Corruption in telecommunications at Wits University - March 2012

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A presentation on corruption in the telecommunications sector. It gives a general overview, with examples of the various types of corruption in a range of countries.

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Corruption in telecommunications at Wits University - March 2012

  1. 1. Ewan SutherlandLINK Centre, Wits University?? March 2012
  2. 2.  Sources of the problems:◦ Avarice◦ Greed◦ Unaccountability Some examples Thoughts about reducing the problems Conclusions Issues for further researchEwan Sutherland, March 2012, LINK Centre, Wits U 2
  3. 3.  Large procurement contracts Importation of expensive equipmentEwan Sutherland, 26 May 2011, UNISA, Pretoria 3A series of prosecutions of suppliers in USA and Germany:• Alcatel• Lucent• Siemens• UTStarcom
  4. 4.  Privatisation:◦ Sale of state-owned enterprises Liberalisation:◦ Licencing of new entrants Independent regulation:◦ Enduring interactionsEwan Sutherland, March 2012, LINK Centre, Wits U 4Each of these is open to risks of bribery, butno special measures have been recommended.
  5. 5.  President Zuma appointed three judges toinquire into the arms scandal:◦ Published allegations concerning the issuance ofthe Cell C licence MTN appointed Lord Hoffman PC QC toinvestigate Turkcell allegations:◦ MTN had beaten Turkcell unfairly◦ MTN offered RSA’s political support for the IraniangovernmentEwan Sutherland, March 2012, LINK Centre, Wits U 5These remain allegations
  6. 6.  Tunisia:◦ Son-in-law of Ben Ali owned 51% of Orange Tunisie◦ Another son-in-law owned 25% of Tunisiana Syria:◦ Cousin of Assad owns 75% of Syriatel Libya:◦ State/Ghaddafi family owned: Both mobile operators in Libya Host of other operators in AfricaEwan Sutherland, March 2012, LINK Centre, Wits U 6
  7. 7.  Absolute monarchy King owns 69% of INWI:◦ GSM◦ 3G and◦ fixed wireless King has monopolised liberalisation since 2002 His ministers sit on board of Maroc Telecom Only market entry has been:◦ Kuwaiti investment in Inwi◦ France Telecom purchase of share in MéditelEwan Sutherland, 26 May 2011, UNISA, Pretoria 7
  8. 8. USDOJcriminalSECcivilTotalAlcatel-Lucent 93.0 46.8 139.8Latin Node - 2.0 2.0Siemens 450.0 350.0 800.0Titan 13.0 15.4 28.4UTStarcom 1.5 1.5 3.0Veraz - 0.3 0.3Total 557.5 416.0 973.5Ewan Sutherland, March 2012, LINK Centre, Wits U 8Fines under the Foreign Corrupt Practices Act (FCPA), relating tobribes paid in other countries. US Dollars (millions)
  9. 9.  Convicted on 11 of 16 charges by a FederalCourt, including accepting bribes Sentenced to 13 year jail term Allegedly intended to bribe the then Vice-President of Nigeria First ever raid on aCongressionalOffice FBI found USD 90,000in his freezer On bail, awaitingappealEwan Sutherland, March 2012, LINK Centre, Wits U 9
  10. 10.  Siemens paid bribes to both principal politicalparties and incumbent operator over decades Paying about €10-15 million a year One conviction with 3 years suspendedsentenceEwan Sutherland, 26 May 2011, UNISA, Pretoria 10
  11. 11.  Magyar Telekom, a subsidiary of DeutscheTelekom AG, bribed politicians not tosweeten the deal on privatisation ofCrnogorski Telekom Companies fined by US prosecutors andindividuals being prosecuted Parliament now launched an investigation Prosecutors also looking at the caseEwan Sutherland, 26 May 2011, UNISA, Pretoria 11
  12. 12.  Miguel Ángel Rodríguez Sentenced to a five-year prison term Guilty of “instigating corruption” Telecommunications deal:◦ Costa Rican Electricity Institute (ICE)◦ Alcatel (now Alcatel-Lucent) Served one month as Secretary-General of Organisation ofAmerican States, responsible for:◦ Inter-American Convention againstCorruptionEwan Sutherland, March 2012, LINK Centre, Wits U 12
  13. 13.  Complaint made to the Chief Justice underMinisterial Code Act:◦ Awarded a contract to evaluate the assets of Zamtelto RP Capital Partners (Cayman Is.) Investigated by a tribunal comprising:Justices Dennis Chirwa, Peter Chitengi andEvans Hamaundu Cleared of the breach of Ministerial code Had breached Article 54(3) of the Constitution Had failed to comply with the legal advice of theAttorney General Had failed to observe tender procedures:◦ should have been the Zambia Development Agency underthe ZDA Act Resigned as Minister A single High Court judge overturned Tribunal Minister returned to Cabinet with a new portfolioEwan Sutherland, March 2012, LINK Centre, Wits U 13
  14. 14.  Election of a new President:◦ Sata replaced Banda Inquiry by Minister of Justice Government revoked sale to LAP Green Allegations against LAP Green:◦ Failed to meet all three pre-qualification criteria◦ Price grossly undervalued Zamtel Former govt ministers say it had massive liabilities◦ Zambian negotiating team was not neutral Interpol pursuing Henry Banda (son of theex-President) for questioningEwan Sutherland, March 2012, LINK Centre, Wits U 14
