The Karachi affair (), otherwise known as Agosta Submarine scandal, was a major military scandal that took place in the second administration of Prime Minister Benazir Bhutto, involving the presidencies of François Mitterrand and Jacques Chirac in 1992–97.
The scandal involved the payment of massive commissions and kickbacks between France and Pakistan over the negotiations to acquire Agosta 90B-class submarines. The submarines utilized the emerging air-independent propulsion (AIP) proprietary designs, which Pakistan was eager to acquire over the nuclear submarines.
In 1992, the Benazir government began negotiating with French President François Mitterrand to procure the designs for the expensive and complex submarine, eventually signing the contract in 1994 for a sum equivalent to €826 million ($996m). Negotiations and the decision-making for defense procurement with France was extremely controversial, with the United Kingdom later entering in the competition by offering its four Upholder-class submarines, which were being decommissioned from the military service with the Royal Navy.
The Pakistan Navy NHQ wanted to procure the four used British-manufactured diesel-electric Upholder-class submarines, which were already available and at a lesser cost than newly build Agostas, which were still in the prototype phase, and would have taken years to manufacture and deliver. Nonetheless, the Benazir administration selected the Agosta, taking advantage of the lucrative financial credits provided by France.
Commissions of 6.25% of the contract, approximately €50 million, were paid out to the lobbying firms in Pakistan and France. Some €50m were allegedly paid as "sweeteners" to various senior Pakistan Navy admirals and officers as well as the political leaders. In 1996–97, the Naval Intelligence led by its Director-General, Rear-Admiral Tanvir Ahmed, secretly launched its investigations into this matter and began collecting physical evidence that eventually led to the exposure of Chief of Naval Staff, Admiral Mansurul Haq, in receiving massive monetary commissions in 1997. Massive media coverage and the news of the dismissals of one and two-star admirals tarnished the image of the Navy, with Admiral Fasih Bokhari, who took over the command of the Navy from Admiral Mansurul Haq, forced to attempt damage control of the situation.
In 1990s, it was legal in France to award monetary commissions and kickbacks to the political lobbyists involved in the bilateral deals until France began partied and ratified the OECD Convention that led to the outlawing the practice of awarding monetary commissions in 2000.
Since its exposure in the news media of both France and Pakistan, the scandal has been involved in various investigative journalism and attracted sensations and conspiracy theories in both countries, including this scandal's allegement of financing the political campaign of then-Prime Minister Edouard Balladur in the presidential elections took place in 1995. Upon electing President Jacques Chirac cancelled the commissions and kickbacks, angering many officials in Pakistan and France according to the media reports. Other theories and subsequent investigative journalist reports alleged that the bus bombing on 8 May 2002 in Karachi that killed eleven French engineers in Karachi was in retaliation for the cancellation of these commissions.France: Investigation of 2002 Karachi bombing implicates Sarkozy This theory was rejected by the Government of Pakistan when the FIA and the CID made potential discovery in linking the HuM and the al-Qaeda had carried out the terrorist attack in Karachi, mistaking the French nationals for the Americans.
Background Negotiations and procurement
Plans to replace the ageing Hangor-class diesel-electric submarines with nuclear submarines were aggressively pursued by then-Chairman of the Joint Chiefs of Staff Committee Admiral Iftikhar Ahmed Sirohey as a counter to Indian Navy activities in 1990. The motivation for procuring nuclear submarines was partly due to the Indian Navy's lease of the ageing K-43, a Charlie-class submarine, from the Soviet Union in 1990, and Chairman Joint chiefs Adm. Sirohey had been negotiating with the Chinese Navy to acquire the short-term lease for the submarine, Han. Pakistan abandoned talks with the Chinese Navy after the Indian contract with the Soviet Union was terminated over training issues and restrictions on Indian sailors accessing the missile control room and reactor compartment of the Charlie-class submarine.
In 1990, Pakistan entered in negotiation with Sweden, China, and France over the procurement and acquisition of submarines with air-independent propulsion as a substitute for nuclear-powered submarines. Sweden offered their Gotland-class submarines with an AIP technology, while China offered the diesel-electric, Type 035 submarines at a price tag of $US 180 million, which was $US 83 million cheaper than the French submarines. The Chinese offer was rejected partly due to Navy exploring the idea of acquiring AIP technology, despite the fact that more Chinese submarines were available to buy. Due to the expensive procurement of the Gotland class and that the Type 035 was comparatively outdated, the Navy abandoned their talks with Swedish and Chinese governments, and consequently the Pakistan government entered talks with the French government.
Upon hearing the news in 1992–93, the Chinese government reportedly offered to sell off their Han-class nuclear submarine at price tag of $63 million USD, which Pakistani war strategists were less enthusiastic due to the submarine's noise and performance as they view it as "less tactical advantage" for Pakistan.
