THE BIG QUESTIONS

ELUSIVE: Ottavio Quattrocchi has remained out of the CBI's reach

Q. Why and how was his London account defrozen?
Q. Why did the CBI make such major flip-flops?
Q. Was the Prime Minister aware of the developments?
Q. Can Quattrocchi ever be extradited to face trial?
Q. Is there enough evidence to pin the Italian down?
In December 2005, India's Additional Solicitor Quattrocchi's funds as there was "not a reasonable General told the UK High Court to defreeze chance of the case agains t him proceeding to trial".

Bofors is back, with a bang. Last week's revelations regarding the Indian Government's decision to defreeze the London bank accounts containing a total of Rs 21 crore belonging to Ottavio Quattrocchi, the Italian businessman who was one of the prime accused in the Bofors payoff scandal, have opened a new can of worms, severely damaged the image and credibility of the UPA Government and, more importantly, put UPA Chairperson and Congress President Sonia Gandhi under a cloud.

The scandal within a scandal could not have come at a worse time for the Government which had just suffered the ignominy of losing its external affairs minister in the wake of the Volcker Report. For Sonia in particular, it resurrects a political ghost which was mainly responsible for her late husband's electoral defeat as prime minister in 1989.

Since 1986 when the Indian government signed the Rs 1,437 crore contract with Swedish giant AB Bofors to purchase 155 mm howitzers, the deal has become synonymous with kickbacks and corruption at the highest official levels.

Apart from the late prime minister Rajiv Gandhi himself, the others accused of grabbing a piece of the Rs 64 crore "commission" that Bofors paid as established in the subsequent probe by Swedish investigators, were wheeler-dealer Win Chadha, an agent of the company (since deceased), the influential, London-based Hinduja business family (since exonerated by Indian courts) and Quattrocchi, then based in Delhi as representative of Snamprogetti, an Italian engineering giant.

It was Quattrocchi's Italian origins and his closeness to Rajiv and Sonia that led to accusations of his involvement in the scandal. The suspicions deepened when diary entries made by the then Bofors chief Martin Ardbo referred to payments made to "Mr Q" and subsequent investigations by Swedish authorities only seemed to confirm that money had been paid into accounts in a London bank they alleged belonged to Quattrocchi.

At the height of the scandal, with new revelations surfacing, on July 29, 1993, Mr Q quietly left Delhi for Kuala Lumpur, despite being wanted for questioning by the CBI which was probing the Bofors payoffs. That is why the latest revelations regarding the defreezing of Quattrocchi's London accounts on the recommendation of Indian Law Ministry officials have stirred a hornet's nest and given the BJP-led Opposition potent ammunition to target the ruling party and the UPA Government. Like most scandals, this latest twist in the long-running Bofors saga started quietly enough.

WHY AND HOW WERE Q'S LONDON ACCOUNTS DEFROZEN?

Two days before Christmas on December 23, 2005, R.K. Sharma, a DIG of the CBI in-charge of the Bofors probe, received an e-mail from Shane Nainappan, senior crown prosecutor of the UK's Crown Prosecution Service (CPS). He was penning down the discussions he had had with B. Datta, the additional solicitor general of India. Datta had arrived in London the previous day to brief him about the new position of the Indian Government on the British High Court's Restraining Order on the funds Quattrocchi held in the BSI AG bank.

In his e-mail, a copy of which is with INDIA TODAY, Nainappan states: "Mr Datta conveyed his instructions on behalf of the Government of India, the Ministry of Justice and the Central Bureau of Investigation that no useful purpose will be served by maintaining the Restraining Order dated July 25, 2003, as there is no longer any reasonable prospect of the case against Mr Quattrocchi proceeding to trial."

In his e-mail, which was also sent to Datta, Nainappan went on to state that as the courts were closed for Christmas break, progress on the matter would only be made in early January 2006. If the CBI did not agree with Datta's assessment, as some of its officials later claimed, they had ample time to let Nainappan know about it. But with no contrary orders emanating from Delhi, on January 11, the Queen's High Court decided to lift the Restraining Order against the funds-a clear victory for Quattrocchi.

