It was a great day for the French defence industry. In New Delhi on September 23rd 2016 the French minister for defence, Jean-Yves Le Drian, and his Indian counterpart Manohar Parrikar, watched by Éric Trappier, CEO of French company Dassault Aviation, signed one of the biggest arms deals ever concluded by the French state. This was for the sale of 36 Rafale fighter jets – made by Dassault – to the Indian state for 7.8 billion euros. To put this sum into context it is the equivalent of the annual gross domestic product of a country such as Benin in West Africa.
The deal was a major triumph for Dassault and its industrial partners – Safran, Thales and MBDA – and also for the socialist president of France, François Hollande. It had taken 15 years of effort by successive French government to conclude, after an initial purchase process that had begun back in 2001.
There were, however, some problems that almost derailed the contract. In 2018 formal legal complaints were made about possible corruption and favouritism in connection with the deal, following revelations in the press. But in the following year preliminary proceedings in both France and India ended with no further action being taken.
Officially, everything was clean and the Indian Rafale deal 'affair' was nothing but a mirage.
Yet in reality there is a scandal, as Mediapart can today reveal with the publication of the “Rafale Papers”, a three-part investigation into the affair based on numerous documents and previously unpublished witness accounts.
French and Indian investigators in fact discovered a great deal of compromising information in the background to the deal; hidden commissions, dubious middlemen, suspicions of confidential documents being leaked and anti-corruption clauses being removed from contracts. But the affair was buried in both countries.
The Rafale case threatened to tarnish government at the highest levels. In India it implicated someone very close to the ultra-nationalist prime minister Narendra Modi, who had announced the deal in April 2015. The affair potentially threatens two presidents of France: François Hollande and his successor Emmanuel Macron. Also potentially in the firing line is Jean-Yves Le Drian, who as defence minister effectively became Hollande's roving Rafale salesman before being named foreign minister under Macron.
The picture would not be complete without the Dassault group. The only French supplier of air force fighters, it is a strategically important company that is always quick to point out that Rafale jet fighter production safeguards 7,000 jobs. It is also one of the most influential companies in France and for more than 70 years it has cultivated a network of contacts within government. Dassault feels it “can't be touched” said several sources with close knowledge of the case, who asked to remain anonymous. In this first part of our “Rafale Papers” investigation, Mediapart can reveal how the French anti-corruption agency, the Agence Française Anticorruption (AFA), which is answerable to both the Budget Ministry and the Ministry of Justice, first spotted a suspect payment by Dassault.
Mediapart understands that during a scheduled audit of the group, the agency's inspectors found that Dassault had agreed to pay one million euros to a middleman just after the 2016 signing of the Rafale fighter jet deal. That middleman is now accused of money laundering in India in another defence deal. The company said the money was used to pay for the manufacture of 50 large replica models of Rafale jets, even though the inspectors were given no proof that these models were made. Yet against all apparent logic, the AFA decided not to refer the matter to prosecutors.
Questioned by Mediapart, Charles Duchaine, a senior French magistrate and the AFA's director, refused to comment on the grounds that the agency is bound by “professional confidentiality”. A spokesperson for the company meanwhile told Mediapart: “Dassault Aviation will be making no comment.”
The Agence Française Anticorruption was set up in 2017 with the aim of checking whether large companies have implemented the anti-corruption procedures set out in the French law known as Sapin 2. Companies are audited one by one, with a new timetable established every six months.
In October 2018 the French public prosecution services’ financial crimes branch, the Parquet National Financier (PNF), received an alert flagging possible “corruption” over the sale of the Rafale fighter jets to India, following numerous revelations in the press. By a quirk of the calendar, this coincided with Dassault's turn to be audited by the AFA.
As they combed through the 2017 accounts the AFA inspectors raised an eyebrow when they came across an item of expenditure costing 508,925 euros and entered under the heading “gifts to clients”. This amount “seemed disproportionate in relation to all the other entries” under the same heading, said the subsequent confidential report of the AFA audit, which Mediapart has seen.
