Satyam fraud may hit World Bank image

The revelation of Satyam Computer Services Ltd of about a Rs 7,800-crore (Rs 78 billion) fraud may dent the image of the World Bank as it kept quiet until last month about its suspicion of the IT firm's corporate malpractices, a leading financial daily said on Thursday.
In 2006, the World Bank told the US Justice Department it suspected Satyam may have been involved in bribery, the Wall Street Journal reported, citing bank officials.
However, in late 2007, the bank completed an internal investigation and found that Satyam had acted improperly. Under World Bank rules, the company then had the chance to argue why it shouldn't be banned.
"The bank should have been more responsible about reporting publicly on what they knew to be misconduct at highest levels of Satyam," the paper quoted Bea Edwards, international reform director at the Government Accountability Project, Washington DC, watchdog group, as saying.
In February 2008, the World Bank temporarily suspended Satyam from bidding on new contracts, and then in September formally made the firm ineligible to bid on future contracts, the Journal added.
But the paper said it did not announce the ban, called a debarment, until December 23 -- and then only after press reports about it.
Meanwhile, a World Bank spokesperson told the Journal that it had acted responsibly. "We took the action we needed to take as an institution to maintain our high corporate integrity standards," the spokesperson said.
When World Bank loans are used by governments to hire contractors, the organisation publicly discloses any firms that it bans from future work, the paper said. Instituting the ban can be a long process. Satyam remains eligible to bid for development-project contracts.
But for contracts directly with the World Bank -- to supply offices with technology and other services, for instance -- it doesn't routinely disclose firms it blackballs, even if it suspects those firms of bribery, the Journal noted.
Bank officials say that makes it easier and quicker to cut off firms, but acknowledge privately that it comes at the cost of informing the public.
In the case of Satyam, the World Bank had been looking into the relationship of the computer firm and a senior official at the bank, who was suspected of steering contracts to Satyam in exchange for stock options, the paper said.