Haq's Musings: US Investigating Microsoft Bribery in Pakistan's Punjab
Executives of Microsoft Pakistan are facing allegations of bribery in Punjab, a violation of US Foreign Corrupt Practices Act (FCPA).
Reports in US media indicate that an unnamed provincial minister in Punjab government and his wife traveled to the United States in December 2009 to close a $9 million deal for Microsoft Office software. The trip was booked by a travel agent working for Microsoft. Microsoft paid the costs of business class fare and stay at a luxury hotel in the United States, according to the Wall Street Journal.
A similar investigation is underway by the US Justice Department into allegations of bribery of kickbacks given by Microsoft to officials in Russia.
Microsoft says it has also started an internal investigation into the corruption allegations which it takes very seriously. It is the result of an email tip to Microsoft.
Under the US Foreign Corrupt Practices Act (FCPA), all American companies are required to provide details of illegal payments made in foreign countries.
Similar allegations surfaced in FCPA cases relating to Siemens, Paxar and other foreign entities in Pakistan. Paxar Corporation, a New York listed company acquired by Avery, acknowledged paying $30,000 to bribe Pakistani customs officials in 2008 through its local customs broker. Avery, a California-based company, manufactures and markets various office products in several dozen countries around the world.
Raymond Baker, author of "Capitalism's Achilles Heel", has detailed billions of dollars worth of bribes received by government leaders in several developing countries including Pakistan. Here's a brief except from Baker's book on Sharif family:
"At least $160 million pocketed from a contract to build a highway from Lahore, his home town, to Islamabad, the nations capital. At least $140 million in unsecured loans from Pakistans state banks. More than $60 million generated from government rebates on sugar exported by mills controlled by Mr. Sharif and his business associates. At least $58 million skimmed from inflated prices paid for imported wheat from the United States and Canada. In the wheat deal, Mr. Sharif s government paid prices far above market value to a private company owned by a close associate of his in Washington, the records show. Falsely inflated invoices for the wheat generated tens of millions of dollars in cash."
Baker mentions the use of several offshore entities in British Virgin Islands and Channel Islands controlled by the family of Prime Minister Nawaz Sharif to launder billions of dollars received in bribes.
Similar details are offered in the book that explain how Bhutto-Zardari family have siphoned off money from deals made by Pakistan government. Here's a more extensive excerpt from Baker's book:
Upon taking office in 1988, Bhutto reportedly appointed 26,000 party hacks to state jobs, including positions in state-owned banks. An orgy of lending without proper collateral followed. Allegedly, Bhutto and Zardari gave instructions for billions of rupees of unsecured government loans to be given to 50 large projects. The loans were sanctioned in the names of front men but went to the Bhutto-Zardari combine. Zardari suggested that such loans are normal in the Third World to encourage industrialisation. He used 421 million rupees (about £10 million) to acquire a major interest in three new sugar mills, all done through nominees acting on his behalf. In another deal he allegedly received a 40 million rupee kickback on a contract involving the Pakistan Steel Mill, handled by two of his cronies. Along the way Zardari acquired a succession of nicknames: Mr. 5 Percent, Mr. 10 Percent, Mr. 20 Percent, Mr. 30 Percent, and finally, in Bhuttos second term when he was appointed minister of investments, Mr. 100 Percent. The Pakistan governments largest source of revenues is customs duties, and therefore evasion of duties is a national pastime. Isnt there some way to tap into this major income stream, pretending to fight customs corruption and getting rich at the same time? Of course; we can hire a reputable (or disreputable, as the case may be) inspection company, have the government pay the company about a one percent fee to do price checking on imports, and get multimillion-dollar bribes paid to us upon award of the contracts. Société Générale de Surveillance (SGS), headquartered in Switzerland, and its then subsidiary Cotecna, the biggest group in the inspection business, readily agreed to this subterfuge. Letters in 1994 promised consultancy fees, meaning kickbacks, of 6 percent and 3 percent to two British Virgin Island (BVI) companies, Bomer Finances Inc. and Nassam Overseas Inc., controlled by Bhutto and Zardari. Payments of $12 million were made to Swiss bank accountsof the BVI companies. SGS allegedly has paid kickbacks on other inspection contracts around the world. Upon being accused in the inspection kickback scheme, Bhutto sniffed, I ran the government to the best of my honest ability. And I did it for nothing but acknowledgment and love. Then there was the 1994 deal to import $83 million worth of tractors from Poland. Ursus Tractors allegedly paid a 7 percent commission to another of Zardaris Caribbean companies, Dargal Associated. Bhutto waived import duties on the tractors, costing the Pakistani government some 1.7 billion rupees in lost revenues. Upon discovery of this