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In a reportedly unprecedented move, India has seized a $44 million bank guarantee that Israel Military Industries gave its Indian counterpart, the Ordnance Factory Board, according to Indian press reports. The seizure followed the Israeli company's addition earlier this year to a blacklist of companies banned from India because of suspected graft.

The specific reason for the move by New Delhi was IMI's alleged breach of an integrity clause in its contract, report the Indian sources. The clause, which is included in contracts with non-Indian companies, prohibits the foreign company's involvement in corruption in general, and specifically bans engaging agents to broker between it and the Indian officials who make decisions on tenders.

IMI and the OFB, both government-controlled companies, had entered into a $240-million alliance agreement to build ammunition manufacturing plants in India.

The Israeli company was one of five to be accused of bribery to win contracts. IMI has denied the allegations and the Defense Ministry has been working on getting it removed from the blacklist, so far to no avail.

IMI yesterday denied that the money in question was a bank guarantee. It said the money was its deposit made in the past to guarantee that it would supply the goods.

Also, IMI said, the money had been seized back in September 2011. The company has since been appealing the decision to foreclose on the money, it says, claiming the facts of the matter are otherwise.

It also claims the Indian authorities ignored documents and information that IMI handed over to the Indian Defense Ministry.

IMI is the only government-owned defense company that's losing money. Each month the government gives it tens of millions of shekels to pay salaries. It has a gaping NIS 2 billion deficit in its shareholders equity (surplus liabilities over assets). There had been a plan to merge IMI with the armaments development authority Rafael, but that fell through, in part because the people at Rafael were worried about the implications of the inquiry in India.

In good company

Sources in Israel's defense industry said yesterday the steps against IMI shouldn't impact Israeli exports to India, including by Israel Aerospace Industries, Elbit Systems and Rafael.

IMI is in good company. Among the other companies on the Indian blacklist are Singapore Technologies Kinetics, Rheinmetall Air Defence Zurich, Corporation Defence Russia, T.S. Kisan & Co. and R.K. Machine Tools. The last two are Indian companies.

In May 2009, the Indian newspapers reported arrests of top people in the Indian defense industry, on suspicion of taking bribes in exchange for approving large weapons deals.

In the past, Israel Aerospace Industries had been accused of landing jobs by bribing Indian officials. The company denied the allegations and was not part of the probe by the Central Bureau of Investigation, which is the Indian equivalent of the American FBI.

Since the probe into the alleged corruption began, IMI has all but frozen its activities in India.