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Money! Guns! Corruption!

Published by Forbes on 1997-07-07

NINETEEN EIGHTY-SIX. Two prime ministers chatted amiably as they strolled through a lush garden in New Delhi. Sweden's Olof Palme, 58, was the darling of the international socialist set, outspoken critic of U.S. "imperialism," self-proclaimed friend of the world's oppressed. India's Rajiv Gandhi, 41, had just come into office as "Mister Clean," promising to get rid of the high- and low-level corruption that has plagued democratic India almost from its birth in 1947. A modern man in an ancient land, Rajiv Gandhi was an aircraft pilot by profession, not a professional pol, and he came from a distinguished family, his mother the assassinated prime minister, Indira Gandhi, his grandfather the esteemed hero of Indian independence, Jawaharlal Nehru.

The one man stood for an Indian Camelot. The other for world peace and brotherhood.

During the course of that walk, Palme and Gandhi apparently agreed to a secret arms arrangement. India's military wanted powerful, high-tech howitzers to counter state-of-the-art artillery that the U.S. was selling India's old enemy, Pakistan. Palme wanted the contract for Bofors, an old-line Swedish gun maker that badly needed the business if it was to avoid layoffs that would be politically costly for Palme's government.

Bofors got the business, a huge $ 1.3 billion order, even though India's generals had preferred a French artillery piece. Of the $ 1.3 billion, $ 250 million went for bribes. There can be no doubt that Rajiv Gandhi got a piece of the action. Whether Palme personally got anything is less clear, but few believe he did the deal just to preserve several hundred jobs.

The guns? Today the 410 Bofors howitzers gather dust in Indian military depots and may soon be decommissioned. When fired they overheated so badly that the barrels frequently had to be changed. And there were other technical defects.

Both prime ministers died before the affair was fully aired. In 1986 Palme was shot to death on a Stockholm street in a crime that has been neither solved nor seriously investigated. Gandhi was blown to pieces by a Tamil terrorist in 1991.

But despite determined efforts at cover-ups in India and Sweden -- and in Switzerland, where some of the loot was stashed -- the case refuses to die. In May India's Central Bureau of Investigation drew up a charge sheet -- roughly equivalent to an indictment -- containing bribery charges against 5 men and women and naming Rajiv Gandhi as one of 16 conspirators.

Among those named as conspirators is Ottavio Quattrocchi, an Italian dealmaker who was a close friend of Rajiv's wife, Sonia. Also linked to the case are the notorious Hinduja brothers of London, Srichand and Gopichand, who have denied receiving any bribes (FORBES, Dec. 28, 1987).

It is painfully clear that neither the Swedish nor the Indian government is anxious to delve deeply. Although some of the bribe money was long ago traced to Swiss Bank Corp., Credit Suisse, the Union Bank of Switzerland, Nordfinanz and Manufacturers Hanover Trust Geneva, it was not until this year that much was done about it. Indian prosecutors had asked Switzerland for more information, but the Hindujas and Quattrocchi went to Swiss cantonal courts to block the handing over of Bofors documents on the ground that their lives would be in danger if this were done.

After considerable delay, in July 1993 the Swiss Federal Court ruled that India was entitled to the documents. The Hindujas and their pals kept appealing, and not until January of this year were three cartons containing more than 500 bank documents and witness statements flown from Zurich and Geneva to New Delhi under heavy guard.

Four months later, despite continued foot-dragging by higher-ups, Joginder Singh, chief of the Indian Central Bureau of Investigation, launched his formal charges against Rajiv Gandhi and the 20 others.

The CBI charge sheet names known recipients of $ 40 million of the $ 250 million in bribes, among them Quattrocchi and his wife, Maria, and Washeshar Nath Chadha and his wife, Kanta. Among the conspirators named in the cover-up are Rajiv Gandhi, a former Indian foreign minister and India's onetime executive director of the International Monetary Fund. But many doubt that "conspiracy" was the full extent of Rajiv Gandhi's participation in the sorry affair.

Still unresolved are many questions: 1) Who got the other $ 210 million? 2) Did money go directly to Rajiv Gandhi and his wife? 3) What was in the deal for Olof Palme? and 4) Was Palme's mysterious death connected with the scandal?

Sten Lindstrom is the chief investigator in the Bofors case in Sweden, where he heads the National Investigation Department, the equivalent of the FBI. He wants to see the Swiss documents, but says that the Swedish government is not giving him much support. Of course not. The government is dominated by Palme's old party, which has turned him into something of a saintly figure. This much is certain: The India deal wasn't Palme's only involvement in arms peddling. Though Swedish law clearly barred companies from selling weapons and ammunition to regions in tension, such as the Middle East and South Asia, Palme personally helped negotiate deals for Bofors with both Iraq and Iran.

In India, meanwhile, Inder Kumar Gujral, the current Indian prime minister, is reportedly under great pressure from Rajiv Gandhi's widow, Sonia, to play down the Bofors investigation. Though the CBI has implicated Rajiv, under Indian law the government is under no obligation to prosecute even if the equivalent of an indictment is handed down.

Gujral, though not personally involved in the scandal, depends for his majority on India's Congress Party, which is controlled by -- Sonia Gandhi. To say that Gujral is in the hot seat is to understate the situation.

