Coming to Closure on Taiwan's Lafayette Frigate Case

After 10 years, French courts have ruled in Taiwan's favor on a case linked with the 1991 sale of six LAFAYETTE frigates to the Republic of China (ROC) Navy. The contract explicitly restricted payment of commissions, which French parties seemingly ignored.

The damage caused by this case transcended the tragic death of ROC Navy (ROCN) Captain Yin Chin-feng, loss to Taiwanese taxpayers due to inflated pricing, and wrongful charges against a number of senior ROCN officers. The most lasting effect is what is now known as the "Lafayette Syndrome," a deep-seated aversion within the Ministry of National Defense (MND), and especially the Navy, to assume risk in procurement of modern weapon systems.

Regardless, hats off to the ROCN and MND for clearing the decks on the this issue. Too bad those funds couldn't be applied as seed funding to jump start the submarine program! To make that happen, the Obama administration would need the melt the frozen Congressional notification for the submarine design study, which has been held back at the State Department since late 2007/early 2008

More to come on these issues...

Thales Pays Up In Taiwan Frigate Battle

TAIPEI, Taiwan, July 15 (UPI) -- French defense company Thales ended a decade-long legal battle when it wired a court-ordered fine of $875 million into a Taiwan government bank account, the country's Central News Agency reported.

Earlier this month a Paris Court of Appeals ruling confirmed the May 2010 decision of the International Chamber of Commerce's International Court of Arbitration, which ruled in Taiwan's favor over a major frigate contract.

The case involves a 1991 $2.5 billion agreement that Thales made with Taiwan for providing six Lafayette-class frigates.

Taiwan's Ministry of National Defense took the case to the ICC in 2001 for resolution.

The Paris Court of Appeals confirmed the 2010 Court of Arbitration ruling that Thales had violated Article 18 of the Lafayette contract that prohibited payments of commissions to intermediaries.

Immediately after the ruling, a Ministry of Defense official, speaking on condition of anonymity, said Thales must pay arbitration and litigation expenses, a CNA report said.

"We will continue resorting to legal procedures and require the firm to fulfill its obligation," said the official.

Thales, also after the ruling, said in a statement that it had made provisions to pay its 27.46 percent share of the penalty of about $247 million, with the French government responsible for the remainder.

Thales now has paid up, Ministry of National Defense spokesman Lo Shao-ho said. The money, which is in an account owned by the MND, soon will be transferred to the state treasury.

Also, the "commercial dispute" won't affect military cooperation between France and Taiwan, he said.

In the deal, in which the French government played a crucial role, Taiwan's navy bought six Lafayette-class frigates from Thomson-CSF, which became Thales, and the state-owned shipbuilder DCN for $460 million each, nearly double the original budget.

Concern over the deal began in December 1993 when the body of the leader of procurement for the Taiwanese navy, Capt. Yin Ching-feng, was found floating in the sea off the coast of Taiwan. A corruption investigation was started and eventually six former naval officers, including a vice admiral, were indicted in connection with the affair.

In 2001, the Taiwanese authorities filed a complaint alleging that the anti-corruption clauses in the contract had been breached.

French prosecutors investigated claims that bribes were paid in the deal but they were unable to say who might have benefited.

Millions of dollars in illegal kickbacks are believed to be in frozen Swiss bank accounts held by Thomson-CSF's agent at the time, Andrew Wang, who fled Taiwan after the discovery of Yin's body.

Yin is believed to have been ready to blow the whistle on colleagues who allegedly received kickbacks from the Lafayette deal, the CNA report said.

Wang also remains wanted in Taiwan on a charge of killing Yin.

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Latest on Lafayette

AFP carried an article today saying that French prosecutors will be dropping the investigation into allegations of kickbacks related to the sale of six Lafayette frigates to the Taiwan Navy:

Paris prosecutors said yesterday they have called for a seven-year probe into alleged kickbacks paid for the multi-billion-dollar sale of French warships to Taiwan in 1991 to be dismissed without trial.

The office of state prosecutor Jean-Claude Marin confirmed a report in Le Figaro newspaper saying he had requested the case, France's biggest corruption probe in 50 years, to be dismissed for lack of evidence.

French judges wrapped up a five-year investigation in 2005 into alleged kickbacks paid on the sidelines of the deal, but were repeatedly denied access by the government to top-secret defense files at the heart of the case.

The inquiry centers on accusations that a substantial chunk of the US$2.8 billion paid by Taiwan for six French-made frigates went on commissions to middlemen, politicians and military officers in Taiwan, China and France.

Taiwan's highest anti-corruption body has said as much as US$400 million might have been paid in bribes for the warships built by French defense company Thomson-CSF (now called Thales).
Allegations of backhanders emerged after the body of the officer who ran the Taiwanese navy's weapons acquisitions office was found floating in the sea off the island's east coast in 1993. Further suspicions arose when Swiss courts discovered 520 million dollars in accounts held by the businessman Andrew Wang (汪傳浦), the main suspect in the case, who was allegedly tasked with convincing Taiwan to buy the ships.

Taiwan is seeking damages of close to one billion euros from France before an international court of arbitration. It has also sought the return of the US$520 million held on Wang's Swiss accounts, but Switzerland in April rejected the request.

In Taiwan, eight people including Wang have been charged in relation to the scandal. Thirteen officers and 15 arms dealers have already been imprisoned.

The Taiwan frigates affair was also at the origin of a political dirty tricks scandal, known as the Clearstream affair, in which top figures including French President Nicolas Sarkozy - then interior minister - were wrongly accused of receiving kickbacks from the sale.

There's alot more to the story than meets the eye, and it's not clear if the whole story will ever be told. It seems hard to prove guilt with so many rice bowls that could be broken, possible links to campaign financing, and other programs that could be dragged in to the controversy. What's often forgotten is that there were at least three other European-sourced programs going on at the same time - Italian survey ships, German minesweepers, and French Mirage fighters.

The damage from the Lafayette case transcends whatever illegal activity may have taken place. The greatest tragedy was the loss of life. Beyond that, many in Taiwan's defense establishment have become risk-averse, almost to a fault.