The verdict was conveyed to the CBI by Nainappan the same day. It was only when the news was made public that all hell broke loose and Sonia and Prime Minister Manmohan Singh found themselves in the eye of a gathering storm. The opposition parties accused the Government of trying to bury the Bofors case and acquit Quattrocchi without even bringing him to trial. Even as Manmohan denied any interference by the Government, the Supreme Court, acting on a PIL, asked for restoration of status quo of the accounts.

It all began in late June 2003 when Interpol alerted the CBI headquarters that it had detected two accounts, 5A5151516M and 5A5151516L, held by Quattrocchi and his wife Maria with the BSI AG bank, London, that contained Euros 3 million and $1 million (a total of Rs 21 crore), respectively. It suspected that the money had been transferred from a Bahamas account. It seemed a curiously large savings for a salaried executive.

BLAST FROM THE PAST

Martin Ardbo, Win Chadha, G.P. Hinduja

MARCH 24, 1986: Rs 1,437 crore contract for 410 howitzers signed with Bofors. Thirteen months later Swedish Radio alleges firm paid bribes for the contract.

JUNE 1O, 1987: MoS defence Arun Singh and later army chief Sundarji advocate cancelling the contract. But the JPC gives Bofors a clean chit.

JANUARY 22, 1990: CBI files FIR, names Martin Ardbo, Win Chadha, G.P. Hinduja and others. Then ASG Arun Jaitley (above, left) visits Sweden and Switzerland with CBI jt director K. Madhavan.

Joginder Singh (CBI director)

FEBRUARY 1, 1992: Foreign minister M.S. Solanki passes an unsigned note asking the Swiss to go slow on investigation.

JANUARY 1993: The Swiss court orders release of documents. Chadha, Quattrocchi and the Hindujas oppose it

Rajiv Gandhi

JANUARY 22, 1997: CBI director Joginder Singh collects documents of Swiss bank accounts.

OCTOBER 22, 1999: CBI chargesheets Chadha, Quattrocchi, S.K. Bhatnagar and Ardbo. Late Rajiv Gandhi is also named. Establishes Bofors paid commissions to Quattrocchi and Chadha through AE Services and Svenska.

OCTOBER 9, 2000: CBI chargesheets the Hindujas for receiving payoffs. The Hinduja share routed through McIntyre Corp.

Law Minister-H.R.Bhardwaj

MAY 31, 2005: Justice R.S. Sodhi of Delhi HC discharges the Hindujas.

OCTOBER 18, 2005: SC advocate Ajay Aggarwal files PIL against the judgement.

JANUARY 12, 2006: Law Minister Bhardwaj defends defreezing, says no proof against Quattrocchi. The CBI first denies and then admits to having ordered the defreeze.

CBI officials were quick to understand the significance of the tip off. Quattrocchi had been charged by the CBI special court in 1999 of being an illegal recipient of a commission of $7.3 million (Rs 33 crore at the current rate) paid by Bofors in September 1986 into an account in a Zurich bank for a front company called AE Services in the UK.

The funds were then immediately transferred to the Geneva account of the Panama-based Colbar Investments Limited said to be directly controlled by Quattrocchi and his wife. From there, the money was further transferred to other accounts in various parts of the world.

Realising that there could be some links with the alleged payoff money, the CBI acted with alacrity in getting the accounts frozen. It obtained a Letter Rogatory from the designated special court handling the Bofors case requesting the CPS to get a restraining order from the Queen's High Court in London.

For Quattrocchi, the court's order of July 25, 2003, freezing his funds in the London bank was a major blow. He was already under tremendous pressure after the CBI filed a chargesheet against him for the first time in the special court on October 22, 1999.
The NDA government was in power then and initially seemed determined to pursue the payoff scandal knowing it would put Sonia on the backfoot. After the special court issued a non-bailable warrant against Quattrocchi, on March 7, 2000, the Indian government requested Malaysia to extradite him.

Even though there was no extradition treaty between the two countries, the Malaysian Home Ministry had a magistrate issue a warrant for his apprehension. Quattrocchi was arrested on December 20, 2000, in Kuala Lumpur and let off on bail.