The sum is indeed huge for a gift. Though French law does not set out precise limits, legal precedents suggest that giving a watch or an expensive meal costing several hundred euros can be enough to constitute corruption.
To justify this larger than usual “gift” Dassault supplied the AFA with a “proforma invoice” dated March 30th 2017 which was supplied by an Indian company called Defsys Solutions. “This invoice, which related to 50% of the total order (€1,017,850), was for the manufacture of 50 models of the Rafale C, with a price per unit of €20,357,” the AFA report said.
The AFA inspectors who found these details in mid-October 2018 asked the company for an explanation. Why had Dassault ordered an Indian company to make models of its own aircraft, at 20,000 euros a plane? Why was this expenditure entered in the accounts as a “gift to client”? And were these models, each one of which was supposed to be the size of a small car, really ever made?
Mediapart understands that the Dassault group was unable to provide the AFA with a single document showing that these models existed and were delivered, and not even a photograph. The inspectors thus suspected that this was a bogus purchase designed to hide hidden financial transactions.
There was growing concern about this issue at the group's headquarters at Saint-Cloud in the suburbs of west Paris. According to several sources familiar with the case, the group complained that the inspectors were apparently “too finicky and asked for too many documents”.
To understand Dassault's concerns, one simply has to follow the money. The company Defsys Solutions, who sold the Rafale models, is one of Dassault's sub-contractors in India on the Rafale contract. However, this mid-sized company with 170 employees is not a specialist in making models. Instead, it assembles flight simulators and optical and electronic systems for the aeronautical industry, often under licence for foreign companies.
Defsys belongs to the Gupta family, whose members have acted as middlemen in the aeronautical and defence industries for three generations. In January 2019 the Indian media – first Cobrapost and then The Economic Times - revealed that one family member, Sushen Gupta, operated as an agent for Dassault, had worked on the Rafale contract and had allegedly obtained confidential documents from India's Ministry of Defence.
By coincidence, it was this middleman who sent the one-million-euro invoice for the jet fighter models to Dassault six months after the September 2016 signing of the Rafale deal by the French defence minister Jean-Yves Le Drian and his Indian counterpart Manohar Parrikar.
In March 2019 Sushen Gupta was arrested by agents from the Enforcement Directorate, the powerful Indian agency that fights money laundering. He was later freed on bail facing chargesof “money laundering” over the so-called 'Choppergate' corruption scandal involving the sale of helicopters to India by the Italian-British group AgustaWestland. Sushen Gupta and his alleged accomplices, who deny wrongdoing, are suspected of having received nearly 50 million euros in hidden commissions from that group, which were then paid out as bribes to Indian officials, the Enforcement Directorate suspects. Questioned by Mediapart, the middleman did not respond.
Sushen Gupta's arrest and the revelations in the Indian press did not escape the notice of the Agence Française Anticorruption. By 2020, when it came to finalise its report of its Dassault audit, the AFA had hard information incriminating Dassault: the proof that the aeronautical company had paid an Indian middleman – and one who had since been accused in a separate case - via a one-million-euro deal for model aircrafts that may not even exist.
Yet the director of the AFA, Charles Duchaine, decided not to refer the matter to the prosecution authorities. Instead, the aircraft models issue was relegated to two short paragraphs in the AFA's final report on its Dassault audit.
In 2017 the AFA showed itself to be rather more aggressive following another audit it carried out, this one at Sonepar, a French company which is the world leader in the distribution of electrical products. Mediapart understands that in this case the AFA reported concerns to the prosecution authorities in Paris in April 2018 even before finalising its own report. This led to the opening of a vast judge-led investigation into a suspected cartel in the electrical materials market.
The decision by Charles Duchaine not to inform the prosecution authorities is even harder to understand given that at the time the AFA discovered the affair of the Rafale models, the French public prosecution services’ financial crimes branch, the Parquet National Financier (PNF), was also looking into the Franco-Indian Rafale affair. But as Mediapart will show in the next part of the “Rafale Papers” investigation, the PNF also ended up taking no further action.
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The original French version of this article can be found here.
English version by Michael Streeter
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