scheme the Poles hastened to turn over 500 pages of documentation confirming the kickback. The Polish tractor deal was just a warm-up for the French fighter jet deal. After the U.S. government cancelled a sale of two squadrons of F-16s, Bhutto dangled a $4 billion contract for Mirages in front of the FrenchDassault Aviation; Snecma, the engine manufacturer; and Thomson-CSF, producer of aviation electronics. Without missing a beat they allegedly agreed to pay a remuneration of 5 percent to Marleton Business S.A., yet another of Zardaris British Virgin Island companies. This would have generated a tidy $200 million for the Bhutto-Zardari couple, but unfortunately for them she was driven from office before they could collect. Ah, but the gold deal gave some comfort to these aspiring kleptocrats. Gold is culturally important in the Asian subcontinent, in particular as a way for women to accumulate wealth. Upwards of $100 billion is invested in this unproductive asset in Pakistan, India, and surrounding countries. Smuggling is big business. Ostensibly to regulate the trade, a Pakistani bullion dealer in Dubai, Abdul Razzak Yaqub, asked Bhutto for an exclusive import license. In 1994, yet another Zardari offshore company, M.S. Capricorn Trading, was created in the British Virgin Islands. Later in the year, Jens Schlegelmilch, a Swiss lawyer who was the Bhutto familys attorney in Europe and close personal friend for more than 20 years, opened an account for Capricorn Trading at the Dubai branch of Citibank. According to a 1999 U.S. Senate report: Mr. Schlegelmilch did not reveal to the Dubai banker that Mr. Zardari was the beneficial owner of the PIC [private investment company], and the account manager never asked him the identity of the beneficial owner of the account. . . . Shortly after opening the account in Dubai, Mr. Schlegelmilch signed a standard referral agreement with Citibank Switzerland private bank guaranteeing him 20 percent of the first three years of client net revenues earned by the bank from each client he referred to the private bank. In other words, Citibank was contracting to pay a finders fee for millions brought in from dubious sources. Citibank went on to open three accounts in Switzerland for Zardari, with Schlegelmilch as the signatory. In October 1994, Citibank records show that $10 million was deposited into Capricorns Dubai account by Razzak Yaqubs company, A.R.Y. International Exchange. In December, Razzak Yaqub received an exclusive import license and proceeded over the next three years to ship more than $500 million in gold to Pakistan. Additional deposits flowed into the Dubai and Swiss Citibank accounts, and funds also were shifted to Citibank Channel Island subsidiaries. The original ceiling on the accounts of $40 million was reached quickly.
Haq's Musings: US Investigating Microsoft Bribery in Pakistan's Punjab
Executives of Microsoft Pakistan are facing allegations of bribery in Punjab, a violation of US Foreign Corrupt Practices Act (FCPA).
Reports in US media indicate that an unnamed provincial minister in Punjab government and his wife traveled to the United States in December 2009 to close a $9 million deal for Microsoft Office software. The trip was booked by a travel agent working for Microsoft. Microsoft paid the costs of business class fare and stay at a luxury hotel in the United States, according to the Wall Street Journal.
A similar investigation is underway by the US Justice Department into allegations of bribery of kickbacks given by Microsoft to officials in Russia.
Microsoft says it has also started an internal investigation into the corruption allegations which it takes very seriously. It is the result of an email tip to Microsoft.
Under the US Foreign Corrupt Practices Act (FCPA), all American companies are required to provide details of illegal payments made in foreign countries.
Similar allegations surfaced in FCPA cases relating to Siemens, Paxar and other foreign entities in Pakistan. Paxar Corporation, a New York listed company acquired by Avery, acknowledged paying $30,000 to bribe Pakistani customs officials in 2008 through its local customs broker. Avery, a California-based company, manufactures and markets various office products in several dozen countries around the world.
Raymond Baker, author of "Capitalism's Achilles Heel", has detailed billions of dollars worth of bribes received by government leaders in several developing countries including Pakistan. Here's a brief except from Baker's book on Sharif family:
"At least $160 million pocketed from a contract to build a highway from Lahore, his home town, to Islamabad, the nations capital. At least $140 million in unsecured loans from Pakistans state banks. More than $60 million generated from government rebates on sugar exported by mills controlled by Mr. Sharif and his business associates. At least $58 million skimmed from inflated prices paid for imported wheat from the United States and Canada. In the wheat deal, Mr. Sharif s government paid prices far above market value to a private company owned by a close associate of his in Washington, the records show. Falsely inflated invoices for the wheat generated tens of millions of dollars in cash."
Baker mentions the use of several offshore entities in British Virgin Islands and Channel Islands controlled by the family of Prime Minister Nawaz Sharif to launder billions of dollars received in bribes.
