India has barred Israel Military Industries, as well as five other foreign defense contractors, from bidding for defense contracts in the country for 10 years. IMI was notified yesterday of Monday's decision by the Indian Ministry of Defense and says it will appeal.

The ban followed an investigation by India's Central Bureau of Investigation. The agency, which completed its probe in 2009, concluded that there was sufficient evidence to implicate the blacklisted firms in bribing Sudipta Ghosh, the former director of Ordnance Factories, and other officers to win six contracts.

Open gallery view Israeli armored vehicle. Credit: IMI

The companies were given hearings but the ministry found their explanations lacking.

The CBI recommended that action be taken against the companies. The decision is expected to affect not only IMI's activities in India but also those of other Israeli defense firms.

Although the outcome of the investigation had long been known, the Israeli defense establishment greeted the decision with surprise. Defense officials said they thought the hearing process for IMI was still continuing. Earlier yesterday IMI said it hadn't received official notice of the blacklist decision; the notice did however arrive later in the day.

"The Defense Ministry was surprised to hear of the decision by the Indian Ministry of Defense, because the hearing process for IMI against the intent of imposing sanctions on it had not been completed, and especially since IMI had very good claims against the move," the Defense Ministry said in a statement yesterday, adding that it will consult with IMI on a response.

IMI said in a statement that it did and does obey the law and will continue to work with the Indian authorities to resolve the issue. In any case, it said, it plans to appeal on the grounds that the conclusion is based on "erroneous facts" and ignores information submitted by the company.

It is thought that IMI had only begun developing its operations in the Indian market and had signed an agreement to build a factory - the agreement that triggered the investigation. Since the probe began IMI has all but frozen its activities in India; no other deals have been reported.

India is considered a key export market for Israeli defense companies. All the players, including Israel Aerospace Industries, Rafael Advanced Defense Systems and Elbit Systems, bid for Indian tenders. Some Israeli defense manufacturers are building factories in India, mainly to meet the requirements of reciprocal procurement agreements.

Industry sources outside IMI have expressed concern that IMI's presence on the blacklist could affect other Israeli firms, though there have been no signs of any recoil yet.

They also suggested that the Indian decision could hamstring Israeli government efforts to privatize IMI. Since India had been considered one of its biggest customers, the loss could diminish IMI's value.

The other companies placed on the blacklist were Singapore Technologies Kinetics, Rheinmetall Air Defence Zurich, Corporation Defence Russia, T.S. Kisan & Co. and R.K. Machine Tools. The last two are Indian companies.

Bribery allegations abound

In the past, Israel Aerospace Industries had been accused of landing jobs by bribing Indian officials. The company denied the allegations and was not part of the Central Bureau of Investigation's probe.

Nor has there been any mention of adding IAI to the blacklist. After publication of the suspicions, IAI won billions of dollars worth of deals in India.

Earlier this week it turned out that Soltam, a member of the Elbit Systems group of companies, had been blacklisted by the Philippines back in July 2011, for one year.

Soltam is well known in Israeli households for its stainless steel cookware, but in military circles it's better known for making advanced artillery systems, mortars, ammunition and auxiliary equipment. Elbit Systems bought the controlling interest in Soltam in 2010, after Soltam was accused of bribing officials in Kazakhstan. The company denied the allegations.

Soltam's client in the Philippines was the army. The allegation against it isn't corruption, it's failing to deliver two orders before an October 2010 deadline. Elbit Systems did not comment on the move by Manila.