Finmeccanica and Saipem

Italian bribery cases point up how politics and cash often decide defense and oil deals

February 12, 2013
February 12, 2013

Italy launched its second corruption case amid the country’s parliamentary elections, arresting the CEO of state-controlled defense company Finmeccanica, which once held a contract to build the helicopter for the US president. Today’s arrest of Giusseppe Orsi underscores the stakes in two of the world’s most competitive businesses–defense and oil–in which political connections and bribery are staples of the dealmaking tradecraft.

Italy arrested Orsi over alleged bribes in a $749.2 million deal for 12 helicopters in India. It placed another company executive, Bruno Spagnolini, head of its helicopter unit, under house arrest. It is the second such case at Finmeccanica–a year ago, corruption allegations were made, then dropped, against then-Finmeccanica CEO Pierfrancesco Guarguaglini.

But the Finmeccanica case points up a larger reality for the enormously remunerative defense industry–having a competitive product isn’t usually sufficient to win the deal.

Finmeccanica, for example, has struggled in the US–by far the world’s largest defense contracting market–because it lacks competitive political connections. In 2005, Finmeccanica won a joint bid with Lockheed Martin to build the US president’s transport helicopter. In 2007, it won a US Air Force contract to build up to 150 C-27 light transport aircraft. But in 2009, the helicopter contract was canceled; last year, the C-27 contract was canceled, too. The stated reasons were cost overruns and budget cuts. But analysts say the contracts might have been saved if Finmeccanica were better connected in Washington.

In terms of the India case, side payments are part of the stock-in-trade of defense deals in large parts of the world. In 2010, BAE Systems, Europe’s largest military contractor, paid some $450 million in penalties to the US and the UK to settle a bribery case involving Saudi Arabia, Hungary and the Czech Republic.

Orsi has denied wrongdoing and Finmeccanica released a statement saying it supports him.

The Finmeccanica case is likely to become another issue in Italian parliamentary elections scheduled Feb. 24 and Feb. 25, in which former Prime Minister Silvio Berlusconi is attempting to make a comeback. Last week, Italian prosecutors said they are investigating alleged bribes by Paolo Scaroni, CEO of Italian energy giant Eni. The allegations involve alleged payments of $268 million by Eni oil services subsidiary Saipem to obtain deals in Algeria. In an email exchange, an Eni spokesman said that Saipem is managed independently of Eni.

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