What Can Be Learnt From The Alcatel-Lucent Bribery Case?

TRANSPARENCY INTERNATIONAL – MALAYSIA (MALAYSIAN SOCIETY FOR TRANSPARENCY AND INTEGRITY)(ROS: 1649) )

Letter to the Editor 3rd January, 2011

What can be learnt from the Alcatel-Lucent bribery case?

The settlement of US$137 million (RM413 million) by Alcatel-Lucent SA (AL) withthe US Securities and Exchange Commission and the Justice Department of chargesof bribery of government officials in Costa Rica, Honduras, Taiwan and Malaysia, isdamaging to the image of Malaysia. There are many issues of governance andcorruption to observe.

It was alleged that AL had paid bribes to employees of Telekom Malaysia Berhad(TM), a GLC (government-linked corporation) to obtain confidential informationrelating to a public tender for a contract worth US$85 million that AL won. AL hadpaid US$200,000 and US$500,000 to two consultants but they “did not appear torender any legitimate services to Alcatel Malaysia in connection with thesepayments.” If these consultants did not provide legitimate services of value to ALthen what type of “services” did they provide? The use of “consultants” ormiddlemen/ facilitators, especially in closed or negotiated tenders raises strongsuspicion of corrupt practices. Many of them are RM2 companies with no relevantexpertise or experience or even the resources to offer the services which they aresupposed to provide.

In addition to possibly being conduits for bribes, in some cases, there are severallayers of consultants and/or sub-contractors. The actual contractor doing the workgets a fraction of the contract value and middlemen/facilitators get significantportions for facilitating the contract. The consequences of such procurement practiceare highly inflated prices, shoddy work, goods not delivered to specification inquantity and quality, etc

Although the regulators have espoused good governance especially for public listedcompanies (PLC) and while many have published beautifully drafted statements ofgood governance in their annual reports, actual measures to implement goodgovernance may still be lacking especially in procurement. TransparencyInternational Malaysia (TI-M) advocates a set of integrity tools that are often missingfrom PLC compliance measures. These are:

(1) Each PLC, GLC and government-owned enterprise to make a public anti-corruption pledge similar to the pledge signed recently on 9thDecember, 2010 by theheads of chambers of commerce and industry/ trade associations. This pledge is acommitment to comply with a set of good business principles including theimplementation of an anti-bribery policy in accordance with global standards.Furthermore, the enterprise shall do a periodical self-assessment as to its level ofcompliance preferably using an independent third-party assessor and the result ofwhich should be made public

(2) Implementing a public and open tender system for procurement and a set ofintegrity compliance tools especially the use of TI’s Integrity Pact (IP) and a whistle blowing policy. An IP is a legally enforceable agreement signed between both thebuyer and the sellers with severe sanctions for defaults, such as termination ofcontract, black-listing, damages to the buyer and unsuccessful bidders. In IPs, thebuyer commits not to solicit bribes and to put in place all possible measures toensure its officials comply and the sellers commit to not paying bribes. Allcommissions and other payments paid directly or indirectly by the sellers must bedisclosed to the buyer. The best practice of IP requires all stages of the procurementprocess, including tender specifications, prequalification, appointment ofconsultants, tender evaluation and award, contract performance and post-contractevaluation, especially for large projects, to be monitored by an independent externalmonitor with the requisite integrity and relevant expertise. For example, Theupcoming MRT infrastructure project announced by the government would be anideal candidate to implement these important measures given its magnitude, costingRM 36 billion cost and will have a direct impact on the general public

Although regulations and governance measures may not completely eliminate fraudand corruption, TI’s experience is that the measures mentioned above together withtop management setting the tone of integrity and zero tolerance of corruption, domitigate the risk significantly. Recently, multi-billion losses of PLCs and governmententerprises like those at Sime Darby Berhad and Port Klang Free Zone (PKFZ)highlight the urgent need for stronger good corporate governance. The regulators,boards of directors, CEOs, and political leaders must take heed. If not, there may bemore scandals to come!

Finally, in an article that appeared in our local media entitled “ Getting corruptionright”, Jagdish Bhagwati, professor of economics and law at Columbia University,said “But where substantial corruption can be unambiguously be found, as it oftencan, one must recognize that it is not a cultural given. On the contrary, it is the resultof policies that have fed it.”

Datuk Paul Low Seng Kuan President Transparency International Malaysia