Questions mount over Bombardier's deals with notorious Gupta family

Four years ago, a senior executive of Bombardier Inc. flew to Johannesburg to negotiate a deal with Ajay Gupta, the eldest of the powerful Gupta brothers, whose business empire was closely linked to the family of Jacob Zuma, president of South Africa at the time.

It was a successful trip. Bombardier sold a US$52-million luxury jet to the Guptas, financed by a US$41-million loan from Canada's export credit agency, and the sale was followed later by discussions on a second aircraft deal.

But today, Ajay Gupta is a fugitive from justice, dodging an arrest warrant from the South African police. Canada's export bank is trying to repossess the Bombardier jet, but cannot find it. And Mr. Zuma, facing a mountain of Gupta-related corruption allegations, has been forced to resign.

As the criminal and judicial investigations into the corruption scandal widen, The Globe and Mail has obtained new information that raises further questions about the relationship between Bombardier and the Guptas.

A leaked e-mail from Bombardier to Ajay Gupta in 2014 suggests Bombardier wanted to expand its Gupta business into other industries. A spokesman for Bombardier says the e-mail was purely a courtesy, but some South African politicians and anti-corruption activists have asked whether the Canadian company was using the aircraft deal to seek an advantage on a massive South African locomotive contract that it later obtained from a state company controlled by Gupta allies.

The Globe has also interviewed a businessman who says he attended a meeting in which Gupta representatives demanded a discount on a Bombardier aircraft in exchange for the locomotive contract. Bombardier says it has no record of such a meeting.

South African police have confirmed that they have issued an arrest warrant for Ajay Gupta, although they have not yet disclosed what criminal charges it contains. The media have reported that arrest warrants have been issued for all three Gupta brothers, who are believed to have fled the country.

In mid-February, after a police raid on the Johannesburg mansion where the Gupta brothers lived, five senior executives in Gupta-owned companies appeared in court on fraud charges. Prosecutors have frozen some of the Guptas' assets and bank accounts in a widening criminal investigation into allegations that the Guptas and their associates stole US$20-million in government funds that were intended for impoverished farmers.

The Guptas, long-time business partners of Mr. Zuma's son, are the main focus of a judicial inquiry into state corruption that will begin later this year. An earlier investigation by a South African ombudsman, the Public Protector, heard testimony that the Guptas offered bribes to politicians and used their influence to ensure that their political favourites got cabinet posts.

The Guptas are also facing investigations by the police, by parliamentary committees and by the state-owned enterprises from which they earned millions of dollars from dubious contracts.

The luxury jet

With financial interests ranging from coal mining and computers to uranium and mass media, the Indian-born Gupta brothers – Ajay, Atul and Rajesh – had ascended into the ranks of the wealthiest individuals in South Africa by 2016, according to a survey by a South African newspaper.

The latest investigations – political, judicial and criminal – are bringing new attention to the Gupta family's covert influence over billions of dollars in state contracts from 2012 to 2015, a time when Bombardier sold the luxury private jet to the Guptas and then won a US$1.2-billion locomotive contract from South Africa's state-owned freight company, Transnet.

The Globe and Mail reported last year that Bombardier sold the airplane to the Guptas for US$52-million, nearly 20 per cent below the list price. The Canadian company first offered the discount to the Guptas in February, 2014, just a month before the locomotive deal was announced. Bombardier says the two deals are not connected. It also says the discount was a normal practice in the business-aircraft market.

Leaked e-mails obtained by The Globe show that a vice-president in Bombardier's aircraft division, Trevor Lambarth, flew to Johannesburg and visited Ajay Gupta in early 2014.

Shortly after the meeting, a Bombardier sales director contacted the Guptas to offer them a Global 6000, the company's top-of-the-line corporate jet. He promised to help them secure "the best-priced Global in the market."

In an e-mail to Ajay Gupta on Feb. 18, 2014, Mr. Lambarth laid out the terms of Bombardier's aircraft offer. In addition to the discounted price, he offered two credit memos, worth US$1.35-million, and free training sessions for the jet's pilots.

Perhaps most crucially, he assured Ajay Gupta that there were "suitable finance offers" to ensure that the Guptas would not need to provide cash for most of the purchase price. Bombardier then persuaded the federal government's export bank, Export Development Canada (EDC), to provide a loan to the Guptas for 80 per cent of the jet's price.

