Blacklisting threat to UK firm in dam cash scandal

David Pallister
Guardian (U.K.)
July 6, 2002

Balfour Beatty among consortium named in bribery judgment as two year African corruption trial ends in jail for Lesotho chief executive.

A damning account of the way the giant British engineering firm Balfour Beatty paid bribes into a Swiss bank account to get construction contracts emerged yesterday, with the release of the full judgment of an African court which has been investigating corruption surrounding a dam project in Lesotho.

The possibility that Balfour Beatty, along with French, German and Canadian firms, may be blacklisted by international bodies came closer yesterday as a result of the Lesotho judge’s findings.

Some companies are already being prosecuted in Lesotho for their part in the affair, following a two year trial and the jailing of the local chief executive of the dams project for taking more than £3m in bribes.

The World Bank, which last year claimed there was “insufficient evidence” to blacklist the firms, will be forced to look at the issue again.

Britain’s export credit guarantee department, which underwrote £60m worth of guarantees to the UK firms concerned, was yesterday circulating the judgment to its officers. It said it was “monitoring the situation” and that a corruption conviction would be prima facie grounds for refusing a company future backing.

The 200 page judgment by Judge Brendon Cullinan details how the consortium to which Balfour Beatty belonged transferred £123,310 in sterling into a Zurich bank account in three payments.

The money went into an account controlled by Max Cohen, a French agent, who was found to have been the channel for an array of bribes to Masupha Sole, chief executive of the dams project.

The account was in the name of UDC, a Panama company. Panama companies are allowed secret ownership and are a traditional vehicle for corrupt payments, as have also been Swiss banks, with their tradition until recently of impenetrable secrecy.

In finding that Balfour Beatty and the other companies had deliberately entered into a corrupt agreement, the judge stressed that they must have known the payments to Swiss banks involved bribery.

“Clearly the most significant factor is that all payments were effected by the … contractors … through the medium of Swiss bank accounts,” he said.

“What need was there for banking facilities which were nothing less than covert?… None of the contractors were based in or operated out of Switzerland.”

A chunk of the cash paid into Max Cohen’s Zurich account was subsequently transferred into an account at the same UBS branch belonging to Sole. From there it was moved into a bank in South Africa and ultimately into Sole’s pocket in Lesotho.

A particularly embarrassing feature of the case from a British point of view is that bribe cash was profitably lodged to earn interest in the Channel Islands, which have been repeatedly accused of being a haven for dirty money.

Swiss bank records reveal at least one deposit of £63,000 at the UBS branch in St Helier, Jersey, and another of $115,452 at the Jersey branch of the Union Banque Privee.

Balfour Beatty had an approximate 16% share in the consortium. Tim Sharp of Balfour Beatty in London said yesterday that the members had all contributed to make the payments, but they were junior partners to a French firm Spie Batignolles. “Spie ran the contract” he said. “They had the prior relationship with the agents, UDC.”

The consortium had a normal agency agreement, he said. As funds came in from Lesotho to pay for the dam building, a proportion was paid to the agents.

Another UK firm condemned in the judgment is the consulting engineers firm Sir Alexander Gibb, which merged last year into the US firm Jacobs. Gibb was one of the firms exonerated by the World Bank in an internal investigation last year. One payment of more than £22,000 on December 28, 1990 came from the Gibb account at Barclays in London, into UDC’s Swiss bank. Gibb’s main UK office in Reading yesterday declined to comment.

The chief prosecutor in the Lesotho case, Durban-based lawyer Guido Penzhorn, said yesterday that Gibb had been charged and a trial would probably take place next year. He said Gibb’s lawyers had reached a “gentleman’s agreement” with the court for a reputable South African engineer to attend the trial to act as the company’s representative.

“We are really pleased we are making progress,” Mr Penzhorn told the Guardian. “We foresee that the company trials will be over by the middle of next year.”

Power play in the African highlands

The Lesotho Highlands water project is the largest civil engineering feat in Africa. It involves building five dams in the tiny kingdom’s Maluti Highlands over 30 years at an estimated cost of $8bn [about £5.2bn].

The scheme, due to be completed in 2020, is about providing water for South Africa and electricity for Lesotho. About 40% of the water in the Senqunyane river basin will be diverted through tunnels to South Africa’s Ash river and on to the Vaal dam 70 kms south of Johannesburg. The first dam, Katse, on the Malibamatso river, has been built. Muela, the next on the list, will generate electricity.

When the project was conceived in the 1980s, South Africa’s apartheid regime was under international sanctions. To avoid difficulties for the international banks which provided some of the loans, a London-based trust fund was set up to channel the money. Lesotho was the nominal borrower, but South Africa was responsible for repaying the money.

Like all big dam projects, Lesotho’s has been the subject of widespread criticism from environmentalists. More than 24,000 people lost their farms or access to communal grazing land as a result of the first dam. Muela will affect a further 7,400. Critics have pointed to poor compensation, delays in rehousing, exacerbated soil erosion and troubled labour relations.

In 1996, after 2,300 workers were sacked for “illegal striking”, five men were shot dead and 30 injured by police called to evict workers from a site run by the consortium that includes Balfour Beatty.

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