Italian police arrested the head of defence giant Finmeccanica on Tuesday on a warrant alleging that he paid bribes to win an Indian contract, adding to a wave of corporate scandals shaking Italy before a general election.
Prosecutors accused Chief Executive and Chairman Giuseppe Orsi in the arrest warrant of paying bribes to intermediaries to secure the sale of 12 helicopters in a 560 million euro deal when he was head of the group's AgustaWestland unit.
"AugustaWestland and its management seem to be used to paying bribes and we have reason to believe that such a corporate philosophy could be repeated in the future if not stopped through an arrest," judge Luca Labianca wrote in the warrant, reviewed by Reuters.
Orsi's lawyer said his client denied distributing any money or pocketing a single euro.
Highlighting the political sensitivity of the case before the parliamentary elections on February 24 and 25, Prime Minister Mario Monti said the government would deal with management issues at Finmeccanica. The state is the largest individual shareholder in the company with more than 30 percent.
"There is a problem with the governance of Finmeccanica at the moment and we will face up to it," Monti told RAI state television.
India, currently the world's largest weapons importer, has a history of corruption in defence deals dating back to the 1980s.
Indian Defence Minister A.K. Antony has ordered an inquiry into the deal to be conducted by the Central Bureau of Investigation. In a statement the ministry said Italy had not provided details of its own investigation.
An Indian defence ministry source said allegations that kickbacks worth 40 million rupees had been paid to Indian officials to grease contracts for Finmeccanica were being investigated and that Delhi was considering the deferral of the Finmeccanica helicopter deal.
Police searched Orsi's home and the offices of AgustaWestland, close to Milan. The Milan offices of Finmeccanica, Italy's second-biggest corporate employer after Fiat Spa, were also searched.
A series of scandals has shaken Italian business in recent weeks, notably over derivatives losses at lender Banca Monte dei Paschi and an inquiry into allegations that oil services group Saipem SpA (SPMI.MI), which is 43-percent owned by oil major Eni SpA (ENI.MI), paid bribes to win contracts in Algeria.
Orsi, a long-serving defence industry executive, has always denied any wrongdoing with regard to a corruption inquiry into AgustaWestland which first came to light in February 2011.
His lawyer Ennio Amodio told reporters on Tuesday that Orsi was stunned by the arrest. "He cannot figure out what he can be accused of. He did not pocket a single euro and did not distribute any money," Amodio said.
The corporate scandals have become an issue in Italy's parliamentary election campaign. Orsi's appointment to lead the heavily indebted defence group in May 2011 was backed by the Northern League party, an ally of then Prime Minister Silvio Berlusconi.
Lawyer Amodio said the warrant made no mention of any alleged payments to the Northern League.
Centre-left politicians had called for Orsi to step down when he was first targeted in the corruption investigation.
"Some of the parties clearly have an interest in playing the justice card for political capital in view of the vote," said Stefano Zamagni, professor of economics at Bologna University.
Besides Orsi, three other people have been placed under house arrest, including AgustaWestland chief Bruno Spagnolini.
In the arrest warrant, prosecutors allege that Orsi and others paid money through intermediaries, including Indian nationals and U.S.-born Guido Ralph Haschke, who also has Italian nationality.
They alleged that those middlemen paid a former Indian airforce chief to change the terms of the tender to allow AgustaWestland to win the contract. The warrant does not make clear how much money was supposedly paid.
Concern has been growing that the corruption investigations could tarnish Finmeccanica's reputation and distract management while the company is carrying out a tough restructuring.
Being excluded from the growing Indian market could be a major problem for the group, which faces defence budget cuts in its main Italian, British and U.S. markets.
Under Indian defence procurement rules, companies found to have been involved in corruption can be punished with blacklisting and fines, an Indian defence ministry source said.
Orsi's arrest also risks derailing Finmeccanica's plans to sell its non-core energy and transportation assets, something the company wants to do to avoid further downgrades of its credit ratings.
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