Bombardier, however, was interested in more than just aircraft business with the Guptas. At the end of his e-mail, Mr. Lambarth suggested Bombardier could co-operate with the Guptas in the infrastructure sector if the jet deal was completed. "We hope that a successful conclusion will lead to further opportunities for our organizations to explore working together, whether on infrastructure or aviation-related business," he told Ajay Gupta.

Bombardier's vice-president of external relations, Olivier Marcil, confirmed the existence of the e-mail in response to questions from The Globe. He said this comment by Mr. Lambarth was "simply a routine, courteous phrase and reflected no concrete plans or implications of any kind."

The locomotive contract

Almost exactly a month later, on March 17, 2014, Transnet announced that Bombardier would receive one-quarter of one of the biggest infrastructure contracts in South Africa's post-apartheid history: a US$5-billion contract to supply 1,064 locomotives. The contract was partly financed with a US$450-million loan from Export Development Canada.

The price of the locomotive contract was dramatically larger than earlier estimates. The contract – which was divided among Bombardier, General Electric and two Chinese companies – was almost 40 per cent more expensive than the amount recommended by an independent consultant, McKinsey & Co., just a few months earlier.

Asked about the price increase, a Bombardier spokesman said the locomotive price was adjusted purely because of "commercial conditions" Transnet imposed.

South African media, citing leaked e-mails from the Guptas, have reported that a Gupta-linked company received about US$320-million in "consulting fees" as part of a Chinese company's share of the locomotive deal. These fees amounted to 20 per cent of the value of the Chinese share of the contract, the reports say.

Investigations by South African media and independent inquiries have documented how Transnet had fallen under the heavy influence of the Guptas by 2014. At the time of the locomotive contract, the Guptas enjoyed substantial power over Transnet through their allies on the company's board of directors and the highest ranks of its management.

Brian Molefe, a prominent friend of the Guptas, was appointed as Transnet's chief executive officer in 2011. He remained at Transnet until March of 2015, when he moved to a similar job at Eskom, the state-owned electricity monopoly.

An investigation in 2016 by South Africa's Public Protector, a constitutionally empowered anti-corruption watchdog, concluded that there was evidence of a long-standing "cozy relationship" between Mr. Molefe and the Guptas. In a detailed report on Gupta-related corruption allegations, the Public Protector described a "firm line of communication" between Mr. Molefe and Ajay Gupta. This included 58 phone calls between the two men from August, 2015, to March, 2016, along with many other phone calls and text messages between Mr. Molefe and other executives in the Gupta business empire.

Within days of the report disclosing his Gupta connections, Mr. Molefe resigned from Eskom.

Another key official in the locomotive deal was Transnet's chief executive officer, Anoj Singh, a member of the contract negotiation team. He later moved with Mr. Molefe to Eskom. At a parliamentary inquiry last month, the inquiry's leaders confronted Mr. Singh with documents showing that the Guptas had regularly paid for his US$475-a-night room at the luxury Oberoi hotel in Dubai in 2014 and 2015, along with massages and meals at the hotel, often on days when the Guptas were also there.

Opposition MPs have accused Mr. Molefe and Mr. Singh of corruption, which they deny. The MPs have alleged that the two men helped the Guptas make huge profits by gaining control of a coal company and then winning lucrative coal contracts from Eskom.

Mr. Molefe and Mr. Singh were key decision-makers on the locomotive contract at Transnet in 2014, although media reports have also identified several other Transnet board members and executives as associates of the Guptas.

David Fine, a senior partner at McKinsey, which had been hired by Transnet, produced the original calculation in 2013 that the locomotives could be bought much more cheaply. He told the parliamentary inquiry that he asked Mr. Singh for an explanation of the higher price in 2014, and Mr. Singh replied that the increase was due to "funding costs, exchange rates and inflation." Mr. Fine's original estimate had included those factors.

'The shock of my life'

The Gupta influence over rail contracts can be traced back to 2012. At that time, Transnet and the Passenger Rail Agency of South Africa (PRASA), were separately beginning processes to procure new locomotives and coaches. These were ambitious multibillion-dollar contracts at a time when the Guptas were beginning to exercise influence over both of the state-owned agencies.

