Publication: Business Report Date: 2005-12-15 Reporter: Laurent Leger Reporter:

There Seems to be No End to Thales's Woes

 

Publication 

Business Report
Date

2005-12-15

Reporter

 Laurent Leger

Web Link

www.busrep.co.za

 

Paris - The directors of French electronics company Thales are facing a tough year-end. The charges against two Thales subsidiaries in South Africa, Thint Holding and Thint, which are accused of corruption alongside former deputy president Jacob Zuma, have reopened an embarrassing dossier that Thales had hoped to have closed by coming to an agreement with prosecutors in the Schabir Shaik case.

Then, last Thursday, fireworks exploded over Thales. The international group, with an annual turnover of $10 billion (R63 billion), specialises in sophisticated electronic equipment fitted on Boeing and Airbus aircraft, on submarines, on satellites and in security systems.

The French state has a 31 percent stake in Thales but that has not stopped the French authorities from launching two judicial investigations, one of them into 10 contracts signed by Thales or its subsidiaries across the world.

For Thales's 55 000 employees on five continents, the threat of revelations of ugly practices in the corridors of the company is a catastrophe.

"I should never have fired him." That is what the head of Thales, Denis Ranque, must be telling himself after dramatic and damaging claims made by Michel Josserand, the former chief executive of Thec, a small consulting and engineering subsidiary. Josserand, who was accused of corruption over a tramway equipment contract and fired from Thales, is looking for vengeance.

He has accused the group of setting up an international system of corruption and devising processes to bypass the rules of the Organisation for Economic Co-operation and Development, which bans payments by member states - including France - to foreign public servants and politicians in bids for contracts.

According to Josserand, Thales sent its executives into several countries to look into policing, judiciary and banking practices so the group could identify which country had the least strict rules in order to set up subsidiaries.

True or false, Josserand's claims will be examined by two French judges who are experts in financial crimes: Renaud van Ruymbeke and Xaviere Simeoni, and by police investigators who report to them.

They will be looking into contracts that stretch across Thales's entire field of activity - from the installation of a cable network in Riga in Latvia to underground railway projects in Montreal in Canada and Cairo in Egypt, the upgrade of six frigates bought by Greece, the building in 1995 of a hospital in Casablanca and work for the Atomic Energy Commission in Morocco, international contracts financed by the World Bank in Cambodia and a study into the construction of a road system to bypass Cameroon's capital, Douala.

They will include the failed bid for the security contract for the Athens Olympic Games in 2004 via a joint venture between Thales and a US group, Raytheon. The contract was won by another US company. According to Josserand, Thales did try to bribe Greek politicians, but did not pitch the bribes high enough to win the contract.

"We lost this contract because we aimed too low *1, while the Americans aimed at the Greek minister of the interior and the prime minister."

According to Josserand, the American company that won the Olympic games security contract was backed by US vice-president Dick Cheney. Greek authorities are also investigating. Thanks to Thales, the French judges have plenty of work in 2006. And the defence electronics group will finish 2005 with other worries too, also linked to judicial inquiries.

These relate to the sale by France to Taiwan of six frigates, built in the French naval shipyards and equipped with Thales systems.

The huge E2.5 billion (R18.78 billion) contract, signed in 1991, has been at the heart of a French judicial investigation since 1997.

French industrialists are suspected of having paid hefty commissions to politicians in Taiwan and in mainland China, and of having organised a system of payback of money to French politicians. Part of the commissions are said to have been paid to those who, in France, authorised the sale and the export of the vessels.

After the political change in Taiwan in 1991, the Taiwanese authorities applied to the international court of arbitration in Paris for a ruling on the commissions on the frigate contract, claiming that the sales contract banned hidden payments.

The procedure, which is confidential, is being handled by impressive teams of lawyers from Shearman Sterling (for Thales) and Coudert Freres (for Taiwan).

On the horizon for Thales, and for France, is a possible condemnation that is politically embarrassing because it is financially significant.

If France is condemned by the court, only very high-level political negotiations could prevent the payment of a heavy fine.
The negotiations would involve three parties: France, Taiwan and 80-year-old agent Andrew Wang, a shadowy figure now in hiding in London.

It is thanks to this businessman with multiple contacts in western defence companies that the lucrative contract was signed in 1991. More than $700 million has since been blocked in 46 of his Swiss bank accounts.

The French government, the shipyards and also Thales, since it was a public company for many years, would like part of the bill to be paid by Wang, if they are condemned by the international arbitrators.

Satisfying the Taiwanese authorities would mean that the warrant of arrest against Wang and the various charges against him in Taipei could be lifted. It seems that during his early secret discussions with Thales, he was coming round to this idea.

Meanwhile, the French government is preparing to share the rest of the fine with Thales. In other words, the taxpayer will pay. And as the French budget deficit widens, this is an idea that makes politicians shiver *2.

• Laurent Leger is a freelance journalist based in Paris

With acknowledgements to Laurent Leger and Business Report.


*1  Being in the Euro Zone, the Greeks wanted 500k Euros per year until one of the special purpose vehicles started paying dividends.

By then, Thomson-CSF was used to getting away with paying 500k ZAR per year until their special purpose vehicle, African Defence Systems (Pty) Ltd, started paying dividends.

*2  The Southern Hemisphere winter of discontent for shivering politicians starts 31 July 2006 and runs until 30 June 2007.

Busted.