Taiwanese Frigate Scandal Resurfaces

The Taiwanese government has filed a US$98.4 million lawsuit against the French state-owned DCNS over a long-running, massive corruption case that puts added pressure on the defense contractor at a time when it faces multiple investigations that could bring down top French politicians.

The allegations, announced by Taiwan’s Defense Minister Kao Hua-chun in Parliament last week, are also an indication that the French contractors apparently continued with illegal activities well after the original scandal was uncovered. Kao said additional kickbacks prohibited by a 1996 order agreement have been found relating to supplying parts for the problem-plagued stealth frigates, which cost US$2.8 billion in 1991. Taiwan is seeking the additional penalty for alleged violation of the 1996 agreement, bringing the total to well over US$1 billion.

The purchase of the six frigates has been marked by earlier allegations of massive corruption, multiple murders, and demands for fines against the French shipbuilder for US$950 million, most of it already owed by the defense contractor and the French state under international court rulings. The French government has already agreed to pay €457 million in damages to Taiwan, which is a big enough amount to require an emergency amendment to the national operating budget.

The defense contractor Thales has set aside €173 million in provisions as well. Although France has publicly offered assistance in recovering the bribe funds, so far the French government has shown little enthusiasm for getting to the bottom of the case. In 2008 French prosecutors dismissed the case after seven years, citing “lack of evidence.”

It hasn’t gone away, however. DCNS’s operations face questions across almost the entire globe, including in Pakistan, Malaysia, India, Saudi Arabia and Chile, with bribes and kickbacks reportedly comprising 8 percent to 12 percent of DCN’s entire budget and involving political parties and government leaders including former French Prime Minister Edouard Balladur and associates of the current French President Nicholas Sarkozy. In Taiwan alone, investigators have alleged that former French President Francois Mitterand approved payment of US$400 million to the secretary-general of Taiwan’s ruling Kuomintang and another US$100 million went to the Chinese Communist Party’s Central Committee in Beijing.

Although France has continued to stonewall the investigation, a corps of lawyers has been seeking access to DCNS’s books to seek to determine the breadth and depth of the scandal, not just in Taiwan but in several other countries as well. Allegations of kickbacks in Malaysia have been stalled by the Malaysian government. However, a team of three French lawyers headed by William Bourdon has been drawing closer to access to the DCNS files.

In Pakistan a van carrying 11 French engineers supervising the training of Pakistani navy personnel in the operation of DCNS-produced Scorpene submarines was blown up, killing them all along with Pakistani victims as well. Although Pakistani officials blamed Al-Qaeda, there are allegations that the officials themselves were behind the bombing because the French had reneged on a massive kickback to persuade the Pakistanis to buy the submarines.

The changing French political scene may have a bearing on the case, which has received widespread publicity in France despite the efforts to keep it under wraps. François Hollande, 57, won a runoff election Sunday to become the Socialist Party’s presidential candidate to take on Sarkozy in 2013. Sarkozy, whose name has come up frequently in the scandal, already trails Hollande in opinion polls. The president has angrily denied all complicity.

The French defense industry’s often byzantine cross deals and mergers may well have also thwarted efforts to follow the various trails that complex deals have left across the sector. The six frigates at the centre of the lawsuits were built by France’s DCN naval yard, but sold to Taiwan by the French electronics conglomerate Thomson-CSF. Thomson-CSF was subsequently renamed Thales in December 2000.

In March 2007 Thales signed an agreement with DCN that gave Thales a 25 percent stake in the warship builder - leaving 75 percent with the French government - while allowing the shipbuilder to take over many of Thales’ French naval contracts. In April 2007 DCN changed its name to DCNS, apparently to add ‘Systems’ to its brand.

“We are confident of winning arbitration for NT$3 billion in compensation and interest from (DCNS) for its violation of a follow-up contract to provide components and spare parts for the vessels,” Kao told the parliament.

The French government and Thales Group said in June that they would not appeal an international court-ordered fine of €630 million (US$874.6 million at current exchange rates) French Defence Minister Gérard Longuet was reported to have said that: “At Thales’s demand there will be no higher appeal because frankly this affair is not good publicity.”

Taiwanese authorities allege that French state-owned Elf Aquitaine paid bribes through Thomson-CSF to persuade French and Taiwanese authorities to approve the sale of the warships. Taiwan’s original plan had involved cheaper 2,000-ton coastal defense frigates from South Korea. The project was well under way by 1991 when it was suddenly dropped in favor of buying the six larger and much more expensive 3,000-ton frigates and equipped with electronic gear built by Thomson-CSF – although, to mollify Beijing, they didn’t include armaments.

A plan to have the frigates built in Taiwan was also scrapped shortly after the deal was signed, and the work was reassigned to France. According to published accounts the case involves allegations of the murders of as many as eight people and reaches up to such luminaries as the late French President Francois Mitterrand as well as the former general secretary of Taiwan's ruling Kuomintang during its previous tenure in power and the Central Committee of the Communist Party in Beijing.

The vast overpricing of the 1991 transaction caught the eye of a Taiwanese naval captain named Yin Ching-feng, who was believed to have been ready to blow the whistle on the case in 1993. Yin's body was found floating in the ocean a few days later. Although Taiwanese officials called the death an accidental drowning, an autopsy paid for by the family discovered his head had been bashed in. Thomson-CSF's Taiwan agent Andrew Wang was eventually charged in absentia with the crime. He has long since disappeared.

Lin's nephew, who was helping Yin to investigate, also died an unusual death, as did a Taiwanese bank official acting for the naval dockyards, according to a book by a French investigating magistrate named Thierry Jean-Pierre. Later, Thierry Imbot, a French intelligence agent who had been following the frigate negotiations for the French secret service, fell to his death from his Paris apartment under suspicious circumstances. A year later, a former Taiwan-based Thomson employee named Jacques Morrison, who told associates he feared for his life because he was a witness to the talks, also fell or was pushed to his death.

Taiwan’s Deputy Defense Minister Chao Shih-chang denies that his ministry would accept an offer by the French government to upgrade existing munitions or weaponry in exchange for walking away from the settlement, saying that “Mediated solutions are unacceptable in this case,” which must be concluded according to the letter of the law.

Meanwhile, Taiwan’s State Prosecutor-General Huang Shih-ming said he will ask Swiss authorities to continue to freeze Swiss bank accounts by Andrew Wang. A local task force reportedly set the value of those assets at US$700 million in March 2009, down from US$900 million before the global financial crisis. Swiss authorities have promised that they will continue to freeze Wang’s funds until Taiwan’s judicial system makes a final judgment.