The March 8 announcement by India's Defense Ministry blacklisting state-owned Israel Military Industries, along with five Indian and foreign companies, over a 2009 bribery scandal was a major blow to Israel's defense sector, which relies heavily on military exports. The ban from India is for 10 years.
IMI has rejected the Indian allegation it was involved a scandal that centered on Sudipta Ghosh, who in 2009 was director general of India's state-run Ordnance Factory Board.
He was sacked and indicted for alleged involvement in a wide-ranging conspiracy that included receiving bribes from defense contractors in exchange for favoring them in major Indian defense contracts.
The ban on IMI against competing in Indian government tenders could have a significant impact on Israeli defense sales to India, one of the Jewish state's biggest military customers.
Indian news reports stated that IMI has been forced to pull out of a multimillion-dollar plan to establish a factory producing artillery shell fuses. That's believed to be part of a scrapped $24 million deal to set up five plants in India to produce 155mm B-Modular Charge systems and other propellant charges for large-caliber artillery operated by the Indian army.
Israel's Defense Ministry, which oversees all military-related export contracts, has decreed that all Israeli companies sign on to the compliance program in line with stricter business regulations Israel's trying to adopt as a new member of the Organization for Economic Cooperation and Development. Israel joined the OECD in 2011.
The ministry's director general, Udi Shani, has ordered its Export Licensing Division not to issue export permits to companies that refuse to adopt the new program on ethics and transparency.
The ministry said that several dozen Israeli companies have already agreed to adhere to the policies of the new program, while others were in the process of doing so.
Israel's defense industry, the most advanced in the Middle East and with close ties with the U.S. defense establishment, is a major revenue earner. It's chalked up billions of dollars in arms sales to put Israel in the front rank of the world's defense exporters.
But there have long been concerns the ministry has kept Israel's scores of arms exporters and arms traders on a very loose leash.
Prominent military and intelligence commentator Yossi Melman observed in exposing questionable Israeli arms deals in 2004 that these were "a genuine reflection of an unbridled arms export policy by the Defense Ministry."
Melman noted in the liberal Haaretz daily that the Defense Ministry, which has immense power in a state that's in a perpetual state of conflict, "has always had an extremely independent policy, which ignores the existence of the Foreign Ministry."
The defense establishment, which includes licensed arms dealers who work through the ministry, has frequently sold weapons to unsavory regimes to further U.S. or Israeli strategic policies or turned a blind eye to illegal arms sales that further Israeli interests abroad.
"As early as the 1950s," Melman observed, "Foreign Minister Golda Meir complained that Shimon Peres, then director general of the Defense Ministry (and now Israel's president) had kept secret the initiatives carried out in France for acquiring military equipment for the collusion resulting in the Sinai War."
He was referring to the secret pact between Israel, Britain and France to invade Egypt in 1956 to seize control of the Suez Canal after it was nationalized by President Gamal Abdel Nasser.
Melman noted in 2004 that "in practice, there is nearly no oversight" of Defense Ministry arms deals, "neither by the government or the Knesset."
Six years later, he observed in a January 2010 report that seven Israeli arms dealers "are currently in jail in the United States, Russia, France and Britain" on charges of illegal arms dealing. All were former members of Israel's armed forces, and most were officers with ranks up to lieutenant colonel.
"All seven are familiar faces in the corridors of the defense establishment and at one time received arms dealing permits from the Defense Ministry," Melman noted.
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