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Was the Defense Ministry aware of Israel Aircraft Industry's (IAI) policy of hiring paid agents in India?

Sources close to the IAI say yes; but ministry officials are denying it. In spite of the denials, the fact that the IAI is a government company is likely to complicate the situation in any case.

"The Defense Ministry knows all about defense exports, and in particular in sensitive countries with political and defense importance such as India," explained the sources close to IAI.

"The Defense Ministry does not enter the realm of business between companies. They draw up their own agreements," said former Defense Ministry director general Amos Yaron on Army Radio yesterday. "The ministry does not employ agents; we do not work with go-betweens."

Yaron shed some light on some of the large Israeli arms deals with India. For example, in the Phalcon Awacs project, worth $1.1 billion, the ministry was involved only in convincing its Indian counterparts to buy the systems. "After that, all the technical details, schedules and payments were handled between the companies. In the end, the overall agreement was signed between the Israeli and Indian defense ministries," Yaron explained.

The Indian Central Bureau of Investigation (CBI) is investigating allegations that senior government officials received bribes through IAI agents, which were paid to facilitate the $270 million sale of ship-based Barak missiles signed in 2000.

Former Indian defense minister George Fernandes and other officials are accused of accepting almost half a million dollars in bribes.

Fernandes denies the charges and claims that the investigation is a result of political motives against him and his Samata party.

Yesterday, the Communist Party in India called for an investigation also into IAI - and for a halt to all the company's business in India.

India is Israel's largest customer for military sales. Estimates are that Israel has made $2.5-3 billion in arms sales to India in the last three years.