A defiant Quattrocchi then challenged the proposed extradition before the Malaysian courts and turned the tide in his favour. The session court in Kuala Lumpur rejected the Indian government's request on the grounds that the allegations against Quattrocchi were vague and no specific offence was listed. When the Indian government moved the high court, it upheld the lower court's discharge order.

Finally, the Indian government approached the Federal Court, Malaysia's highest court, for a review. On March 31, 2004, the Federal Court dismissed the Indian government's appeal and Quattrocchi was a free man.

The NDA government appeared to have botched the case. According to a former BJP cabinet minister, "the judgement came on Wednesday, our appeal was listed in the Malaysian courts on Friday but the judge was absent so it was postponed to Monday".

During that weekend Quattrocchi is said to have left Kuala Lumpur with his wife for Milan where he now resides. From the safety of Italy, he began making moves to defreeze his London accounts and, more significantly, have the charges against him quashed in India.

By then the events had already begun swinging in the Italian businessman's favour. In February 2004, Justice J.D. Kapur of the Delhi High Court exonerated all public servants in the Bofors case, including Rajiv. It was a major political triumph for Sonia and flanked by both her children, she told the media, "We have gone through 17 years of abuse, 17 years of vilification since the first accusation to the last indignation inflicted by the BJP-led NDA government by placing my husband's name on the chargesheet."

And with that the Congress kicked off its 2004 general election campaign. Caught on the wrong foot, the NDA surprisingly did not file an appeal against the order in the Supreme Court. Importantly, for the Bofors accused, the high court order makes the charges against them under the Prevention of Corruption Act inapplicable.

WHY DID THE CBI FLIP-FLOP?

In May 2004, with a Congress-led government coming to power, the CBI did a volte-face and actively began closing the cases against Quattrocchi and defreezing his accounts. On September 20, 2004, Sharma sent a letter to Datta asking for advice on the course of action in the extradition proceedings in Malaysia against Quattrocchi and also on the restraint order on his funds in London.

THE BALANCE SHEET

CONGRESS REGIMES

UNDER FIRE: Sonia Gandhi and Manmohan Singh

UNDER FIRE: Sonia Gandhi and Manmohan Singh

Rajiv Gandhi (1984-89): Appoints a JPC which claims kickbacks were "winding up costs". Investigations on the basis of preliminary inquiry. No FIR filed.
Narasimha Rao (1991-96): External affairs minister M.S. Solanki sacked for asking the Swiss government to slow down investigations. Quattrocchi flees India as the CBI traces his links to kickbacks. FIR filed against him.
Manmohan Singh (2004): Delhi High Court clears Hindujas, CBI does not appeal against the acquittal. Defreezes Quattrocchi's accounts.
Manmohan Singh, Prime Minister
"Neither the freezing nor the defreezing was done on government order."

NON-CONGRESS

V.P. Singh (1989-90): An FIR filed does not mention Quattrocchi. Letter Rogatory sent to Switzerland and Sweden.
H.D. Deve Gowda, I.K. GUJRAL (1996-98): CBI director Joginder Singh procures Bofors documents from Switzerland. First non-bailable warrant against Quattrocchi issued.
A.B. Vajpayee (1998-2004): Chargesheets filed, extradition proceedings initiated against Quattrocchi, his London accounts frozen. But loses fervour midway and goofs up in the case against the Hindujas in the Delhi High Court.
Arun Jaitley, BJP Spokesperson
"Quattrocchi's relationship with Sonia is a ground for suspicion, not discharge."

Meanwhile, on November 24, 2004, Quattrocchi approached the Queen's High Court with an appeal to have his accounts defrozen. Datta's advice to the CBI on December 9, 2004, gave the first indication of the track the UPA Government would follow. In his letter he argued vigorously against pursuing extradition proceedings against Quattrocchi in Malaysia.

Elsewhere in the letter citing the CBI information, Datta states blandly that "Quattrocchi is believed to be living in a third country with which again India does not have an extradition treaty and which is not prepared to extradite him".

In the same cavalier manner, he dismisses the importance of the frozen funds in the London bank stating, "There is no evidence that these funds arrived in these bank accounts either directly or through a chain of transfers from any of the bank accounts to which the original payment made to the alleged front company of Quattrocchi had been traced.

