Xerox's charges: The pot's calling the kettle black (8 July 2002)
It was inevitable that the US scams and accounting scandals would find an Indian connection. Xerox’s confession that it made ‘improper payments’ to Indian government officials naturally hit media headlines in India. The government immediately ordered an investigation by the Department of Company Affairs and the Central Bureau of Investigation, Chief Vigilance Commission and Income-Tax department are all sniffing around for a role in the probe. Normally, after the initial alacrity in ordering an investigation, the long-winded process would have allowed the issue to simmer down and eventually die away. This time however, the blame-game between Xerox and its former Indian partners—Modicorp seems set to keep the issue alive in the media. The two sides have already begun to trade charges. Xerox Corporation, the $19 billion Fortune 500 Company says that the kickbacks were paid by its Indian subsidiary when the B. K. Modi led management controlled it. It also says that it discovered the ‘improper payments’ in October 2000, over a year after it gained management control over Xerox Modicorp (in August 1999) and immediately terminated them. The Modi faction however points out that Xerox was in full control of the company for a long time.
But why is Xerox making such a fuss? After all, it had voluntarily disclosed ‘improper payments’ by employees of its Indian subsidiary to the tune of $700,000 and said that the bribes were paid to government babus in order to secure business. Moreover, it is hardly standing on a pedestal anymore. It has restated its accounts for the second time in three months admitting that it inflated revenues by $1.9 billion and lowered previously stated equipment sales by a whopping $6.4 billion from 1997 to 2001.
Worse still, the latest revelations have come just three months after it settled a suit filed against it by the Securities and Exchange Commission for ‘using a variety of accounting actions and accounting opportunities to disguise its true operating performance from investors’. Xerox paid a $10 million penalty, restated its accounts and settled that dispute on April 11, 2002—but went on to make even bigger disclosures within three months.
Is Xerox then saying that it has no problem duping its US investors, but would stop short at bribing Indian babus? Also, what does the entire Xerox issue say about the famed SEC? Having filed a suit against Xerox, it apparently rushed to settle and failed to discover another $6.4 billion of fictitious sales. Xerox will probably pay a few million dollars more and settle that suit too. Then why such a fuss about who paid the Indian bribes? It could be for fear of attracting the Foreign Corrupt Practices Act (FCPA) of 1977, which makes it a criminal offence for American companies to make corrupt payments to foreign officials for the purpose of obtaining or keeping business. US companies dislike the FCPA. They complain bitterly that what the Act prohibits as ‘corrupt practices’ is standard operating procedure in countries (such as India) where they do business and that it puts them at a distinct disadvantage to other European countries that allowed bribes to be billed as legitimate expenses. (Our email query in this regard to Xerox Corp’s public relations person listed on its website has not been answered). Although the FCPA is neither as draconian, nor as effective as the description suggests, Xerox probably wants to avoid facing another inquiry by the US Justice department. But Xerox cannot be allowed to get away by passing the buck on to hapless ‘Indian employees’ or a previous management. It should stand u ad take responsibility if it paid the bribes and confessed to paying them. Despite the FCPA, Transparency International, a German NGO lists US at a high 10th (in a tie with Germany) among countries most willing to pay bribes abroad. A couple of years ago, 34 countries agreed to an OECD Anti-Bribery Convention that makes the bribery of foreign officials a criminal offense.
As a result of a rash of accounting scandals among the world’s top companies in recent months, MNC’s that were looked up for following good business practices until recently are increasingly facing suspicion and hostility. So much so that a business daily which is crusading for ITC to remain the fiefdom of its professional managers says in its editorial that by allowing BAT of UK to acquire management control over ITC’s operations (it is its largest shareholder) we run “the risk of becoming an invitation to large scale tobacco smuggling and loss of tax revenue”. It is because of such changed perceptions that Xerox’s attempt to transfer the entire dirt on to its former Indian partners will not wash this time. In fact, it would be far better if Xerox focussed on elaborating on its confessions and revealing the names of those government babus who pocketed a clean $700,000 to place orders for photocopiers. But doing so, it would make a small contribution towards cleaning up the monumental corruption in India, at all levels of the administrative machinery. -- Sucheta Dalal