Lucky Montana, former CEO of PRASA, testified to the parliamentary inquiry on Jan. 30 that he knew that the Transnet locomotive contract would be corrupt as soon as he learned that Gupta associates were involved. "I had no doubt that the books would be cooked," he told the inquiry.

In September of 2012, he said, he was approached by Rajesh Gupta and Mr. Zuma's son, Duduzane, a long-time business partner of the Guptas. Meeting him at the home of South Africa's Transport Minister, they told him they wanted a slice of the contract to supply rail equipment to PRASA. Bombardier was among the front-runners at that point.

Shortly afterward, Mr. Montana attended a major rail conference in Berlin. He testified that a number of train manufacturers complained to him there that the Guptas were extorting money from them.

He said the manufacturers told him the Guptas claimed to represent Mr. Zuma and other senior officials, and they instructed the manufacturers to pay money into a bank account in Dubai if they wanted the PRASA contract. The manufacturers also said they were summoned to a meeting in Zurich to meet a Gupta associate to discuss the details of the kickback deal.

"It was the shock of my life," Mr. Montana told the inquiry. "I was so furious."

In separate testimony, former transport minister Ben Martins confirmed that Mr. Montana had told him the Guptas were demanding money from the manufacturers.

Mr. Montana and Mr. Martins both testified that they reprimanded Rajesh Gupta and Duduzane Zuma for their conduct – but did not report them to the police or other authorities.

"They were arrogant," Mr. Montana testified. "They even suggested that I could work with them and get my money in Dubai as well. I made it clear that what they were doing was unlawful and that they could not collect monies in our names."

The Guptas wanted a Chinese supplier to win the PRASA contract, and they accused Mr. Montana of favouring Bombardier, he testified. "I rejected the accusation very strongly."

After the meeting, he said, a Gupta associate gave him a cheap anonymous cellphone to use for discussions with the associate about the Chinese supplier, but he refused to use it.

The Guptas then pushed aggressively for the appointment of a new board of directors at PRASA to ensure that the contract would be awarded to the Chinese. In the end, the contract went to a French-led consortium, which sparked fury from the Guptas and several senior South African officials, Mr. Montana said.

The train manufacturers are "not innocent" in these contracts, Mr. Montana testified. He said they routinely include a "marketing fund" in their contract bids. "It's about paying bribes."

Mr. Montana's testimony about a Gupta-organized meeting with rail manufacturers in Zurich in 2012 matches a similar account by a South African businessman who spoke to The Globe last year.

The businessman, who owns a well-established South African company, said he was invited to a meeting between Bombardier, Transnet and Gupta associates in Zurich in the fall of 2012 and heard some eye-opening demands from the Gupta associates.

The businessman does not want to be identified publicly because he could lose his government contracts – a substantial portion of his revenue. But he has given the same account of the Zurich meeting, consistent in its details, to several people in South Africa over the past two years. He told The Globe he wants the Zurich meeting to be exposed because of his concern about the Guptas and their relationship with the government.

At the Zurich meeting, he said, the Gupta associates told a Bombardier executive that the Canadian company had lost an earlier locomotive contract in South Africa because it was not connected to the "right crowd." He said they told Bombardier that they controlled the procurement budget of several state-owned companies, including Transnet, and they wanted a commission worth 20 per cent of the value of the Transnet locomotive contract in exchange for funnelling the contract to Bombardier.

The Bombardier executive was shocked, he said, describing him as nearly falling off his chair at the demand and insisting it was impossible. According to the businessman, the Gupta associates then asked for a substantial discount on a luxury jet from Bombardier's aviation division in exchange for the Transnet contract. He said the Bombardier executive did not accept or reject this proposal at the Zurich meeting.

The Guptas did not respond to messages from The Globe seeking comment on these allegations.

Bombardier officials, responding to questions from The Globe, have said that they cannot find any record of the Zurich meeting. They deny any influence by intermediaries in the Transnet contract.

"Bombardier Transportation was awarded Transnet's contract following an open and proper competitive process," said Mr. Marcil, the Canadian company's vice-president of external relations. "Bombardier Transportation won that contract solely on the basis of our proposal, which included fair pricing and our unmatched technical ability to deliver a high-quality product and fully meet the local content requirements."

