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INDIA BUSINESS WORLD - November 16th December 31st 2008
WORLD BANK BANS SATYAM FOR SPYING & BRIBERY
SATYAM Computer Services’ corporate governance standards, already under fire after its aborted bid to buy two companies linked to promoter B Ramalinga Raju, have come in for further scrutiny. The World Bank has confirmed an earlier report that it barred Satyam from doing business with it for eight years, starting this September, on charges of data theft and bribing its staff.
But it’s not clear if the company’s independent directors were kept in the dark about these developments. Two independent directors said that the Satyam management had merely informed the board that its contract with the World Bank had ended, without referring to the eight-year ban. The bank was an important client for Satyam, India’s fourth-largest software exporter, having signed a $100 million billing per annum deal.
“The World Bank had never complained or informed us. Satyam’s contract had come up for discussions in an earlier board meeting. We were told that as a matter of policy, the bank does not renew contracts with the same vendor for more than five years,” said TR Prasad, independent director on the Satyam Board. This was confirmed by another independent board member VS Raju.
“Yes, we have banned Satyam from doing business with us,” World Bank spokesperson Sudip Mazumder said from New Delhi. Mr Mazumder confirmed a Fox News report, which had said the World Bank has imposed an eight-year ban on Satyam, the harshest punishment meted out to any company since 2004.
According to the US-based news network, the bank’s forensic experts discovered that spy software was covertly installed on workstations inside its Washington headquarters, allegedly by one or more contractors from Satyam. The forensic analysis was conducted after a major breach of the bank’s treasury network in Washington this April. Upon its discovery, bank officials shut off the data link between Washington and Chennai, India, where Satyam has long operated as its sole offshore computer centre responsible for all financial and human resources information, the report on the Fox News website said.
Fox News also said the bank’s chief information officer Mohamed Muhsin was sacked in 2005 after being accused of improperly buying preferential stock options from Satyam, even as he awarded the firm major contracts. After an internal investigation, Mr Muhsin was banned permanently from the bank in January 2007. But Satyam was allowed to remain in control of the bank’s information network till early October 2008, the report said. The World Bank said that it has declared Satyam ineligible for 8 years “to receive direct contract under corporate procurement programme” due to the IT major’s failure to furnish proper documentation on fees charged for sub-contractors and for providing improper benefits to its staff.
“Satyam was declared ineligible for contracts for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charges for its sub-contractors,” the bank said in a statement. The World Bank’s disclosure means more embarrassment for the company, which only last week faced a major shareholder rebellion after it announced plans to buy two firms linked to Mr Ramalinga Raju. The decision was endorsed by the board. But within a few hours, the company called off the deal to buy Maytas Infra and Maytas Properties. It has remained tight-lipped on key questions on who did the valuation of the real estate firm.
This October, Ram Mynampati, president of Satyam’s commercial and healthcare business and a board member, also said the World Bank, as a matter of policy, does not renew contracts with the same vendor. Email queries to two other directors, Vinod Dham and Krishna Palepu, remained unanswered at the time of going to press. When contacted, a Satyam spokeswoman said the company does not comment on individual clients. Since 2003, Satyam was writing and maintaining all software for World Bank across all locations. This also included maintenance of software in back-end offices.
Satyam’s shares plunged as much as 14% to close at Rs 140.40, amid rumours, subsequently denied, that Ramalinga Raju, its founder and chairman, was stepping down from the board. “I have not received any message or intimation from the promoter,” Mr Prasad said. The registrar of companies in AP has initiated a probe into Satyam’s proposed acquisition. But the company has not received any communication from Sebi or the US SEC, said a company official who did not wish to be named. The investment committee of LIC, Aberdeen, and Reliance MF are seeking an explanation from Satyam promoters on the jinxed Maytas acquisition. The institutional investors own a sizeable stake, almost 60%, in the company.
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