Exclusive: World Bank's Web of Ties to 'India's Enron'

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Exclusive: World Bank's Web of Ties to 'India's Enron'

Monday, January 12, 2009

By Richard Behar

Experts are calling it "India's Enron Moment," the biggest accounting
fraud ($1 billion) and corporate governance failure in the nation's
history.

But as investigators start sifting through the financial implosion of
Satyam Computer Services for more information on the debacle, some of
the most uncomfortable questions can only be answered on H Street in
Washington — inside the marble fortress of the World Bank.

As FOX News revealed in a series of stories beginning last October,
World Bank officials have known for more than three years about
corruption involving the highest corporate levels of Satyam, but they
felt no obligation to the global corporate community to share that
information publicly until late last month.

Now, in the wake of Satyam's implosion — after FOX News's disclosure
on October 10, 2008, that the company had been secretly banished from
doing business at the World Bank in early 2008 — the anti-poverty
institution is once again dribbling out crucial facts.

In what it calls "the interest of fairness and transparency," the bank
late Sunday night officially declared on its Web site that it had
banned Satyam, as FOX News described.

The bank also named two additional high-tech companies that it
debarred in 2007 from receiving contracts under its corporate
procurement program. One of those firms is Wipro Technologies —
India's No. 3 software services provider, with 95,000 employees around
the world — which the bank says it barred for four years for
"providing improper benefits to bank staff."

The second sanctioned firm is a Herndon,Va.-based company called
Megasoft Consultants — the U.S. unit of a company called Megasoft Ltd
that trades on India's Bombay and Madras stock exchanges. The bank
banned it for "participating in a joint venture with bank staff while
also conducting business with the bank."

The bank provided no further details.

Records obtained by FOX News, however, shed additional light on all
three of the World Bank debarment cases, indicating that the affected
firms shared corporate and even personal ties, and in the case of one
firm may even have shared a collusive strategy for retaining World
Bank business.

In a statement today, one of the newly named companies, Wipro — a $5
billion outsourcing behemoth that trades on the New York Stock
Exchange — officially admitted it gave preferential stock to both a
former World Bank chief information officer and another senior staffer
as part, it said, of an SEC-approved program that allows "clients" to
purchase such stock as a way "to expand our recognition and brand."

In an interview published in PC World this morning, a top Wipro
official said the number of shares offered by the company were too few
to amount to an inducement. The ban was prompted by the sale of about
1,750 shares for about $72,000. "It was a goodwill gesture," said
Girish S. Paranjpe, joint CEO of Wipro's information technology
business. Wipro did not reveal the World Bank ban itself, he said,
since it was a World Bank policy not to discuss such investigations.
Once the bank had changed its position, Wipro decided to issue a
statement and clarify, he added.

Documents obtained by FOX News, however, show something Wipro did not
mention: that the shares it provided to the bank officials were
dispensed — just weeks after it first began bidding for World Bank
technology contracts back in September 2000. A World Bank
investigation report on the matter, which outlines the details, has
never been made public.

In the case of Megasoft, FOX has learned that as far back as 2003, a
Megasoft annual report states that the company's founder-chairman,
Ravindra Sannareddy, "has also launched and successfully ran software
services division in U.S. for Satyam Group." In 2004, in a deal that
attracted scant attention, Satyam co-founder Srini Raju — the younger
brother of the firm's chairman, Ramalinga Raju — merged one of his
private Indian companies into Virginia-based Megasoft — which in turn
began receiving World Bank business soon afterward.

The company was used as a vehicle to obtain World Bank contracts after
bank officials had grown concerned that Satyam already had too many
such deals — and some had voiced fears that the bank was becoming too
dependent on the company.

Indeed, according to internal bank sources, Satyam was informed that
it would not be able to bid on many future contracts. By that time,
however, "many contracts that Satyam didn't bid on or get, Megasoft
was getting," a former World Bank anti-corruption investigator told
FOX News.

Then, beginning in 2005, according to well-placed bank insiders,
Satyam began engaging in "body swaps" — where its employees working
inside the World Bank were technically converted into Megasoft
employees. Megasoft's own website states that it has "managed on an
outsource basis" the U.S. division of Satyam.