There is no material record to believe, still less conclude, that these funds are a part of the proceeds of the alleged criminal act." Datta then goes on to point out other infirmities, including why Quattrocchi cannot be declared a proclaimed offender and his properties and funds be attached.

Stunned by the counsel's advice, the CBI initially disregarded it and told the CPS that it needed more time to investigate the source of the funds and therefore the order to freeze them should not be lifted. But months later the agency would do another U-turn on the Bofors probe.

WAS THE PRIME MINISTER AWARE OF THESE DEVELOPMENTS?

The CBI's cases against Bofors accused soon got another body blow. On May 31, 2005, Delhi High Court's Justice R.S. Sodhi dismissed the case against the Hinduja brothers. Sodhi's ruling was largely based on the technical issue that the CBI had not certified the photocopies of the vital documents from the Swedish authorities it had submitted to the court. The Congress pointed out that since the hearings had begun during the NDA's tenure, it should have ensured that the documents were properly certified.

If the NDA did not seem keen on pursuing the case against the Hindujas vigorously enough, the UPA was no different. The CBI sought the advice of K.P. Pathak, another additional solicitor general of India, on filing a special leave petition in the Supreme Court against the Delhi High Court judgement exonerating the Hindujas. In his reply on October 7, 2005, Pathak surprised CBI officials with his advice to stop all action against the Bofors accused. 

He vehemently stated: "In the absence of any authenticated documents in terms of the Evidence Act, I am of the opinion, that proceedings against all accused persons such as the Hindujas, Bofors and Quattrocchi will be nothing but an abuse of the process of the Court." On Quattrocchi, he backed Datta's advice not to restart the extradition process. On the frozen funds Pathak stated, "There is no authentic evidence to connect him with the alleged offence and the case against him cannot stand in a court of law."

THE OTHER ACCUSED

G.P. Hinduja

While the case drags on even 20 years after the gun deal, some accused have died and some been acquitted

THE HINDUJAS: Charges against the brothers were dismissed in May last on technical grounds by the Delhi High Court. They were believed to be close to senior BJP functionaries and officials.

Win Chadha

WIN CHADHA: He died of cardiac arrest at his residence in Delhi on October 23, 2001. He was 77. The case against him was pending.

Martin Karl Ardbo

MARTIN KARL ARDBO: The former CEO of AB Bofors died in July 2004 in Sweden a few months after the Delhi High Court gave the go-ahead for his trial.

So in December when the CPS sent a query asking whether the restraining order on Quattrocchi's funds should stay, the CBI decided to send Datta and an investigating officer to brief it on the agency's opinion. The Law Ministry and the Expenditure Department cleared only Datta for the trip.

When the news broke out about the accounts being defrozen, Law Minister H.R. Bhardwaj virtually gave Quattrocchi a clean chit, saying, "It is wrong to keep somebody's money frozen if there is no proof against him." Sonia was reportedly upset at his indiscretion. Adding to her discomfort, Quattrocchi then said from Milan, "I am proud to be a friend of the Gandhi family but please leave the friendship alone."

As part of the Government's damage control, the CBI owned up that it had sanctioned Datta's visit. Manmohan then held a press conference in Guwahati and stated that "neither the freezing was done on government orders nor has the defreezing been done on government orders". But Nainappan's e-mail from London seems to suggest otherwise. For it even goes on to state that the Government does not think bringing Quattrocchi to trial was "a reasonable prospect."

Under fire even from its allies, the Government and the CBI then began backpedalling on their assertions. The Supreme Court's order asking for a status quo on the funds has put the Government in a tight spot.

A CPS spokesperson told INDIA TODAY, "It would have to be a fresh application satisfying the usual criteria. However, the High Court is likely to query any application for a further restraining order given the application to discharge the original order. The court is likely to ask for evidence as to how/why has there been a change in circumstances." Worse, there is every likelihood that Quattrocchi has already withdrawn the funds. Bofors is likely to continue to haunt Sonia and the Congress for a long while to come.

- with Vijay Rana in London and Sandeep Unnithan