Similar details are offered in the book that explain how Bhutto-Zardari family have siphoned off money from deals made by Pakistan government. Here's a more extensive excerpt from Baker's book:
Upon taking office in 1988, Bhutto reportedly appointed 26,000 party hacks to state jobs, including positions in state-owned banks. An orgy of lending without proper collateral followed. Allegedly, Bhutto and Zardari gave instructions for billions of rupees of unsecured government loans to be given to 50 large projects. The loans were sanctioned in the names of front men but went to the Bhutto-Zardari combine. Zardari suggested that such loans are normal in the Third World to encourage industrialisation. He used 421 million rupees (about £10 million) to acquire a major interest in three new sugar mills, all done through nominees acting on his behalf. In another deal he allegedly received a 40 million rupee kickback on a contract involving the Pakistan Steel Mill, handled by two of his cronies. Along the way Zardari acquired a succession of nicknames: Mr. 5 Percent, Mr. 10 Percent, Mr. 20 Percent, Mr. 30 Percent, and finally, in Bhuttos second term when he was appointed minister of investments, Mr. 100 Percent. The Pakistan governments largest source of revenues is customs duties, and therefore evasion of duties is a national pastime. Isnt there some way to tap into this major income stream, pretending to fight customs corruption and getting rich at the same time? Of course; we can hire a reputable (or disreputable, as the case may be) inspection company, have the government pay the company about a one percent fee to do price checking on imports, and get multimillion-dollar bribes paid to us upon award of the contracts. Société Générale de Surveillance (SGS), headquartered in Switzerland, and its then subsidiary Cotecna, the biggest group in the inspection business, readily agreed to this subterfuge. Letters in 1994 promised consultancy fees, meaning kickbacks, of 6 percent and 3 percent to two British Virgin Island (BVI) companies, Bomer Finances Inc. and Nassam Overseas Inc., controlled by Bhutto and Zardari. Payments of $12 million were made to Swiss bank accountsof the BVI companies. SGS allegedly has paid kickbacks on other inspection contracts around the world. Upon being accused in the inspection kickback scheme, Bhutto sniffed, I ran the government to the best of my honest ability. And I did it for nothing but acknowledgment and love. Then there was the 1994 deal to import $83 million worth of tractors from Poland. Ursus Tractors allegedly paid a 7 percent commission to another of Zardaris Caribbean companies, Dargal Associated. Bhutto waived import duties on the tractors, costing the Pakistani government some 1.7 billion rupees in lost revenues. Upon discovery of this scheme the Poles hastened to turn over 500 pages of documentation confirming the kickback. The Polish tractor deal was just a warm-up for the French fighter jet deal. After the U.S. government cancelled a sale of two squadrons of F-16s, Bhutto dangled a $4 billion contract for Mirages in front of the FrenchDassault Aviation; Snecma, the engine manufacturer; and Thomson-CSF, producer of aviation electronics. Without missing a beat they allegedly agreed to pay a remuneration of 5 percent to Marleton Business S.A., yet another of Zardaris British Virgin Island companies. This would have generated a tidy $200 million for the Bhutto-Zardari couple, but unfortunately for them she was driven from office before they could collect. Ah, but the gold deal gave some comfort to these aspiring kleptocrats. Gold is culturally important in the Asian subcontinent, in particular as a way for women to accumulate wealth. Upwards of $100 billion is invested in this unproductive asset in Pakistan, India, and surrounding countries. Smuggling is big business. Ostensibly to regulate the trade, a Pakistani bullion dealer in Dubai, Abdul Razzak Yaqub, asked Bhutto for an exclusive import license. In 1994, yet another Zardari offshore company, M.S. Capricorn Trading, was created in the British Virgin Islands. Later in the year, Jens Schlegelmilch, a Swiss lawyer who was the Bhutto familys attorney in Europe and close personal friend for more than 20 years, opened an account for Capricorn Trading at the Dubai branch of Citibank. According to a 1999 U.S. Senate report: Mr. Schlegelmilch did not reveal to the Dubai banker that Mr. Zardari was the beneficial owner of the PIC [private investment company], and the account manager never asked him the identity of the beneficial owner of the account. . . . Shortly after opening the account in Dubai, Mr. Schlegelmilch signed a standard referral agreement with Citibank Switzerland private bank guaranteeing him 20 percent of the first three years of client net revenues earned by the bank from each client he referred to the private bank. In other words, Citibank was contracting to pay a finders fee for millions brought in from dubious sources. Citibank went on to open three accounts in Switzerland for Zardari, with Schlegelmilch as the signatory. In October 1994, Citibank records show that $10 million was deposited into Capricorns Dubai account by Razzak Yaqubs company, A.R.Y. International Exchange. In December, Razzak Yaqub received an exclusive import license and proceeded over the next three years to ship more than $500 million in gold to Pakistan. Additional deposits flowed into the Dubai and Swiss Citibank accounts, and funds also were shifted to Citibank Channel Island subsidiaries. The original ceiling on the accounts of $40 million was reached quickly.
Haq's Musings: US Investigating Microsoft Bribery in Pakistan's Punjab
