The head of defence group Finmeccanica has been arrested by Italian police over bribery allegations.
CEO and chairman Giuseppe Orsi was taken into custody today over bribes allegedly paid to secure the sale of 12 helicopters to India, when he was head of the group's AgustaWestland unit, according to a judicial source.
Police were searching Orsi's home and the offices of AgustaWestland, the Anglo-Italian helicopter company, close to Milan, a source close to Orsi's lawyer said. The Milan offices of state-owned Finmeccanica were also searched, according to the judicial source.
An Indian defence ministry source said kickbacks worth 40 million rupees (£398,000) allegedly paid to Indian officials to grease contracts for Finmeccanica were being probed and that Delhi was considering the deferral of the Finmeccanica helicopter deal, worth €560m (£470m).
Highlighting the political sensitivity of the Finmeccanica case ahead of national elections on 24 and 25 February, Prime Minister Mario Monti said the Italian government would deal with management issues at the company.
"There is a problem with the governance of Finmeccanica at the moment and we will face up to it," Monti told RAI state television.
Orsi, a long-serving defence industry executive, has always denied any wrongdoing with regard to the corruption probe, which has been going on for a year.
A statement from Finmeccanica said: “With reference to the precautionary measures issued today towards the chairman and CEO of Finmeccanica and the CEO of the controlled company AgustaWestland, Finmeccanica confirms that the operating activities and on-going projects of the company will continue as usual.
“In addition, Finmeccanica expresses support for its chairman and CEO, with the hope that clarity is established quickly, whilst reaffirming its confidence in the judges.”
Besides Orsi, three other people have been placed under house arrest as part of the probe, including AgustaWestland chief Bruno Spagnolini.
Finmeccanica shares were down 8 per cent by 1055 GMT, while its rail technology unit Ansaldo STS was down 3 per cent.
The company is currently carrying out a tough restructuring and being excluded from the growing Indian market could be a major headache for the group, which faces defence budget cuts in its main Italian, British and US markets.
Under Indian defence procurement rules, companies found to have been involved in corruption can be punished with blacklisting and fines, an Indian defence ministry source said.
Orsi's arrest also risks derailing Finmeccanica's plans to sell its non-core energy and transportation assets, something the company wants to do to avoid further downgrades of its credit ratings.
In January, Standard and Poor's downgraded Finmeccanica to "junk" status after the group missed its target for €1bn of asset sales by the end of 2012 and the group has put up for sale its AnsaldoEnergia power engineering unit and its rail units Ansaldo Energia and Ansaldo STS.