Eventually, Pakistan entered in negotiation with France over the procurement of the Agosta-90Bravo submarines after the French designer, the DCNS, presented the Agosta 90B prototype in 1992. At this time, the personal connections between Chief of Naval Staff Admiral S. M. Khan and British First Sea Lord Admiral of the Fleet Sir Julian Oswald resulted in the British government selling the Type 21 frigates to Pakistan in 1993–94.
Learning that Pakistan was in the market for submarines, the Royal Navy entered in the competition by offered their four Upholder-class diesel-electric submarines to the Pakistan Navy, an offer which was favored by the naval chief Adm. S.M. Khan, who began lobbying for the British submarines over the French submarines.
The United Kingdom formally entered in the competition with France in 1993–94, offering their four British manufactured Upholder-class submarines, which were available to immediate transfer for a much lower price than the French offer. Although Admiral Khan favored procuring the British submarines, his Vice Chief of Naval Staff Vice-Admiral A. U. Khan had provided strong lobbying in the government of procuring the technology and proprietary designs of Agosta submarine from France rather than procuring the readily available British submarines. There was a strong lobby for French technology over the British technology, Rear-Admiral Fasih Bokhari, DCNS (Supply) and Rear-Admiral Aziz Mirza, then-Additional Secretary at the Ministry of Defense (MoD) also favored acquiring the Agosta 90Bravos over the Upholders.
When the retirement of Admiral S.M. Khan was confirmed in 1994, Aftab Mirani, the Defense Minister in the Bhutto government informed Adm. Khan that the final decision was for the acquisition of the French technology over the British second-hand submarines.
Intermediaries, commissions, and kickbacks In 1993, the Benazir government had been considering acquiring and commissioning the four diesel-electric Upholder-class submarines from the United Kingdom, which were made available after Pakistan had bought the Amazon-class frigates and commissioned them into the Pakistan Navy as the Tariq class in 1994.
With the Chief of Naval Staff Admiral S.M. Khan lobbying for the Upholder-class boats, which were available at a much lower price and in greater numbers than the French offer, others in his naval staff, including Vice Chief of Naval Staff (VCNS) V-Adm. A.U. Khan and R-Adm. Fasih Bokhari, the DCNS (Supply), who were submariners by profession and had trained in the French-built Hangor-class submarines, were on the idea of utilizing the air-independent propulsion technology that French Navy were offering.
Nonetheless, the Navy NHQ recommended that the Finance ministry and the Defence production ministry acquire the Upholder class which were then readily available, for a lower prince while the Agostas had yet to be built, and would have taken years to be delivered.
Upon hearing of the United Kingdom's offer, the French government offered extremely lucrative monetary offers and generous financial credits to the Pakistan government in its annual federal budgets if it selected the Agosta–90Bravo submarines, which had the additional advantage of keeping the "underemployed KSEW in Karachi" in employment and works.Captain Humayun Akhtar "Pakistan's Submarine Dilemma" AsiaPacific Defence Review July 1994 p. 3
Despite the strong political opposition by India over this deal in 1994, French President François Mitterrand and Prime Minister Benazir Bhutto signed off a submarine procurement deal that was initially budgeted at $520 million but the programme of technology transfer cost $950 million, for which France first provided loans that were to be paid in five to six years.
In 1994, the French government awarded the defence contracts to DCNS, Thales, Dassault Systèmes, as the French Navy's Forces Sous-marines took the responsibility of providing training to Pakistan Navy's submarine command (SUBCOM). In Pakistan, the entire contract was awarded to KSEW by the Government of Pakistan, that opened the employment opportunities in self-sustainability while issuing major tender offers to unemployed heavy machine industry, as private accounting firms were hired as civilian defense contractors to oversee the accounting and finances.
In 1994–96, the French government paid large amounts of commissions and kickbacks paid in Euros to lobbying firms in Pakistan and France as part of the common practice— a practice that the Pakistani government also followed to award commissions paid in Pakistan Rupees to naval officers and political figures to maintain the support of the program despite its cost. This policy was intended to "convince" political leaders and military officials, but such practices were declared illegal in France until the signing of the OECD Convention against Corruption in 2000.
The French state-owned consortium, the SOFEMA, channeled money to political and military officials through front companies and individuals in Pakistan and France. The names of the recipients are still kept as secret but the amounts are known and were reported to the French Ministry of Finance and Pakistan Ministry of Finance in 2000, as these commissions are 6.25% of the contract amount. The French newspaper, Libération, revealed that payments of SOFEMA continued until 2001, when they were stopped by former French President Jacques Chirac.
Naval Intelligence and sting operations