Karachi Affair


Contents
top

Introduction
contents

A car bomb explosion in Karachi, Pakistan, on May 8, 2002, killed fourteen people, including 11 French nationals, employees of the French state shipbuilder Direction des Constructions Navales (DCN, now DCNS), and exposed a major corruption scandal in France and Pakistan. The DCNS employees were working on the construction of 3 submarines ordered by Pakistan in 1994. While initial suspicions for the bombing fell on Al Qaeda, another line of inquiry quickly developed: that the bombing was the work of a Pakistani official angered that he was no longer receiving the bribe payments he’d been promised as part of the deal.

Investigations into the submarine deal had already begun in Pakistan in 1997, when the Pakistani chief of Naval Staff admitted the existence of large bribes, or commissions, paid by DCN to secure the deal. The attack in Karachi prompted new investigations in France, which gradually revealed a system of commission payments—bribes and kickbacks—tied not only to the Pakistani submarines, but also three frigates sold to Saudi Arabia. As well as being used to bribe officials in the recipient countries, some of the commission payments were channeled back to France as so-called ‘retrocommissions’, to fund the 1995 Presidential election campaign of Edouard Balladur, the French Prime Minister at the time of the deal.


Case details
contents
Seller country: France
Seller company: DCNS
Buyer country: Pakistan, Saudi Arabia
Goods category: Submarines, Warships
Equipment sold: 3 Agosta-B Submarines (Pakistan – “Agosta” contract), 3 La Fayette Frigates (Saudi Arabia – “Sawari II” contract)
Deal value: FRF (1994) 5.41 billion (Pakistan) or USD (1994) 976 million FRF (1994), 19 billion (Saudi Arabia) or USD (1994) 3.43 billion
Sum involved in corruption: EUR 327 million
Start year: 1994
Outcome status: Mixed

Dramatis Personae
contents
  • Renaud Donnedieu de Vabres – special advisor to the cabinet of Defence Minister Francois Léotard; tried for misuse of corporate assets and concealment of the misuse, as well as illicit campaign finance. Convicted and sentenced to five years imprisonment (with two years suspended) and fined EUR 120,000.

  • Thierry Gaubert – advisor to Budget Minister Nicolas Sarkozy; tried for misuse of corporate assets and concealment of the misuse, as well as illicit campaign finance. Convicted and sentenced to four years imprisonment (with two years suspended) and fined EUR 120,000.

  • Nicholas Bazire – former campaign director for Edouard Balladur’s presidential campaign; tried for misuse of corporate assets and concealment of the misuse. Convicted and sentenced to five years imprisonment (with two years suspended) and fined EUR 300,000.

  • Dominique Castellan – former president-director general of the international division of DCN; tried for misuse of corporate assets and concealment of the misuse. Convicted and sentenced to three years imprisonment (with one year suspended) and fined EUR 50,000.

  • Francois Léotard – former French defence minister (1993-1995); on trial for complicity in the abuse of corporate assets and illicit campaign finance.

  • Edouard Balladur – prime minister (1993-1995); placed under examination by an investigating magistrate as of May 2017; on trial for complicity in the abuse of corporate assets and illicit campaign finance.

  • Ziad Takieddine – businessman and middleman for commissions; on trial for misuse of corporate assets and concealment of the misuse. Convicted and sentenced to five years imprisonment, but has not been apprehended by French officials.

  • Abdul Rahman El-Assir – businessman and middleman for commissions; on trial for misuse of corporate assets and concealment of the misuse. Convicted and sentenced to five years imprisonment, but has not been apprehended by French officials.

  • Ali Ben Moussalem – suspected mastermind of the intermediary group; deceased since 2004.

  • Admiral Mansur ul Haq – chief of Naval Staff in Pakistan (1994-1997); sacked for receiving bribes

  • Nawaz Sharif – Prime Minister of Pakistan (1990-1993, 1997-1999)


Summary of Corruption Allegations
contents

In autumn 1994, shortly before the signing of the “Agosta” contract in September, Renaud Donnedieu de Vabres, special advisor to the cabinet for Defence Minister Francois Léotard, imposed two new middlemen into the deal, Franco-Lebanese businessmen Ziad Takieddine and Abdul Rahman El-Assir. They were allocated a further 216 million Francs (EUR 33 million) in commissions. Takieddine and El-Assir were also given roles as middlemen for at least 200 million Francs (EUR 30.5 million) of commissions in another deal, “Sawari II,” selling three DCN La Fayette-class frigates to Saudi Arabia, also signed in 1994.

These two new middlemen, whose official role in the deal is not clear, are alleged to have been used to channel some of these commission payments back to France, to fund Balladur’s presidential election campaign, thereby circumventing France’s strict campaign spending limits. This back-channeling of commissions is known in France as ‘retro-commissions,’ and was illegal even at the time. Unusually, Takieddine and El-Assir were paid the bulk of the FRF 216 million commission up front in 1995, through a Luxembourg shell company, Heine SA, established for this purpose by DCN. Early payment of commissions would have been necessary for them to be used for the 1995 Presidential campaign.


