France opens judicial probe into Rafale deal with India, new details emerge

In a development that could spell some trouble for the Modi government, France has opened a judicial probe into the suspected corruption and favouritism in the 7.8 billion Euro Rafale fighter jets sale to India in 2016. The investigation is being led by an independent magistrate.

A recent report in French media outlet Mediapart, that has been extensively reporting on the deal and coming up with “incriminating” documents, reveals that Dassault Aviation, the manufacturer of Rafale fighter jets, provided a “remarkably generous financial gift to its local industrial partner Reliance Group, owned by Anil Ambani”.

According to the report, the “highly sensitive probe” into the 2016 inter-governmental deal was formally opened on June 14 following a decision by the financial crimes branch of the French public prosecution services, the PNF.

What’s New?

India and Dassault had been negotiating terms for the purchase and manufacture of 126 Rafale jets when Prime Minister Narendra Modi announced on April 10, 2015 to scrap that deal and replace it with the purchase of 36 planes.

Could anybody outside India’s defence brass have known the contours of the sensitive defence deal weeks, if not months, in advance? Well, one of India’s corporate houses, a significant part both of the deal and the controversy around it, was!

One may find it shocking that the first MoU between Dassault and Anil Ambani’s company was actually signed on March 26, 2015 – a fortnight before the public announcement of the deal by the PM, Mediapart has reported in a notable new revelation.

“Documents seen by Mediapart show that Dassault and Reliance had in fact signed their first Memorandum of Understanding (MoU) – a document setting out broad outlines of an agreement – on March 26th 2015. That was 15 days before Modi’s announcement of the turnaround, and the exclusion of HAL, and begs the question as to whether the two companies had been informed of it in advance,” the Mediapart report said.

The MoU allowed for a “possible joint venture” between the two companies to include “program and project management”, “research and development”, “design and engineering”, “assembly and manufacture”, “maintenance” et “training”.

On November 28, 2016, Dassault and Reliance signed a shareholders’ agreement to chart out their relationship in the future joint venture company. Mediapart points out that the financial details of this were so sensitive that they did not figure in the contract, and instead were contained in a confidential “side letter” which was signed that same day.

“It is that ‘side letter’ that contained the funds gifted to Reliance by Dassault…As almost equal partners, the two companies each pledged to provide up to 10 million Euros for the capital of the joint venture. Up to that point, everything followed business logic. But Dassault also promised a ‘share premium’, a supplementary sum on the price of the shares, of a maximum 43 million Euros, plus loans detailed as ‘not exceeding 106 million Euros’,” the Mediapart report noted.

“This meant that Dassault had pledged to provide up to 159 million Euros out of the total investment of 169 million Euros, representing 94% of that total. Meanwhile, the contribution by Reliance, it was noted, ‘shall not exceed 10 million euros, all in equity’,” it added.

The opposition Congress party in India had pointed out several anomalies in the entire process of junking the old deal and inking a new one for 36 fighter jets.

Earlier, in 2019 PNF’s head Eliane Houlette had dismissed an initial complaint into the matter without carrying out any investigations and going against the advice of one of her staff.

Now, two years later, the new head of the PNF, Jean-François Bohnert, “has decided to support the opening of a probe, after the complaint was updated with details from Mediapart’s recent series of investigations”, writes Phillipin.

Besides other things, the criminal investigation will examine questions surrounding the actions of former French president François Hollande, who was in office when the Rafale deal was signed, and the current French president Emmanuel Macron, who was Holllande’s economy and finance minister at the time, as well as the then defence minister, Jean-Yves Le Drian, now Macron’s minister for foreign affairs.

The Dassault Aviation, on its part, has consistently denied any wrongdoing and maintained that it “acts in strict compliance with the OECD Anti-Bribery Convention and national laws”.