That the case stayed alive so long was because a courageous Indian-born reporter, Chitra Subramaniam, who braved death threats against herself and her children, resisted bribes from some of the involved middlemen. She persisted on the story, thus helping keep it alive in India. Subramaniam, who received a master's degree from Stanford University, is a resident of Geneva, Switzerland and now works for the Indian Express newspaper chain. "When you work on a story like this, some amount of caution gets built into you," Subramaniam told FORBES. "My phones were tapped, there were midnight calls. Then one fine day someone from London started depositing large sums of money in my personal bank account." She returned the money and discovered that the Union Bank of Switzerland, implicated in the Bofors case, had had a hand in it but would not disclose the source of the funds.

Subramaniam's then employer, the Madras newspaper the Hindu, abruptly stopped publishing her articles in 1989. "Too controversial," said her editor.

Controversial, indeed. Rajiv Gandhi had always claimed that no commissions would be paid. So did Palme. It was strictly government to government. That was not true. Subramaniam discovered that in 1985 Bofors had signed on with a company called A.E. Services, granting A.E. a 3% commission if it could win the gun contract by Mar. 31, 1986. Who was A.E. Services? A mail drop in Guilford, Surrey, U.K.

Bofors got the contract just one week before its contract with A.E. Services was to end. Complicating the signing was the opposition from within the Indian army: In field trials, the French Sofma gun showed "acceptable parameters" in 18 characteristics against 11 for the Bofors howitzer. Moreover, the military requirement was for a range of 30 kilometers; the Sofma gun's range was 29.2 kilometers, while Bofors' had 21.5 kilometers. Years later, in an interview with the BBC, General Krishnaswami Sundarji, India's chief of army staff at the time of the Bofors deal, indicated that political pressure was put on him to select the Swedish gun and that he finally acceded.

Prime Minister Palme was murdered on Feb. 28, 1986, as he and his wife, Lisbeth, left a movie theater in Stockholm. No assassin has ever been found or identified. Palme was posthumously awarded India's Jawaharlal Nehru Prize for promoting world peace and understanding!

More mayhem: Barely a year after Palme's assassination, Carl-Fredrik Algernon, director of Sweden's arms agency, a key figure in a Bofors inquiry that had been secretly initiated by the Swedish police, fell -- or was pushed -- to his death before an incoming subway train at Stockholm's Central Station. His death was ruled a suicide, a verdict that almost no one in Sweden accepts. An hour before his death Algernon had had a heated argument with Bofors officials.

What's in those Swiss bank records now in New Delhi? FORBES has learned a few things about them. For example, that 188 million SEK (US$ 27 million) was traced to a Bofors agent in India, Washeshar Nath (Win) Chadha, in an account called Svenska Inc. at Swiss Bank Corp. Where's Chadha? When his name cropped up in the press in 1987, he fled from India to New York. When Indian authorities asked the U.S. to send him back to India for questioning, Chadha obtained a doctor's certificate showing that he had high blood pressure and therefore could not travel. This didn't stop him from emplaning almost immediately for Dubai, where he has been living in comfort since.

A few years later, Rajiv and Sonia's pal Ottavio Quattrocchi also fled India, and he now lives in Kuala Lumpur, Malaysia. Though Quattrocchi denies any involvement, Subramaniam confirms that some of the money went into his account.

The scandal has already taken a huge toll on Indian faith in democracy. In the 1989 general election the huge majority of Rajiv's Congress Party was wiped out, largely because of the Bofors scandal, though no official charges had been levied against Rajiv. The victor took as his slogan: "From all the streets, they are shouting that Rajiv Gandhi is a thief."

As the new prime minister, V.P. Singh launched a new investigation, but he lasted nine months. Another general election was called in 1991. Campaigning for a return to power, Rajiv Gandhi was assassinated in May 1991. In the resulting wave of public sympathy, his party returned to power, under the prime ministership of P.V. Narasimha Rao. As expected, the investigation was forgotten in the furor over the assassination and a subsequent financial crisis. The team that Singh had set up to investigate the scandal was disbanded.

But the scandal wouldn't die. On Feb. 17, 1991 a Swedish daily, Dagens Nyheter, carried a story by a respected journalist, Bo Andersson, quoting a Bofors source that "the money went to Rajiv."

Still the Indian government stonewalled. In February 1992 at the World Economic Forum in Davos, Indian Foreign Minister Madhavsinh Solanki slipped a letter to his Swiss counterpart. The letter asked the Swiss government to stop the investigation into the Bofors kickbacks. The Indian government denied that this had happened, but reporter Subramaniam, who was given a copy of the letter, broke the story, and Solanki resigned.

Soon afterward, the Swiss authorities found that Quattrocchi had $ 7 million in a Swiss bank. When he failed to respond to an official letter asking that he prove that the account was not linked to the Bofors deal, the Swiss authorities froze the account.

Foreigners like to lecture the U.S. about our untrammeled greed and supposed materialism, but the U.S. remains the only country in the world with an official Foreign Corrupt Practices Act. We alone make it illegal for our businesspeople to bribe foreigners. For the other countries, all's fair in business.

Does this ten-year-old scandal really matter? Yes. It matters very much. If democracy is to survive in the developing world, it will have to clean up its image. The most hopeful word on this sorry affair comes from Sten Lindstrom, the honest Swedish cop who is still prodding his government to be more aggressive in its investigation of the Bofors affair. "I think," he says, "that the primary lesson of the Bofors story is that the truth will always come out. It may take years, in this case a decade, but you cannot hide the truth."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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