee had been meeting with all the urgency of a grazing cow since June 7, 1986. The records of the 17 meetings showed little sign that a deal was imminent. But the "committee on 12.3.86 shows unusual hurry and pressure for taking a decision in favour of Bofors." "When this is seen in the light of the agreement between Bofors and AE Services that the latter would be eligible for their commissions only if the Bofors contract is executed before the end of March 1986, the high-speed decision has a logical link to Quattrocchi." Indeed, the CBI argues, the issuance of a letter of credit was itself abnormal, for at a late stage of competitive bidding, both Sofma and Bofors would have reduced their initial quotations. The "hurried decision for a letter of intent," the counter-affidavit concludes, "was to circumvent the process (of competitive bids) with the sole motive to communicate to the Swedes that the contract has already been awarded to them."

From this string of events, the CBI's counter-affidavit develops a cogent outline of how the Bofors conspiracy worked. The AE Services agreement of November 15, it points out, was in effect "an agreement to commit the offence of cheating because the two parties to the agreement conspired to deceive the Government of India and dishonestly induce it to part with moneys which included the element of commission contrary to the understanding and contrary to the undertaking so as to benefit AE Services/Ottavio Quattrocchi to the tune of US$ 7.34 million." The fact that the commission was paid was evidence of the success of the conspiracy, the counter-affidavit flatly suggests. "It would, therefore, follow that Quattrocchi had been able to successfully negotiate with the then Prime Minister and Defence Minister and other public servants concerned to obtain the contract for his principal and the public servants had, in turn, in abuse of their position conferred pecuniary benefits on Quattrocchi which acts would constitute offences under the Prevention of Corruption Act and the Indian Penal Code."

DESPITE its somewhat dense language, what the CBI is saying is clear: for the first time in the Bofors scandal, a charge of corruption has been made by an official organisation in a sworn statement of truth. This extraordinary assertion has been explored, albeit fleetingly, in the counter-affidavit itself. If Rajiv Gandhi, as both Prime Minister and Defence Minister, "conferred pecuniary benefits" on Quattrocchi, it would be reasonable to assume that he had some motive to do so. And that motive, the counter-affidavit suggests, was not just friendship. Paragraph 5 of the last section of the affidavit, consists of a point-by-point reply to Quattrocchi's petition. "The Commission thus received in 1986 was retained by him by transferring the entire amount to various accounts which shows that he was holding (it) for and on behalf of someone. Identification of whom Quattrocchi was holding funds for is understandably vague, referring to "certain public servants" who he conspired with to "abuse their official position."

Further revelations on what evidence the CBI has will have to wait for the trial of former External Affairs Minister Madhavsinh Solanki and bureaucrats S.K. Bhatnagar and Gopi Krishan Arora. The CBI's requests for mandatory sanction for their prosecution have been on hold since the I.K. Gujral Ministry's term in office. The BJP, after taking power, has done little to push the prosecutions; perhaps it is fearful of the consequences for its own backers.

A second set of Bofors AB payments to Svenska, a dummy corporation whose role is believed to mirror that of AE Investments, have been linked in media reports to the Hinduja family. Legal proceedings are under way in Switzerland on making over information on Svenska-linked accounts, and a result is expected by the end of 1998. Prime Minister Atal Behari Vajpayee had, in 1994, backed the Hindujas' claims of innocence in the affair, and asked that they be given an opportunity to clear their name.

Of whom it plans to prosecute other than the bureaucrats, the CBI is saying nothing. Perhaps the sole remaining question is that of Quattrocchi's own fate. Without prejudging the outcome of the proceedings in the Delhi High Court in any way, it seems clear that the businessman's future is considerably more tenuous than earlier believed.

The CBI counter-affidavit attacks media reports which had claimed that the Malaysian Government had refused to execute non-bailable warrants issued against Quattrocchi in February 1997. In fact, the counter-affidavit claims, the non-bailable warrants were never presented for execution, and given legal problems, other diplomatic channels were chosen to try and secure his presence before an Indian court. With the arrest warrant against him in force in India and escape routes elsewhere sealed by the Interpol red-corner notice, Quattrocchi is solely dependent on the mercies of the Malaysian Government. Add to that a new political set-up that is less sympathetic to his interests now in power in Delhi, and time could be finally running out for Ottavio Quattrocchi.