UPDATE 3-Finmeccanica head arrested over India bribe allegations
* CEO of Italian defence company arrested over India probe
Finmeccanica expresses backing for its head Orsi
* Italy faces series of corruption scandals before poll
By Emilio Parodi and Stephen Jewkes
MILAN, Feb 12 (Reuters) - Italian police arrested the head of defence group Finmeccanica SpA on Tuesday over bribery allegations, adding to a series of corporate scandals shaking Italy less than two weeks before a general election.
Finmeccanica Chief Executive and Chairman Giuseppe Orsi was arrested over bribes allegedly paid to secure the sale of 12 helicopters to India, when he was head of the group's AgustaWestland unit, a judicial source with direct knowledge of the situation told Reuters.
Police were searching Orsi's home and the offices of AgustaWestland close to Milan, a source close to Orsi's lawyer said. The Milan offices of state-owned Finmeccanica, Italy's second-biggest corporate employer after Fiat Spa, were also searched, the judicial source said.
An Indian defence ministry source said kickbacks worth 40 million rupees 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 560 million euros ($749.2 million).
The Italian business world has been shaken in recent weeks by a series of corruption cases, notably a derivatives scandal at Italy's No. 3 lender Banca Monte dei Paschi and a probe into alleged bribery over contracts in Algeria that has hit oil major Eni SpA and its 43-percent owned oil services group Saipem SpA.
Highlighting the political sensitivity of the Finmeccanica case ahead of national elections on Feb. 24 and 25, 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.
In a brief statement, Finmeccanica expressed its support for Orsi and said it hoped his legal position could be clarified as soon as possible. Its business was operating as normal in the meantime, the company added.
The company's board could broaden the powers of Chief Financial Officer Alessandro Pansa to help manage the company, sources close to the matter said.
The wave of corporate scandals has become an issue in Italy's parliamentary election campaign. Orsi's appointment to lead the indebted defence group in May 2011 was backed by the Northern League party, an ally of then Prime Minister Silvio Berlusconi.
Centre-left politicians had called for Orsi to step down when he was first targeted in the corruption probe.
"Some of the parties clearly have an interest in playing the justice card for political capital in view of the vote," said Stefano Zamagni, professor of economics at Bologna University.
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 percent by 1055 GMT, while its rail technology unit Ansaldo STS was down 3 percent.
Concern has been growing that the corruption probes could tarnish Finmeccanica's reputation and distract management while the company is carrying out a tough restructuring.
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 U.S. 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.
India, currently the world's largest weapons importer, has a history of corruption in defence deals. A multi-million dollar scandal in the 1980s over the purchase of Swedish Bofors artillery guns contributed to an electoral defeat for then Prime Minister Rajiv Gandhi of the Congress party.
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.
The group has put up for sale its AnsaldoEnergia power engineering unit and its rail units Ansaldo Energia and Ansaldo STS.
In January, Standard & Poor's downgraded Finmeccanica to "junk" status after the group missed its target for 1 billion euros of asset sales by the end of 2012.