Tuesday, January 13, 2009

The U.N.: Satyam's Spreading Stain

Monday , January 12, 2009

By George Russell


The World Bank, a cornerstone of the United Nations' global anti-poverty effort, failed to tell the rest of the world organization that it had banned now-imploding Satyam Computer Services last February from further business following a corruption probe — and thus allowed the U.N. to enter into a $6 million deal for technology services with Satyam as recently as this July, FOX News has learned.

U.N. officials were still silent in the wake of questions sent to them by FOX News last week about the $6 million deal between the U.N. Secretariat and Satyam Computer Services, the Indian communications technology company that is embroiled in the largest financial fraud in that country's history.

Details of the contentious contract, reference number PD/C0102/08, are prominently displayed on a U.N. Procurement Department website, commonly accessed by procurement officials from across the U.N. system.

• Click here to see the contract award announcement.

The contract award notice proclaims that Satyam was hired effective July 18, 2008, through July 13, 2013, to work on "E/Staffing/Talent Management Software, Implementation and Training Services" — all within the sensitive U.N. human resources management system.

What made the contract a shock was that it came into force five months after the World Bank — the world's largest anti-poverty lender and a key member of the U.N. system — banned Satyam as a supplier for eight years, after a three-year investigation revealed extensive improper financial dealings with a top World Bank official. The investigation was one of the most extensive in the bank's history. The official involved, chief information officer Mohamed Muhsin, was escorted from the building in 2005 before his scheduled retirement, and permanently banned from the World Bank in 2007.

At the time of the investigation and banning, Satyam had been declared a "strategic partner" with the World Bank in all of its information processing activities, and had received hundreds of millions of dollars in World Bank business since the partnership was announced in 2002.

In fact, the World Bank has only been grudgingly and partially forthcoming to anyone about Satyam. In the wake of FOX News stories in October through December that revealed the improprieties scandal and the Satyam ban, the World Bank admitted late last week to the Wall Street Journal that it kept Satyam's eight-year punishment a secret from the general public.

Click here to see the FOX News story about the debarment.

Late Sunday, the Bank suddenly put on its website announcements of Satyam's banning, along with two other software companies that were banned in 2007 for improper activities. That sudden spate of World Bank transparency came after FOX News on Jan. 5 sent a variety of questions about the recent U.N. human resources contract to senior U.N. officials, who acknowledged their receipt. Despite promises to respond, the questions had not been answered before this article was published. Questions forwarded on Jan. 8 to World Bank spokesman Carl Hanlon were not even acknowledged.

But FOX News' examination of the latest $6 million deal has revealed that the institution kept its sanctions against Satyam and the other banned firms secret from the rest of the United Nations. That secrecy came even though the Bank and more than a score of U.N. organizations supposedly keep each other informed of their dealings through a variety of unified procurement sites, and have pledged to free their multibillion dollar supplier systems from scandals that have dogged the U.N.procurement system, in particular, since 2005.

The World Bank and other U.N. institutions have another place to inform each other of important anti-corruption decisions like the Satyam ban. They all sit together on a 28-member committee known as the U.N. Inter-Agency Procurement Working Group. According to a mission statement for IAPWG, adopted in 2006, the group exists "in order to promote the strategic importance of Procurement and Supply Chain Management in program and service delivery in a transparent and accountable manner." It also aims to further "the efficiency and effectiveness of the procurement function within the UN System, through ... collaborative procurement arrangements, simplification and harmonization of procurement practices, and by fostering professionalism amongst staff that are responsible for procurement."

Click here to see the working group's membership.

To discover whether the World Bank had informed the IAPWG of its actions against Satyam, FOX News queried yet another U.N. organization, the United Nations Development Program, one of whose officials has been named as the working group secretary. A reply from a UNDP spokesman disclaimed responsibility for managing the talking shop, but underlined that UNDP itself only learned initially about the World Bank sanctions against Satyam from "media reports."

UNDP says it thereafter "proactively" approached both the World Bank and Satyam about those reports, and "as a result of these conversations, UNDP took a decision not to renew a one-year service contract with the organization, signed in December 2007. UNDP has since begun "to evaluate the phase-out while minimizing the risks to our information systems," the spokesman added. "UNDP currently has 11 Satyam technical consultants working on its information systems."

"It is worth noting," the spokesman added, "that UNDP's review of the published World Bank list of barred vendors did not turn up Satyam's name, in spite of such references in the media to Satyam having been debarred."

FOX News asked U.N. procurement officials whether it had specifically queried the World Bank or other U.N. institutions about any blemish on Satyam's record, as part of its due diligence before awarding the most recent Satyam contract. To date, FOX News has received no reply.

FOX News also asked the World Bank whether it had received such a request for information from any U.N. procurement officials and added an additional question: whether the World Bank would expect any other U.N. organization to reply if the World Bank itself sought information on a prospective supplier. To date, receipt of those questions has not been acknowledged.

Now that the Satyam scandal has expanded into a $1 billion fraud and the arrest of its top officials in India, the World Bank's decision to keep the rest of the U.N. in the dark about its sanctions against Satyam raise many more questions.

Among them: how many other parts of the U.N.'s far-flung and decentralized network of institutions have made deals with Satyam, and how many have deals still in place? What jobs do Satyam contract employees fill in the rest of the U.N. system?

Most intriguingly: were the financial improprieties Satyam committed at the World Bank — which involved providing preferential shares to a top official who was instrumental in making the firm a strategic partner of the bank — repeated anywhere else in the U.N. system?

And above all, to what extent does the World Bank-Satyam case reveal that the U.N.'s scandal-ridden procurement system — which spends billions annually — is still badly broken, and the will to clean it up remains unfocussed at best?

That question has been raised frequently about the U.N. since the notorious Oil for Food scandal of 2004 and again in 2005, after FOX News revealed a variety of corruption schemes by Alexander Yakovlev, a Russian senior employee in the U.N.'s multibillion-dollar procurement system — the same system where Satyam's current $6 million contract also remains. U.N. investigators subsequently described the procurement system as wrapped in "systematic abuse," "a pattern of corrupt practises" and a "culture of impunity."

In the wake of those scandals, the U.N. has repeatedly promised to implement reforms, including formation of a special procurement task force to root out corruption. But that task force expired at the end of 2008, when the U.N. General Assembly, under pressure from Russia, among other nations, starved the task force of funds.

By that time, the U.N. had already demonstrated that sanctions against corrupt practices in one part of the U.N. system didn't translate into similar actions in other parts.

In January 2007, FOX News revealed that within a month after the U.N. Procurement Department banned an Italian firm, Corimec S.A., from its vendor lists, the United Nations Development Program gave the same firm a $2.1 million contract for emergency housing kits. The reason: UNDP officials declared that as a legally separate U.N. agency, they were not bound to honor the procurement service sanction. (Corimec has since been rehabilitated as a U.N. vendor, after installing an anti-corruption compliance program.)

At least back then, however, the U.N. Secretariat was giving public lip service to the anti-corruption drive. At the time that FOX News published its report on Corimec, the main overall U.N. procurement website, known as the U.N. Global Marketplace, proclaimed on its home page that "United Nations agencies participating in the U.N. Global Marketplace strictly enforce a policy of zero tolerance concerning unethical, unprofessional or fraudulent acts of UN contractors. Accordingly, any registered company that is found to have undertaken unethical, unprofessional or fraudulent activities will be suspended or forbidden from continuing business relations with the United Nations."

When FOX News inspected the U.N. Global Marketplace site prior to publishing this article, that statement no longer appeared on the website's home page.

George Russell is executive editor of FOX News.

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