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Commentary/Mani Shankar Aiyar

Bofors and the Quattrocchi connection: Does 'Q' lead to 'R' - or 'N'?

(The note I prepared at Sharad Pawar's instance, for the use of the Congress Parliamentary Party on 'Bofors and the Quattrocchi Connection' has leaked, I suppose inevitably, to the press. My note for the CPP is integrally reproduced below:)

It was in the late seventies/early eighties that the army pressed its need for the induction of a 155 mm howitzer into our armoury. Negotiations and trials went on for several years before the choice narrowed down to the Bofors gun. The decisive factor was the acquisition by Pakistan of heat-finding radar:

This state-of-the-art radar system could pinpoint the precise location from which a shot had been fired. Instant retaliation could then knock out the gun. The Bofors gun had the special feature that it could 'shoot-and-scoot,' that is, immediately after firing it could swiftly move to another position.

The Bofors contract, worth some Rs 17 billion, was signed on March 24, 1986.

Prior to the signing of the contract, there had been a meeting between Prime Minister Rajiv Gandhi and Swedish Prime Minister Olaf Palme in New York in October 1985, after which, at the request of the Indian PM, the Swedish PM personally instructed his foreign office to officially convey it to Bofors that there should be no middlemen employed and no commissions paid on the deal.

On October, 13, 1989, the Indian Express and The Hindu published facsimile documents establishing that on November 15, 1985, more than two weeks after the Rajiv-Palme meeting in New York, Bofors entered into a secret written agreement with a UK-based company called AE Services (run by a shadowy character called Bob Wilson) in terms of which a commission of 3 per cent of the total value of the deal would be paid to AE provided the India-Bofors contract was concluded by April 1, 1986.

The contract was, in fact, concluded one week before the expiry of the deadline. One receipt of the advance payment on the Bofors guns from the Government of India, a sum equivalent to 3 per cent of the advance payment, was paid into the AE Service account with Nordfinanz Bank, Zurich, on September, 4, 1986. The documents handed over by the Swiss to the CBI now establish that this payment was almost immediately transferred into a Geneva account held by Quattrocchi. He, in turn, seems to have quickly emptied out the account, transferring the money to an off-shore account in Guernsey, one of the islands in the English Channel, a well-known tax haven.

The extraordinary thing is that the Indian Express/Hindu documents of 13/10/89 also establish that the Bofors AE contract was suddenly terminated on August 8, 1986, and that it was only after the termination of the contract that the first instalment was paid into the AE Service account in Zurich about a month later. The key question is: Why? Why was the AE Service contract so precipitously terminate?

After all, at the time of termination:

  • AE had fulfilled 100 per cent of its contractual obligation to deliver the Bofors deal by the deadline of 1/4/86. The first instalment of its payment amounted to only 20 per cent of its dues. When AE was still entitled to 80 per cent of its payments, why did it agree to the termination of its contract?

  • Note that at the time of the termination of the Bofors-AE Service contract, there was no public knowledge of any commission having been paid. News of the payments broke through the now celebrated Swedish Radio broadcast only on April 16, 1987 -- a full eight months after the termination of the Bofors-AE contract. Therefore, it could not have been the discovery of the payments that led to the contract being canceled. There must have been some other reason. What was that reason?

    In August-September 1986, Prime Minister Rajiv Gandhi was firmly in the chair with over 400 seats in the Lok Sabha and a three-quarters majority in the House. The next elections were more than three year away. If he were the beneficiary of the AE Service payment, there was no compulsion for him to terminate the account when it was terminated. What happened in August-September 1986 that might explain the termination of the Bofors-AE Services contract?

    Arun Nehru, minister of state for power, was dropped from the Council of Ministers at about the time the AE Services contract was concluded. As a relative of the prime minister, as the member of the family hand-picked in 1980 to contest the Rae Bareli seat that Indira Gandhi had vacated when she was elected also from Medak, Andhra Pradesh, and as a recognised leader of great influence in party and government circles, the failing out between Arun Nehru and Rajiv Gandhi was widely commented on in political circles and the media after Rajiv Gandhi failed to proceed to Srinagar in April 1986 where Arun Nehru was recovering from a severe heart attack.

    Bofors and AE knew as well as anyone else that Arun Nehru had ceased to be a person in good standing in the higher echelons of the ruling party. It was in this political context that the AE Services contract was abruptly terminated.

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