Foreign Aid

The World Bank and Satyam: A match made in heaven

Brady Yauch
January 14, 2009

The cooked books at Satyam rocked India’s internationally-praised IT industry. But the problems at Satyam have also made their way onto the shores of World Bank—causing the agency to bar the company from bidding on projects for eight years.

The case stretches back to 2003 when the World Bank signed a 5-year, $10-million contract with Satyam to develop and implement an IT strategy at the World Bank. As part of the contract, the company would also be responsible for the software and maintenance requirements of the project. Like many projects funded by the World Bank, the work with Satyam eventually cost much more than anticipated, coming in at $100-million—but it could be much more, as the bank has been reticent in releasing details.

In 2005, the banks internal investigation unit—known as INT—began looking at the activities of the bank’s chief information officer, the Sri Lankan Mohamed Vazir Muhsin [PDF] .  The bank was looking into whether Mr. Muhsin had intervened in the awarding of the contract—making sure it went to Satyam—and bought shares in the company before the deal went through. The bank concluded that Mr. Muhsin did not, indeed, play by the rules, saying he had, “ personally intervened” in the awarding of the contract.

Worse still for Mr. Muhsin (and the Bank), the team discovered, “reasonably sufficient evidence showing that [Mr. Muhsin] purchased some of the shares of stock under preferential terms.”

The Bank finally reached its judgment concerning Mr. Muhsin’s dealings with Satyam at the beginning of 2007.To date, Mr. Muhsin. denies the charges.

The INT also took the unusual action of bringing the case to the attention of the U.S. Justice Department, which according to the Wall Street Journal, has “met with persistent internal resistance by the bank bureaucracy” in its own investigation. The Bank refused to respond to the WSJ’s request for documented evidence of its dealings with the Justice Department.

But, through all the investigations and problems with the Bank’s business dealings with Satyam, the Bank never severed its relationship with the company. Instead, it waited until February of 2008 to temporarily suspend Satyam from doing business with it [PDF] — and waiting another two months to actually remove Satyam employees from the bank’s premises.

Satyam was finally debarred in September of 2008 [PDF] , but no announcement was made of the decision until December—and only after the press ran reports about it. A spokesperson from the Bank says they didn’t publicly announce the debarring of Satyam, as its policy prevents it from disclosing the identity of companies with which it directly contracts.

Satyam wasn’t the only company to suffer debarment from the World Bank, as two other Indian outsourcing companies—Wipro Technologies and Megasoft Consultants—also suffered the same fate.

Wipro Technologies was banned in June of 2007 for “providing improper benefits to bank staff.” According to the bank, those benefits included stock offered to Mr. Muhsin. Wipro says it offered—through Mr. Muhsin and staff—shares in the company’s IPO in 2000. Three employees at the bank purchased 1,750 shares for around $72,000.

Wipro claims that if it had known about the bank’s debarment policies, it wouldn’t have offered the shares.

Megasoft Consultants was banned in 2007 for four years, after the officials found that the company participated in a joint venture with internal staff while conducting business with the bank.

Until recently, the World Bank would not routinely disclose the names of companies holding contracts with the bank under its corporate procurement program. The change moves the disclosure practice for companies providing goods and services to the Bank itself in line with the policies governing procurement on Bank-financed projects in the developing world.

Categories: Foreign Aid, Odious Debts

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