Submarine fraud scandal continues

By CHRIS GRAEME [email protected]

A German engineering company at the centre of a 34 million euro fraud allegation scandal linked to the purchasing of two submarines says it may go to arbitration to settle the case.

At the beginning of October, two executives from MAN Ferrostaal, the company heading the German Submarine Consortium making the submarines for Portugal, denied vehemently that they had swindled the Portuguese State out of 34 million euros and had deliberately falsified documents and invoices to make offsets linked with the submarine deal appear like fresh deals they had arranged as per the contract.

Offsets are common practise in billion euro construction and military hardware deals where the winning consortium promises, in a separate contract, to use its leverage within its own group and other companies to arrange secondary business deals and investment up to the same amount of the core project in the country being invested in.

However, the Public Ministry accuses three Man Ferrostaal executives, including its Vice President, Horst Weretecki, of palming off pre-existing projects at shipyards and in the automotive industry and other areas, which it had nothing or little to do with arranging, as their contractual offsets.

Now the Portuguese State wants to renegotiate the entire offset contract, while the company refuses, saying it will go to arbitration to settle the matter.

The storm relates to the purchase of two German submarines for 1.2 billion euros from the German Submarine Consortium in 2004 when Paulo Portas was Minister for the Defence during the Durão Barroso PSD government.

The first of these submarines is expected to arrive before the end of this year and the State will take delivery of the second in 2010.

In an interview last week, Horst Weretecki, one of those accused of fraud, denied the company had paid 104,000 euros in dubious ‘compensation commissions’ to a Portuguese holding group Acecia and also claimed that the Portuguese did not understand the definition of offsets.

When asked why Portuguese companies needed to deal with Man Ferrostaal through its Portuguese partners for business deals that were already up and running, or completed, and which it had nothing to do with, the Vice President said to “protect them for the future” so that buyers didn’t “relocate to Eastern Europe”.

“We are protecting them in terms of continuity. Of course they made new contracts and lost some, and above all, we brought in new ones (contracts). We brought in new clients (to work alongside) German companies,” said Horst Weretecki in an interview with Público.

The Portuguese State through its Permanent Offsets Commission claims that the German Submarine Consortium has only fulfilled a part percentage of the offsets it had promised in the contract, which varies between 15.25 and 30 per cent.

The Germans claim, for their part, that the Permanent Offsets Commission has changed as an entity over the past few years and has done nothing to help it fulfil its offset obligations.

The case looks set to be settled in arbitration and the three German ‘arguidos’ say they have yet to be officially notified of their status by Portuguese prosecutors.