Submarine Deal

A Warning from Islamabad

ThyssenKrupp HDW submarine_ThyssenKrupp
A ThyssenKrupp submarine.
  • Why it matters

    Why it matters

    A potential arms deal between a German submarine manufacturer and Pakistan revealed allegations of bribery and corruption.

  • Facts

    Facts

    • SYSCO, a Pakistani company hired by ThyssenKrupp to promote the sale of submarines to Pakistan, was alleged backed by Tariq D., a man with close ties to local politicians.
    • The German military attaché in Pakistan warned a purchaser from the German defense ministry that the deal might involve bribery.
    • The deal fell apart as Pakistan could not afford the submarines.
    •  
  • Audio

    Audio

  • Pdf

Naval yards have nothing to complain about when it comes to support from the German government. In fact, Berlin’s representatives have truly put their shoulders to the wheel during sales negotiations, such as recent negotiations with the Australian government.

Senior German politicians fly to foreign countries, embassies tout German industry and if a deal is reached, the German armed forces, the Bundeswehr, often provides training for foreign soldiers.

One of the beneficiaries of this support is ThyssenKrupp, Germany’s largest manufacturer of submarines and frigates. The company has also been able to count on government support in other ways.

When ThyssenKrupp subsidiary HDW was trying to sell submarines to Pakistan a few years ago, Frank M., the defense ministry’s chief purchaser for its “Underwater” division came to the company’s assistance. But before he could even set foot on Pakistani soil, he received a warning from the then military attaché of the German Embassy. In an e-mail to Frank M., he wrote that he was looking forward to their meeting, but urgently advised him not to meet with representatives of a company called SYSCO. In the e-mail, dated August 11, 2010, the attaché wrote that there were “justified concerns about bribery attempts and corrupt business practices.”

SYSCO is the company that the ThyssenKrupp shipbuilding subsidiary had hired as a consultant to promote the sale of submarines to Pakistan. Tariq D., a man with close ties to local politicians, is behind the company. His father was an army officer and he lived in a military compound.

The German military attaché’s remarks suggest that the consultant was adept at using his network, but possibly in ways that were not always legal.

The military attaché and the German defense ministry purchaser are colleagues, broadly speaking. Frank M. works for the Federal Office of Defense Technology and Procurement (BWB), a sub-agency of the defense ministry responsible for procurement of military equipment. The attaché holds down the fort in Pakistan, where he represents the ministry. He is both an adviser and an observer of the local scene.

Frank M. apparently had little use for the warning from Pakistan. In his response, he wrote that he had nothing to do with SYSCO and Tariq D. “I am reading these names for the first time,” he replied.

The e-mail correspondence was harmless up to this point – that is, if an employee of HDW hadn’t been copied. The company, which, as SYSCO’s client was indirectly suspected of corruption, had now been made aware of these suspicions.

Perhaps the mention of bribery and corrupt business practices should have raised a red flag for Frank M. Employees in the procurement office receive regular training on corruption prevention, as the defense ministry has confirmed.

The ministry does not see any misconduct on the part of the purchaser. The circumstances had not been sufficiently clear to warrant a report, a ministry spokeswoman said. ThyssenKrupp stresses that the company takes pains to ensure that its business deals are above reproach, and that the same principles apply to naval deals in Pakistan. SYSCO told ThyssenKrupp that the corruption accusations were unfounded.

Nevertheless, the warning cry from Pakistan caused a stir at ThyssenKrupp, triggering a lively correspondence between HDW employees and the company’s London-based sales subsidiary, Marine Force International (MFI). There were significant concerns. “Because the federal government is involved here, the whole thing could really gain momentum,” one employee wrote.

On August 23, 2010, the submarine sellers contacted the military attaché directly and proposed a meeting, which took place in Istanbul at the end of October. The information provided by the military attaché was very detailed. For instance, he stated in a memo that a bribe of $66 million had been planned. This is roughly the amount SYSCO was to receive if a deal was reached. Handelsblatt has obtained a copy of the contract with SYSCO.

Only a few days later, the military attaché regretted that he had met with the arms dealers. According to his memo, they had told Tariq D. about the contents of the meeting, disclosing his identity in the process. Fearing for his life, he left Pakistan a short time later.

In the end, no one was bribed in Pakistan, because the deal fell apart. The country was simply unable to afford the high-tech submarines from Germany.

 

Martin Murphy is Handelsblatt’s chief companies and markets reporter. To contact him: murphy@handelsblatt.com.  

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!