Timeline
contents
  • 1994

    Since 1992, France competed with Germany and other arms exporters to sell submarines to Pakistan. French state shipbuilder DCN ultimately won the contract, signed in 1994, to sell 3 Agosta-class submarines to Pakistan for USD 976 million, with the first to be built in France, and the other two in Pakistan, with support from DCN. As a major international arms sale by a state-owned company, the process of negotiating and securing the deal involved the highest levels of the French government, in particular Defence Minister Francois Léotard and Prime Minister Edouard Balladur. At the time, the payment of commissions in connection with major arms deals—payments made by exporting companies to agents and middlemen, who in turn use the funds to channel bribes to key decision-makers and other relevant officials in the prospective buyer country in an attempt to seal the arms deal—was standard, and legal in France.

  • 2000

    France signed the Organization for Economic Cooperation and Development (OECD) Bribery Convention. At the time, the payment of commissions was so regular a feature of such deals that French government ministers assigned the French Defence Export organization, La Société Française de Matériels d’Armament (SOFMA), with the task of handling 338 million Francs (EUR 51.5 million) of commission payments for the submarine deal to Pakistani decision-makers.


Investigation Outcomes
contents
  • 1995

    In the 1995 French Presidential Election, Prime Minister Balladur was defeated in the first round of voting by his rival in the center-right Rassemblement pour la République (RPR) party, Jacques Chirac, who went on to win the Presidency in the run-of against Socialist Lionel Jospin. When Chirac assumed the presidency, he ordered an investigation into the possibility that retro-commissions had funded Balladur’s campaign. On discovering that they had been part of the Pakistan and Saudi deals, he ordered the payment of commissions for both to be stopped. This investigation was carried out within the French government’s executive office at the Elysée Palace and was not made public when it occurred.

  • 1997

    In Pakistan, Prime Minister Nawaz Sharif, who was elected to a second term of office (having previously ruled from 1990-1993), started to investigate corruption in arms deals under previous governments. Former Naval Chief of Staff Admiral Mansur ul Haq was blamed for the commissions in the Agosta deal, and was forcibly retired.

  • 2001

    Under President Pervez Musharraf, Mansur ul Haq was extradited from the United States and arrested.

  • 2002

    Mansur ul Haq was later released in 2002 under a plea deal, where he admitted receiving kickbacks in connection with various arms deals, and was fined and stripped of rank.

  • Sep 2002

    A parallel investigation began in France, one on the official hypothesis that the attacks had been conducted by an al-Qaeda affiliate, and the second tracing the possibility of a connection to the Agosta deal. The second investigation, spearheaded by former counter-espionage official Claude Thévenet, concluded that the attack may have been orchestrated by Pakistani officials angered by the cessation of bribe payments. These conclusions were summarized in a report entitled “Nautilus.”

  • Jun 2003

    A Pakistani court sentenced to death three men, Asif Zaheer, Mohammad Rizwan, and Muhammed Sohai, for their roles in the attack, allegedly carried out on behalf of an al-Qaeda-linked group.

  • 2008

    Previously, the Nautilus report was kept secret, but was leaked and publicized by the French outlet Mediapart. This led to further investigations, pushed by families of the victims, by Marc Trévidic and Renaud Van Ruymbeke, into the retro-commissions theory of the attack (Trévidic), and the retro-commissions themselves (Van Ruymbeke). Van Ruymbeke also investigated retro-commissions in the Saudi contract.

  • 2009

    Investigators in France quickly called into question the official narrative and a Pakistani appeals court reversed the convictions. Others accused of or suspected of taking bribes included Admiral ul Haq’s predecessor, saeed Khan, whom ul Haq claimed was responsible for the deal; a former director of naval intelligence; former Prime Minister Ali Zardari; and a number of other naval officers.

  • 2014

    A judicial report in 2014 by Van Ruymbeke and another judge confirmed the existence of the retro-commissions, with Balladur and Léotard held responsible, along with the other officials and intermediaries named above. The report also gives a total figure of EUR 327 million for commissions paid on the Pakistan and Saudi deals, via the “Network K” of intermediaries, including Takieddine and el-Assir. The report concluded that the information they had received could lead to the criminal liability of Balladur and Léotard, for actions carried out in the course of their duties as members of the government, the investigation of which falls under the responsibility of the Court of Justice of the Republic. Donnedieu de Vabres, Takieddine, and other officials, were referred for investigation by a Correctional Tribunal—courts which deal with intermediate levels of offenses.

  • May 2016

    Following an appeal and an order to review the judgement by the Court of Cassation, the previously referred French officials were confirmed in May 2016.

  • Jul 2017

    The officials were referred to trial. Balladur and Léotard were placed under formal examination by an investigating judge in May and July 2017, respectively.

  • Jun 2020

    Six convictions were handed down by a Paris court. Three government officials—Donnedieu de Vabres, Gaubert, and Bazire—were found guilty on charges related to illicit campaign finance and abuses of corporate assets, while Dominique Castellan, the former DCN head, was also convicted. They received sentences between three and five years in prison. While Takieddine and El-Assir remained on the run, they also received sentences of five years imprisonment. Balladur and Léotard are to be tried by a different court with jurisdiction over members of government acting in an official capacity, the Cour de Justice de la Republique, in early 2021.


References
contents