Monday, May 10, 2010

Court: Thales Owes Taiwan $800M

Defense News


Court: Thales Owes Taiwan $800M


TAIPEI — In the latest twist in a two­decade saga, a Paris court has ruled that Thales owes Taiwan more than $800 million for violating agreements related to the sale of six Lafayette-class frigates.

The international court of arbitration found May 3 that the French defense contractor had violated an agreement not to pay commissions to intermediaries for the frigates. Taiwan sued Thales to recover the commissions allegedly paid to French and Taiwan government officials. The company plans to challenge the decision.

“Even the verdict seems to clear the long-smeared image of MND [the Ministry of National Defense] to a significant extent. It has already been an established tradition for the Taiwan generals and admirals to avoid any risk in acquisition that may one day boomerang to haunt them,” said Lin Chong-Pin, a former Taiwan vice minister of defense. “Many, not all, have become more mindful of a comfortable retired life than making breakthroughs for the nation’s arms purchases.”

In 1991, Taiwan ordered the frigates in a $2.8 billion deal from Thomson-CSF, now Thales. Two years later, two Taiwanese naval officers were accused of accepting bribes in connection to the deal. One of them, Capt. Yin Ching-feng, was found dead in the ocean the day after a December 1993 meeting with unknown local agents working for European defense companies.

The subsequent investigations revealed that government officials in France and Taiwan had received more than $400 million in bribes in connection with the deal, while unknown Chinese officials received $100 million to prevent Beijing from pushing to kill the deal.

The scandal took on the feel of an international spy thriller with eight mysterious deaths, including two French citizens who jumped from — or were pushed off — high-rise buildings.

The scandal shook Taiwan’s arms procurement system. Thirteen local government officials and defense contract agents were convicted in connection with the case.

The fallout reduced MND officials’ aggressiveness in acquiring critical arms and equipment, which has made Taiwan dependent on the Pentagon’s Foreign Military Sales (FMS) program, a former U.S. defense official said.

“They believe the FMS program allows for some protection against allegations of corruption since it is run by the U.S. government,” he said.

Yet a loophole in the FMS program allows “contingency fees” to be paid to local sales agents working for U.S. defense companies without requiring disclosure about who receives how much, a former Taiwan defense official said.

The former official notes that FMS regulation 225.73, “Acquisitions for Foreign Military Sales,” says “fees are paid to a bona fide employee or a bona fide established commercial or selling agency maintained by the prospective contractor for the purpose of securing business and the contracting officer determines that the fees are fair and reasonable.”

The former U.S. government official said such commissions are paid to unidentified individuals with close ties to members of the government and military. Some of the local Taiwanese sales agents have ties to organized-crime syndicates and have traveled to China on questionable business trips.

Two local agents working for U.S. companies have been jailed for espionage. In 2006, Ko-suen “Bill” Moo was found guilty in U.S. federal court of attempting to acquire a U.S. cruise missile, jet engine, and other military equipment for China. Two years later, Tai Shen Kuo, a Taiwan­born naturalized U.S. citizen was arrested for spying for China, and was imprisoned along with two U.S. government officials he recruited.