Large case Financial scandal at Air Mauritius In 2001, Air Mauritius, a national airline company, faced a major fraud scandal following revelations of financial malpractice involving, among other things, unauthorised payments and free tickets distributed to politicians and journalists. If it were ‘common practice’ for Air Mauritius to distribute air tickets to politicians free of charge, does it make sense to sack its Director of Legal and International Affairs? Should the latter be held responsible for not denouncing something that benefitted the political class, and was known to be part of the ‘normal activities’ of Air Mauritius? Or was this member of top management laid off for reasons that were not revealed to the public? In October 2000, Air Mauritius appointed a new managing director (referred to here as the ‘VP’) but the latter resigned six months later, returning to his former post as Legal Director of the National Aviation Company. The Chief Executive Officer, knighted in 1987, remained in post throughout. Unfavourable exchange rates and rising fuel costs pushed Air Mauritius into a MUR214.4 million loss for the 2000–2001 fiscal year. According to Air Mauritius, a sum of MUR85 million had been embezzled in the period 1981 to 1999. The National Aviation Company alleged that a pension of MUR16.8 million had been instituted for the former General Manager of Finance in Switzerland. While the former General Manager of Finance denied being indebted to Air Mauritius for the sum of MUR85 million, he declared having remitted a sum of MUR27.5 million to the police (Recueillis & Meetarbhan 2003). Mention was made of the existence of an illegal or secret fund. When this detail was revealed to the police, the latter issued ‘objections to departure from the country’ to the company’s former Chairman, the former Managing Director and the General Manager of Finance. In the meantime, some senior officials of Air Mauritius had confirmed to the police their involvement in the act of embezzlement, as well as that of other officials. The press was informed that the money in the ‘secret fund’ was kept in cash at the Headquarters of Air Mauritius. The overseas trips of eminent figures, including those of the President of the Republic, were met from this fund. While it was alleged that Members of the Cabinet were aware of the existence of the secret fund all along, there was some confusion on the functioning of institutions that are, in principle, accountable to the State. To what extent can one push the abuse of position to suit one’s interests? How impartial is the Judiciary? The Commissioner of Police, in an interview with the press, stated that the media should intervene to explain to the population the way the Judiciary functions. He added that the dossier had been referred to the Director of Public Prosecutions (Recueillis & Meetarbhan 2003). The question arising is whet ...

1. Large case
Financial scandal at Air Mauritius
In 2001, Air Mauritius, a national airline company, faced a
major fraud scandal
following revelations of financial malpractice involving, among
other things,
unauthorised payments and free tickets distributed to politicians
and journalists.
If it were ‘common practice’ for Air Mauritius to distribute air
tickets to politicians
free of charge, does it make sense to sack its Director of Legal
and International
Affairs? Should the latter be held responsible for not
denouncing something that
benefitted the political class, and was known to be part of the
‘normal activities’
of Air Mauritius? Or was this member of top management laid
off for reasons
that were not revealed to the public?
In October 2000, Air Mauritius appointed a new managing
director

2. (referred to here as the ‘VP’) but the latter resigned six months
later, returning
to his former post as Legal Director of the National Aviation
Company. The
Chief Executive Officer, knighted in 1987, remained in post
throughout.
Unfavourable exchange rates and rising fuel costs pushed Air
Mauritius into a
MUR214.4 million loss for the 2000–2001 fiscal year.
According to Air Mauritius, a sum of MUR85 million had been
embezzled
in the period 1981 to 1999. The National Aviation Company
alleged that a
pension of MUR16.8 million had been instituted for the former
General Manager
of Finance in Switzerland. While the former General Manager
of Finance denied
being indebted to Air Mauritius for the sum of MUR85 million,
he declared
having remitted a sum of MUR27.5 million to the police
(Recueillis &
Meetarbhan 2003). Mention was made of the existence of an
illegal or secret

3. fund. When this detail was revealed to the police, the latter
issued ‘objections to
departure from the country’ to the company’s former Chairman,
the former
Managing Director and the General Manager of Finance. In the
meantime,
some senior officials of Air Mauritius had confirmed to the
police their
involvement in the act of embezzlement, as well as that of other
officials. The
press was informed that the money in the ‘secret fund’ was kept
in cash at the
Headquarters of Air Mauritius. The overseas trips of eminent
figures, including
those of the President of the Republic, were met from this fund.
While it was alleged that Members of the Cabinet were aware of
the
existence of the secret fund all along, there was some confusion
on the
functioning of institutions that are, in principle, accountable to
the State. To what
extent can one push the abuse of position to suit one’s interests?
How impartial

4. is the Judiciary? The Commissioner of Police, in an interview
with the press,
stated that the media should intervene to explain to the
population the way the
Judiciary functions. He added that the dossier had been referred
to the Director
of Public Prosecutions (Recueillis & Meetarbhan 2003). The
question arising is
whether the Commissioner of Police acted on his own behalf or
under
instructions.
Hit by this massive fraud scandal, Air Mauritius chose to
terminate the
employment of its Director of Legal and International Affairs
on the grounds that
the latter did not notify his management of the financial
malpractice prevailing in
the company. Further to a Board meeting, the Director of Legal
and
International Affairs, who was also Managing Director of the
company from
September 2000 to March 2001, was fired on 9 October 2001. A
communiqué

5. was subsequently issued, stating, ‘the Company has also lost
confidence in him
as an employee’. The VP was accused of failing to report to the
Board of
Directors the alleged fraud and malpractice that took place
within the airline
company. It was understood that such instances of malpractice
were revealed
to him by the General Manager, Finance and Administration, in
a tape-recorded
conversation in October 2000. Was there intent to frame the
Director of Legal
and International Affairs as early as October 2000, hence the
recording of the
conversation on financial malpractice?
The Board of Air Mauritius also accused its Director of Legal
and
International Affairs of failing to disclose the contents of a
report on the payment
of special commissions by the Director of Internal Audit.
Apparently, the act of
illicit payments of commissions was communicated to VP in
October 2000,
when he headed the company as Managing Director. The Board

