Three brothers with family ties to a former head of the Indian air force helped to twist rules in a helicopter tender won by Italy's AgustaWestland, prosecutors alleged in an arrest warrant for a top Italian businessman.
Italian prosecutors said in the warrant reviewed by Reuters on Tuesday that two managers at AgustaWestland, a unit of defence group Finmeccanica (SIFI.MI), paid go-betweens to help it win the 2010 contract to supply 12 helicopters to India.
Part of these payments ended up with the three Indian brothers, Juli, Docsa and Sandeep Tyagi, whose cousin Sashi Tyagi was former Indian air force chief. None of the Tyagis has been accused of wrongdoing by officials in India.
In a growing corruption scandal, police arrested on Tuesday AgustaWestland's former chief executive Giuseppe Orsi, who now heads Finmeccanica. Orsi denies any wrongdoing over the 556-million-euro deal.
The case, which is still in its preliminary investigation phase, has rocked Italy before parliamentary elections on February 24-25, and also in India, the world's largest weapon importer.
Prosecutors in the northern town of Busto Arsizio, near AgustaWestland's headquarters, said Orsi hired U.S.-born Guido Ralph Haschke, who was then a consultant for the Finmeccanica group, to lead dealings in India to secure the contract.
Haschke and his partner Carlo Gerosa, prosecutors said, had close ties with the Tyagi brothers.
Prosecutors allege that Orsi, along with the current chief executive of AgustaWestland Bruno Spagnolini, paid 400,000 euros in consultancy fees to Haschke and Gerosa.
"Of this, 100,000 euros in cash were given to the Tyagi brothers," they said in the 65-page warrant.
The money went to the brothers to pressure Indian officials and help doctor the tender terms to favour the specification of AgustaWestland's helicopters, the prosecutors alleged.
The tender was changed to accommodate AgustaWestland by, among other things, lowering required altitudes where the helicopters could operate to 15,000 feet from 18,000 feet, "thus allowing AgustaWestland, which otherwise would not even have been able to present an offer, to take part in the tender", the warrant said.
The tender terms were also changed to introduce an engine failure flying test. This favoured AgustaWestland as its helicopters were the only ones in the tender operating with three engines.
Orsi's lawyer said his client denied distributing any money or pocketing a single euro, adding that the investigation did not provide any evidence of illicit payments. AgustaWestland said on Tuesday it supported Spagnolini who was placed under house arrest.
The warrant also covered Haschke and Gerosa. Neither has been arrested as they are in Switzerland. A lawyer for Haschke, contacted by reporters, declined to comment on the case while Gerosa could not be reached for comment.
Reuters was not immediately able to locate the Tyagi brothers, nor Sashi Tyagi.
Sashi Tyagi, head of India's air force from 2004-2007, in November told the India Today news weekly he had no memory of the issue. The warrant did not explain how Tyagi might have been involved in a deal completed after he had left his post.
The investigation into Finmeccanica, which started more than a year ago, is one of a series of corruption scandals in defence dealmaking in India.
Defence minister AK Antony has ordered an inquiry into the deal to be conducted by the Central Bureau of Investigation, the country's federal police force.
The arrests over Indian bribery allegations come as Finmeccanica unit Alenia Aermacchi hopes to compete for a contract to supply over 50 military transport aircraft to India in competition with European aerospace group EADS (EAD.PA).
According to specialist defence publication IHS Jane's, Alenia would build 40 of the 56 C-27J Spartan airlifters in India and use the same assembly line to meet future regional demand for tactical air transport.
The military arm of EADS subsidiary Airbus told Reuters last week it would offer its C295 military transport plane as an alternative, adding that manufacturers were waiting for a formal competition document from the Indian government.