  15. 15.  Safaricom and Vodafone paid significantsums to a mysterious Guernsey firm overmany years:◦ Owners concealed by non-disclosure agreement◦ Allegedly Daniel arap Moi and telecoms minister Alcatel asked to pay USD 20 million tomiddleman in Mauritius on behalf of Kencell France Telecom has a mysterious UAE partnerin Telkom KenyaEwan Sutherland, March 2012, LINK Centre, Wits U 15
  16. 16.  Convictions in UK:◦ Theft◦ Handling stolen credit card Returned to Nigeria became Governor of Delta State In London in February 2012 admitted 13 charges offraud and money laundering, awaiting sentencing Assets worth £35 million in UK seized Wife, mistress and lawyer all also convicted andsentenced Took USD 17 million from the sale of shares in VMobileEwan Sutherland, 26 May 2011, UNISA, Pretoria 16
  17. 17.  Suharto regime was classic crony capitalism Suharto gave monopolies and licences tocronies Cronies backed his regime Censorship protected the relationships Telecommunications was liberalised tocronies and to family Shares bought back by the state from SuhartofamilyEwan Sutherland, March 2012, LINK Centre, Wits U 17
  18. 18.  Two alternating political parties who colludenot to investigate corruption Licences awarded to cronies Bribes paid to ministers and relatives:◦ Admissions by Alcatel and Siemens Investigations and prosecutions under thecaretaker administration:◦ All set aside once civilian politics returned◦ Except two convictions for money laundering One dispute saw a senior executive arrestedand tortured by Rapid Action BrigadeEwan Sutherland, March 2012, LINK Centre, Wits U 18
  19. 19.  MP 1962-2007 Minister of state for telecommunications 1991-96 Raids by Central Bureau of Investigation on 16thAugust 1996:◦ INR 24.5 million in his official residence◦ INR 11.6 million in his house in Himanchal Pradesh◦ About USD 1,071,000◦ Names of individuals who had paid him February 2009 sentenced to:◦ 3 year term of “rigorous imprisonment”◦ Forfeiture of “disproportionate assets”of INR 42.5 million (USD 836,000)◦ On bail, pending appealEwan Sutherland, March 2012, LINK Centre, Wits U 19
  20. 20.  MP for junior party in coalition government and Minister for ICTs Sold 122 spectrum licences in 2008:◦ 2001 prices◦ First come first served◦ Companies then acquired by telecommunications operators at higher prices Comptroller and Auditor General (DATE):◦ Failure to follow due process in licensing◦ Loss to government of INR 580 to 1,520 Billion (ZAR 90-236 billion) One Man Committee of Inquiry (DATE):◦ Breached principles of fairness and transparency◦ Inconsistent with govt policy◦ Did not have approval for pricing Central Vigilance Commission (DATE):◦ Appointment overturned by Supreme Court◦ Chief Commissioner resigned Public Accounts Committee:◦ Report blocked by govt. MPs Central Bureau of Investigation:◦ Charged Raja under Prevention of Corruption Act◦ Held on remand for trial Supreme Court overseeing caseEwan Sutherland, March 2012, LINK Centre, Wits U 20
  21. 21.  A major driver and resolute againstcorruption Public interest litigation proved vital Threw out all 122 licences due to illegality ofthe process◦ A number of applications for review andreconsideration Effectively removed the right of PrimeMinister and Chief Ministers to blockprosecutions under Prevention of CorruptionActEwan Sutherland, March 2012, LINK Centre, Wits U 21
  22. 22.  Case settled with authorities in Germany andthe USA:◦ Payment of massive fines◦ Extensive and detailed compliance programmesnow in place across Siemens AG Systematic payment of bribes:◦ Cash in suitcases Paid for contracts in:◦ Algeria◦ Greece◦ Libya◦ Nigeria◦ RussiaEwan Sutherland, March 2012, LINK Centre, Wits U 22
  23. 23.  Extractive Industries Transparency Initiative Defence and aero-space Construction But not yet for telecommunications:◦ Publication of licence fees and taxes: Paid Received◦ Publication of ownership details◦ Adoption of integrity pacts: Businesses Regulators◦ Annual signing of non-bribery policies◦ Whistle-blowing scheme with protectionEwan Sutherland, March 2012, LINK Centre, Wits U 23
  24. 24.  Remarkably little recognition of the problemsin telecommunications bodies (e.g., ITU, ATU,APECTEL and CITEL) Substantial body of case law Very difficult to estimate the cost toconsumers Impossible to know the trend (up or down?)◦ Is there a growth in private-private bribery? There look to be “obvious” gaps in theprosecutionsEwan Sutherland, March 2012, LINK Centre, Wits U 24
  25. 25.  Identification of unreported cases Analysis of cases Tracing ownership of operators Framework in terms of:◦ “crony capitalism”◦ Regulatory or state capture◦ Corruption Identification of best practice:◦ Integrity pacts◦ Whistleblowing Estimations of overall:◦ Payments◦ Costs◦ EffectsEwan Sutherland, March 2012, LINK Centre, Wits U 25
  26. 26.  Ewan Sutherland Sutherla [at] gmail.com http://anti-corruption-telecoms.blogspot.com/ http://www.ssrn.com/author=927092 +44 141 416 0666 Skype://sutherlaEwan Sutherland, March 2012, LINK Centre, Wits U 26

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