6. stated how
urgent it was to devise appropriate measures to restore
confidence in the
national airline organization. The Board stated that, ’it cannot
permit people,
both from within or outside, to undermine and destabilize the
Company’. Does
this statement make sense, considering that the act of giving
away free air
tickets to the political class constituted ’acceptable’ practice at
Air Mauritius?
Following the dismissal of VP, whose brother is a high-ranking
official in the
Mouvement Militant Mauricien (MMM) party, allegations of
embezzlement
surfaced on the dealings of the company with Rogers & Co., the
general sales
agent of Air Mauritius for certain destinations, under different
administrations.
There were allegations that MUR97 million was lodged, in the
form of fictitious
transactions, in favour of Rogers Aviation. As well as payments
of commission

7. and personal misappropriation, significant amounts of ’black
money’ were
supposedly channelled to the major political parties or used to
fund overseas
trips for senior politicians. Investigations started on 18
September, 2001, and
numerous suspects were taken to Court, amongst whom were the
former
Chairman, the former General Manager of Finance and
Company Secretary, a
former Director of Rogers & Co. and two high officials of Air
Mauritius (‘Pleins
Feux sur les Enquêtes à Sensation’ 2003, L’Express). Air
Mauritius accused its
former General Manager of Finance of having effected the illicit
payment of
’special commissions’, in addition to fictitious loans of MUR6
million to Rogers &
Co., between 1981 and 1999. The resulting scandal, in turn,
forced the
resignation of the former Chairman of Air Mauritius. The ruling
party at the time
this scandal was publicised was the Mouvement Militant
Mauricien/Mouvement

8. Socialiste Militant Alliance.
In parallel with the investigation of the above scandal, the
transactions of
TA, a businessman of Mauritian origin based in the United
Kingdom, and
allegedly the main beneficiary of the funds embezzled at the
Mauritius
Commercial Bank (MCB), to the detriment of the National
Pensions Fund
(NPF), were clarified with the help of his associate, DHY. DHY
made
statements to the Independent Commission Against Corruption
(ICAC) to shed
some light on various aspects of this complex case. Following
DHY’s
statements, the MCB requested more details and confirmation
through
particulars of appeal. One of the main revelations of DHY’s
statements to the
ICAC was undeniably the political issue. He asserted that the
Mauritian
businessman settled in London wanted to revive the Union
Démocratique

9. Mauricienne (UDM), a political party that was active in the
1970s. It was
believed that TA, donated MUR1 million to the UDM party. It
was also said that
TA provided financial help to the Labor Party for the
organisation of congresses
as well as for the actual Prime Minister’s air ticket to return to
Mauritius. It is
worth mentioning that the PM had lived in the UK until the
early 1990s, when he
became active on the political scene. TA also provided financial
assistance to a
short-lived newspaper, ‘l’Indépendant’. In addition, there were
allegations that
funds could have been used to finance political activities linked
with the
commemoration of the late SSR’s (the Prime Minister’s father)
birthday. A
cheque of MUR900,000, drawn by TA and dated 16 September,
1993, was
alleged to have been used to that effect. TA’s main contact in
the Labor Party
was allegedly the former Minister of Finance under the Labor

10. Party, then
currently the head of an important ministry. There were
allegations that TA
helped the latter pay off his debts. The press reported that the
common
perception was that TA expected the latter to return the favour
as and when he
acceded to the post of Minister. However, the former Finance
Minister denied all
the allegations, making the point that he had already
collaborated with the
investigators on the issue and would continue to do so, if
necessary. The former
Finance Minister, now a member of the current government,
held that DHY’s
revelations were purely Machiavellian politics.
In his testimony, DHY mentioned that TA’s investments in
Mozambique,
which also involved the former Financial Secretary, concerned a
paper
converting project. He gave more details about the money
transfers by TA from
the accounts of companies he controlled which were called
’Handsome

11. Investment’, ‘Mangarian and Searock Paradise’, ’Belle Beach
Ltd.’ There were
allegations that a sum of MUR83 million was transferred
between 1997 and
1999. DHY did not spare the former Chief Manager of the
Mauritius Commercial
Bank, RL, who supposedly acted as an intermediary for TA’s
companies. RL
was the one who proposed that bills of exchange endorsed by
the bank be
made. The cheques were dated 30 December 1994 and were
payable to the
MCB. The cheque numbers were 2126363-64-65-66-67-68-69-
70, in the
amounts respectively of MUR918 700, MUR262 500, MUR183
700,
MUR281 250, MUR275 000, MUR82 500, MUR1,089 750,
MUR112 575. These
cheques, drawn following RL’s instructions, The instructions
were to draw the
cheques separately. DHY explained how TA used bills, drawn
mainly through
the National Mutual Fund, to pay off his debts. Assuming all
this were true, the

12. investigation to solve the MCB–NPF financial scandal would
have made a huge
step forward.
Questions
1. Comment on the role of the Board of Air Mauritius regarding
the dismissal of
the Director of Legal and International Affairs.
2. Discuss the act of funding the trips of political people.
3. Comment on the culture of favouritism common to emerging
nations. How
does this relate to the concept of particularism?
4. Assuming DHY’s revelations reflect the truth, what can we
say about the role
of the former Finance Minister?
5. Discuss the fact that the former Finance Minister is still in
the government.
6. What are the likely implications of the type of fraud
experienced at Air
Mauritius on the airline and its customers?