Satyam and the World Bank

Satyam and the World Bank
WSJ
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First Published: Wed, Jan 28 2009. 12 30 AM IST
Updated: Wed, Jan 28 2009. 09 45 AM IST
The billion-dollar accounting fraud at computer giant Satyam continues to make headlines, weeks after founder B. Ramalinga Raju admitted he’d cooked his company’s books for years. But at least one major Satyam client couldn’t have been too surprised. That would be the World Bank, which spent years dealing with—and concealing—its Satyam-related corruption issues, until media reports forced a break with its omerta.
As with so much else at the bank, the tangled details of its relationship with Satyam are in dispute: The bank has been emphatic in its denials of some path-breaking reporting last fall by Fox News’ Richard Behar.
The story begins in 2003, when the bank arranged a $10 million, five year, “sole-source” contract with Satyam to develop and implement an IT strategy for the bank, along with the software and maintenance requirements that went with it. The contract—the total value of which eventually grew to $100 million or more (the bank won’t say how much) and included hundreds of employees working at the bank—was arranged by the bank’s chief information officer Mohamed Vazir Muhsin. In 2005, the bank’s internal anti-corruption unit, INT, began investigating Muhsin on the eve of his retirement.
The bank’s vice-president for human resources eventually concluded that Muhsin had “personally intervened” to give Satyam its contract, and that he had “purchased shares of stock in companies that had then current or prospective business interests” with his department, including Satyam. The bank also found “reasonably sufficient evidence showing that (Muhsin) purchased some of the shares of stock under preferential terms”. Muhsin denies the allegations and has a case pending with the bank’s administrative tribunal.
The bank’s judgement on Muhsin was finally reached in early 2007. Yet, even as it investigated Muhsin, INT was looking into suspicions that the bank’s software systems were vulnerable to “backdoor” snooping and might have been breached, suspicions that sources tell us were confirmed by the independent computer forensics company Mandiant Security. INT also took the unusual step of referring the case to the US justice department.
In light of all this, it seems amazing that the bank did not immediately put its business dealings with Satyam on hold, if not sever them entirely, given what it believed about Muhsin’s relationship with the company. Instead, the bank waited until February 2008 to suspend Satyam from doing business with it. Another two months went by before current bank president Robert Zoellick demanded that Satyam employees be removed from bank premises. Even then, they remained with the bank “in order to maintain IT business continuity”, according to a bank spokesman.
Satyam was finally debarred last September, but the bank made no announcement until 23 December. The spokesman tells us that bank policy prevented it from disclosing the identity of debarred companies with which it contracts directly, and that the announcement was only made after Satyam officials claimed the company had not been debarred. Yet, those claims were made on 17 October, two months before the bank came clean. On the contrary, the bank went out of its way to cover for Satyam, telling Behar of Fox News only that the company had “completed all of its work” on 30 September—as if the original five-year contract had merely run its course.
The ostensible reason it didn’t disclose the identity of debarred firms with which it contracts directly is that it makes it easier to dismiss them. That squares oddly with the “due process” the bank generously gave Satyam between the temporary suspension and its ultimate debarment.
THE WALL STREET JOURNAL
Edited excerpts. Comment at otherviews@livemint.com
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First Published: Wed, Jan 28 2009. 12 30 AM IST