According to sources reached by FOX News, the World Bank's
relationship with Megasoft was facilitated by Ben Hu, a longtime World
Bank technology official and former commissioner of China's main
securities regulator, who became a director of Megasoft in 2003, at
the same time as he was serving as a World Bank consultant. According
to company records, Hu never attended a Megasoft board meeting. He
left the board in 2007.

FOX News has learned that as far back as 2005 Hu was probed by World
Bank internal investigators in connection with a "sham contract"
performed by Megasoft's China office. The bank has not said whether Hu
himself was banned as a consultant. Hu could not be reached for
comment, but a Megasoft secretary said she would relay the request for
comment to him.

Numerous World Bank sources have told FOX News that over the past
decade — as Satyam's influence and presence grew — the bank slowly
lost control and knowledge about its own computer systems.

As a result of its "strategic partnership,' Satyam became the bank's
near-exclusive software contractor — building and controlling
virtually all of the bank's far-flung global information network,
including its accounting, finance and treasury software systems.
"There were thousands and thousands and thousands of contracts,"
recalls one former World Bank lawyer.

At the same time, Satyam's prestige — and clientele — in the global
corporate sector was also growing. By the time the company imploded in
financial fraud six days ago, it claimed to have more than 150 FORTUNE
500 companies as clients — many of which had entrusted their most
sensitive computer networks to the Indian firm. Satyam's clients
ultimately read like a Who's Who of the global economy: from General
Electric and Microsoft to Citicorp and Nestle, Fujitsu, Dell,
Telestra, Quantas Airways and Merrill Lynch.

As a preferred World Bank vendor, Satyam's bills at the bank got
special treatment. They were fast-tracked through an electronic
invoice system that all but automatically approved all payments
without a lengthy paper trail. That system ultimately made it harder
for bank investigators to follow the money as they tried to trace any
relationships between Satyam's dealings with World Bank officials and
the company's business at the bank.

So deep had the relationship become that last February, World Bank
President Robert Zoellick, according to inside sources, was not able
to get all of Satyam's employees out of the bank as he commanded,
after he was informed that one or more of the company's contractors
had implanted spyware in the bank's systems. The spyware revelations
came as the Bank, according to insider sources, was suffering a series
of external hacker assaults that penetrated some of its most sensitive
computer centers.

When informed of the employee spyware situation, staffers relate,
Zoellick told his deputies, "I want them [Satyam] off the premises
now." But as a bank insider close to the Satyam case told FOX News:
"That was impossible to do. The whole thing would have ground to a
halt. Literally. All the bank offices. Everything."

(After a FOX News report about the assaults, including the accusations
against Satyam employees, on October 14, 2008, both the Bank and
Satyam loudly denounced the revelations as untrue. A top bank security
official restated in December that he was certain that Satyam was not
involved in any way in the breaches. But bank officials decline to say
how they arrived at that conclusion.)

It took seven months of "knowledge-transfer" — including the
conversion of Satyam contract employees into employees of two other
major Indian technology companies, Tata Computer Services and EDS —
before Satyam was shown the door.

The intimacy of the Bank's ties with Satyam were one reason for the
glacial pace of action toward Satyam's improprieties, following a
probe that took three years. (An investigation report was finalized in
the summer of 2006.)

"There was reluctance over the years to go after Satyam," says a
former bank investigator, "because people honestly did not know how to
extricate them from our system. We had no back-up system. There was an
internal management decision not to pursue Satyam but just to correct
all the controls."

But the bank was eventually forced to act.

The case that inspired the lengthy investigation, and ultimately led
to the ban against Satyam involved the giving of preferential Satyam
shares to one of the bank's most powerful officials, then Chief
Information Officer Mohamed Muhsin. Muhsin retired from the bank in
2005, and was formally banned from every doing business with the
institution in January 2007 as a result of the probe.

According to internal bank documentation that FOX News has examined,
Muhsin was provided the opportunity to purchase "Friends and Family"
stock in a Satyam subsidiary company called Satyam Infoway Limited, or
SIFY — which conducted its first initial public offering of shares in
the U.S. in October 1999, at a time when Satyam was already a major
vendor of the World Bank.

