ITXC judgement lifts the carpet on bribes to seven African telcos for contracts

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Everyone knows it happens but the conclusion of the trial of three former ITXC employees has aired publicly how it is done. Employees of seven African telcos – all state owned with one exception – were given bribes to obtain wholesale VoIP voice contracts. The sums involved were not large but court documents reveal how it was done and some interesting incidental detail about its pitfalls as a way of approaching sales acquisition.

Founded in1997 by Tom Evslin, a former Vice President at AT&T, ITXC was one of the new breed of VoIP based carriers that set out to conquer the world. One of its key markets was Africa because of the plentiful arbitrage opportunities offered by the extremely high costs of international calling. ITXC sold low-cost international wholesale minutes to incumbents who were therefore able to either lower their prices or (as was often the case) simply increase their margins.

The company was sold to Teleglobe and it was during that process that the bribery allegations first emerged. ITXC’s in-house attorney asked its sales department to provide a list of ITXC agents who also worked for telcos. On 27 October 2003, this person sent the following list: Sonatel, Nitel (through Standard Digital), Telkom Kenya (through Adwest), Ghana Telecom and Angola Telecom.

Subsequently Teleglobe was sold to Tata’s VSNL. Three former ITXC employees were charged under the US Foreign Corrupt Practices Act: former Managing Director Roger Young, former Vice President Steven J. Ott, and Yaw Osei Amoako. Other co-conspirators were named but not charged as some were not US citizens. Young and Ott received reduced sentences because they co-operated with the investigation which is “on-going” according to the Department of Justice statement. Young was fined US$7,000 and Ott US$10,000, with latter also getting five years probation, six months community confinement and six months home imprisonment.

A third defendant in the case, Ghanaian Yaw Osei Amoako (a US citizen), pleaded guilty on Sept. 6, 2006, and was sentenced on Aug. 1, 2007, to 18 months in prison, a $7,500 fine and to serve two years of supervised release following release from prison.

The carriers named in the court case were:

Nigeria’s Nitel: “On or about October 25 2002, ITXC and Nitel executed a VoIP Network Services Agreement…” In November ITXC then entered into a sales agreement with Standard Digital International, an agreement that was signed by Nitel’s General Director of International Relations, a member of the committee that reviewed the bids of those companies competing for the contract.

On or about 10 October 2003 prior to ITXC signing with Nitel sent an e-mail saying:”I was able to get (the person at Nitel) to chat with (defendant Ott) in my hotel room and he poured out what we have to do to get the deal through with (sic) getting him in trouble favouring ITXC.” The following day he wrote:”Prior to sending real traffic, Nitel is ready to sit down and give ITXC special rates. Do I trust them on this? Yes. The Agents are the negotiators but is (sic) afraid of other operators (sic) actions and political contacts with Ministers, President and Vice President.” In 2003 there was a “cost dispute” which required payment of a further approximately US$150,000 to the sales agent.

ITXC agreed to pay Standard Digital a retainer fee of US$10,000 and a commission of 12% of ITXC’s profits from these service agreements. Between November 2002 and May 2004 ITXC wired approximately US$166,541.31 to Standard Digital.

Rwandatel: The contract between ITXC and Rwandatel was entered into at the end of February 2002. ITXC made the Rwandatel employee negotiating the agreement its sales agent and agreed to pay him “one cent per minute for certain traffic to Uganda, Burundi and Rwanda terminated through Rwandatel. The sum sent in this instance was approximately US$26,155.11.

By the end of 2002, a dispute arose between the Managing Director of Rwandatel and the bribed employee over the latter’s failure to share the money. There was then an e-mail exchange as to whether the size of the sum could be revealed to which “co-conspirator 2” replied:”…we can reveal the information, although in the ordinary case, we shouldn’t (but this doesn’t seem to be an ordinary case).”

Subsequently they met the Managing Director who wanted to change the agent receiving the commissions to someone nominated by him. As a result the process became more complicated:”We also agree the current agent must not be informed of the meeting and of the new arrangement.” But they were happy with is complication:”The way I see it, (the original employee bribed) cannot cause any trouble to ITXC as the Managing Director is in charge. He cannot sue because he would be arrested for receiving kickbacks.”

Senegal’s Sonatel: The contract was signed in February 2001 and the following month the employee negotiating the contract entered into a “Non-Exclusive Regional Agency Agreement” which offered commission on revenues earned by ITXC. Between March 2001 and October 2003 US$74,772.06 was paid to this Sonatel employee.

But there were problems as France Telecom, the private shareholder in Sonatel could clearly see all was not right. An e-mail in September 2002 was sent to Ott stating:”(The bribed employee) is the only one defending us in (the Sonatel monthly Board meetings) and he tells me (France Telecom) is becoming very suspicious. We need to get him out of the spotlight asap.” The problem continued as an e-mail in May 2003 makes clear:”Sonatel is not an easy organization to deal with. France Telecom is gripping them pretty tight. (The bribed employee) is not the force he used to be – but we still need him and he can still do good. Just be prepared not to get the most complete or direct answers to your questions.”

Ghana Telecom: The ITXC agreement was signed in February 2001 but came to grief in December 2002 when Ghana Telecom disconnected its link to ITXC over a “cost dispute”. ITXC then offered to retain a General Manager in the International Department as ITXC’s sales agent and pay him commissions “in exchange for his assistance in settling this dispute.”

Mali’s Sotelma: The contract was negotiated in 2002 and in order to conclude the negotiations ITXC signed the overall boss of Sotelma, its Director-General as its sales agent and paid commissions on traffic generated. E-mails about the arrangement stated that:”I have the Director General in the deal as an agent who is been (sic) fronted by his lieutenants.”

It will be clear from the summary of the available public documents that this approach to business has a number of pitfalls. The bribed employees in two instances subsequently had to sort out “cost disputes” which were the pretext for asking for more bribes. In one instance, the bribed employee failed to share his gains with the managing director. In the only company with a private shareholder (which also sells wholesale minutes), the bribed employee became isolated under commercial questioning: this provides a strong if not always decisive argument for privatisation.

From the telco side, what has been known privately for years is now revealed clearly and publicly by the Rwandatel and Sotelma examples. Corruption is systemic and goes right to the top and bribes are expected to be shared with the boss of the organisation and woe betide anyone who tries to keep the money to themselves.