On the question of the Zurich meeting, Mr. Marcil said rail manufacturers "meet with hundreds of people in trade shows, in both formal and casual settings with potential clients, transit authorities, current or potential investors" and it would be irresponsible to "draw any conclusions from these possible encounters."

He said Bombardier's code of ethics is one of the strictest in its industry. "Bombardier has zero tolerance for unethical or improper behaviour in our business dealings," he said. "We do not participate or tolerate any sort of kickback schemes in any market where we are conducting business or operations. When we confront these circumstances on occasion, we reject and report them."

Multiple investigations

About 18 months after the Zurich meeting, Bombardier met the Guptas in Johannesburg and formally offered the discount on the luxury jet. That deal was finalized in early 2015.

The 13-passenger intercontinental jet, officially registered as ZS-OAK in honour of the Gupta holding company Oakbay Investments, has become a symbol of the wealth and influence of the Guptas. The jet has gained notoriety in the South African media for its many trips from Johannesburg to Dubai and Zurich, often with cabinet ministers or other state officials on board.

More than a year after the aircraft deal, according to the leaked e-mails obtained by The Globe, Bombardier was negotiating the sale of a second jet to a prominent Gupta associate. The second jet was also a Global 6000, although the price is not known. The e-mails suggest the second jet was to be acquired by Salim Essa, a senior Gupta lieutenant. But the deal fell through for unknown reasons.

Despite Bombardier's repeated insistence that its conduct was above board, the locomotive contract is already included in the scope of several South African investigations and is likely to be included in others.

Transnet is conducting its own internal investigation of all media reports of alleged kickbacks in its procurement processes, including the reported "consulting fees" from the Chinese company in the locomotive deal. It says it views the allegations "in a serious light" and vows to take "corrective measures" if there was any misconduct.

In a separate review, Transnet hired a law firm to investigate a number of contracts, including the entire 2014 locomotive contract that was divided among Bombardier, General Electric and the Chinese companies.

In mid-February, Transnet said the law firm's locomotive investigation was still "incomplete." It said it would refer the issue to the judicial inquiry into state corruption. But a cabinet minister, Lynne Brown, ordered Transnet to report the law firm's findings to law-enforcement agencies.

A parliamentary committee, meanwhile, plans to investigate the locomotive contract because of reports that the suppliers failed to meet their promises to procure local components for the locomotives.

Dean Macpherson, a parliamentarian from the opposition Democratic Alliance, is a member of a parliamentary committee that is probing the locomotive deal. He wants the committee to investigate the possibility of a link between the Transnet contract and the Gupta jet acquisitions from Bombardier.

"I have no doubt that there could be a link there," he told The Globe. "I want that information, I need that information, to assist our investigation."

The Public Protector's report in 2016 called for a judicial inquiry into the allegations of corruption involving the Guptas and state-owned enterprises such as Transnet and Eskom. For more than a year, Mr. Zuma used legal tactics to stall the recommendation, but in January he agreed to authorize the judicial inquiry, which will be headed by the deputy chief justice of South Africa's highest court.

The Public Protector's office recommended in January that the judicial inquiry should examine the alleged kickbacks by the Chinese manufacturer in the Transnet locomotive deal. It also urged the inquiry to examine all "role players" in the entire locomotive deal.

Other investigations are also likely. Ms. Brown, who was minister of public enterprises until a recent cabinet shuffle, said on Jan. 30 that she has asked Mr. Zuma to accelerate the authorizing of an investigation into Transnet and Eskom contracts by the Special Investigating Unit, a state agency that has the power to recommend criminal charges.

David Lewis, executive director of Corruption Watch, an independent non-profit watchdog that has been providing evidence for South African and international investigations into Gupta-related allegations, says Bombardier is among the many companies that should be investigated.

In an interview, he told The Globe that the e-mail from the Bombardier executive to Ajay Gupta – which suggested that the Guptas could work together with Bombardier on infrastructure business if the aircraft deal is finalized – is a "smoking gun" that should be investigated.

He said the "modus operandi" of the Guptas in all of their South African deals, including the locomotive contract, was to insert themselves as an intermediary between the state-owned enterprise and its suppliers.

"It all looks too familiar," he said. "So often a facilitator is part of the business. It's consistent with the way the Guptas have done business."