The offer came at the height of the technology stock market bubble
when such preferential stock was virtually a guarantee of instant
riches. SIFY's "friends and family" stock was controlled and allocated
by Satyam's co-founders, Ramalinga Raju and his brother Srini — both
of whom were arrested and jailed on Jan. 9, 2009, in the wake of
Satyam's collapse.

Muhsin purchased at least 1,100 shares of SIFY at the company's
offering price of $18 per share, FOX News has learned. It was a very
good deal: SIFY's IPO was oversubscribed by 27 times the available
shares — at the time the greatest-ever oversubscription for an Indian
offering in the U.S. The stock opened at $45.50 per share and
skyrocketed to more than $400 per share in the months that followed.
Muhsin pocketed $148,000 in profits.

Two years later, in May 2001, when stock in Satyam (SIFY's parent
company) became available in the U.S., Muhsin or his wife purchased at
least 1,000 shares at an initial offering price of $9.71 per share.
This stock was bought, or owned, by Muhsin's wife at some point before
it was transferred to Muhsin and later sold in August of 2001 for a
loss of about $1,700.

Muhsin was also involved in the preferential stock deal with Wipro
that ultimately led to that company's 2007 banishment from the bank.
The timing was highly suspicious. Wipro submitted a bid proposal on
Sept. 11, 2000 for a million-dollar World Bank contract for offshore
technology development services. Wipro was one of three finalists in
the competition, but Satyam was awarded the contract on Sept. 27.

Three weeks later, on Oct. 19, 2000, Wipro did an IPO in the U.S —
issuing 2.75 million American Depositary Shares for trading on the
NYSE. Wipro was the third non-U.S. company in the 200-year history of
the exchange to have the honor of ringing both the opening and closing
bells.

Muhsin purchased 300 Friends and Family shares at the offering price
of $41. His holdings in Wipro initially rose in value, but, when the
technology bubble's burst, Muhsin eventually sold the shares for a
$4,420 loss in 2002.

That same year, Wipro became a supplier to the World Bank's technology
department in New Delhi, which was controlled by Muhsin. There, it
reaped about $250,000 in fees.

In 2005, the bank awarded Wipro a $650,000 contract to provide — of
all things — Sarbanes-Oxley Compliance Implementation services. (The
U.S. Sarbanes-Oxley Act was enacted in response to the Enron and
WorldCom scandals to improve financial transparency, protect
shareholders from fraud, and increase the penalties and accountability
for top corporate executives who misstate financial results.)

While most of its clients were presumably unaware of misconduct at
Satyam, inside the World Bank concerns about the firm were starting to
heat up by 2004. A probe of Satyam's relationship with Muhsin grew out
of a probe that began with Megasoft in 2005.

Following the biggest intensive investigation of an insider in its
60-year history, the bank in October 2005 quietly escorted Muhsin out
of his office in Washington just weeks before he was set to retire. In
January 2007, he was officially banned forever from the bank. Muhsin,
who lives in Maryland, has repeatedly declined to speak with FOX News.

After administering its sanctions, the bank apparently felt no
pressure at all to reveal its findings — until FOX News began its
series of reports last October. In late December, bank officials
finally admitted in conversations with a Washington-based watchdog
organization, the Government Accountability Project, that it had taken
the measures. But even then, public admission only came after GAP
refused World Bank requests to keep the information under wraps.

"What we do know is that three years ago the bank had convincing
evidence of very high-level corruption at Satyam," says GAP
international program director Bea Edwards. "And they concealed it.
And as recently as December, they were telling us to conceal it!"

The great irony is that for many years, the World Bank has pushed hard
for countries and institutions that take its money to be transparent,
engage in "good governance" and expose their own corruption at every
turn. On its website, the bank lists of hundreds of vendors and
individuals who it has sanctioned for corruption in bank projects. But
the bank list has never included firms that work directly for the
bank.

Last April, three U.S. Senators — Evan Bayh, Patrick Leahy and Richard
Lugar — wrote to the Government Accounting Office, the investigative
arm of Congress, to request an examination of the World Bank. The
senators spoke of their fears of "increased graft and misallocation"
of taxpayer dollars. "It is critical to ensure transparency in
procurement," they added.

Almost a year later, that probe is still on the back burner, due to
limited resources, according to a spokesman at the GAO.

Source :
http://www.foxnews.com/story/0,2933,479545,00.html