World Bank Admits Top Tech Vendor Debarred for 8 Years

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Published December 24, 2008

| FoxNews.com

Editors' Note: This story was originally published on Monday, December 22, 2008.

For months, the World Bank has been stonewalling and denying a series of FOX News reports on a variety of in-house scandals, ranging from the hacking of its most sensitive financial data to its own sanctions against suppliers found guilty of wrongdoing.

But last week the world's most important anti-poverty organization suddenly came clean — sort of — in its tough sanctions against a vitally important computer software service supplier that has been linked not only to financial wrongdoing but also to the ultrasensitive data heists.

A top bank official, FOX News has learned, has admitted that a leading India-based information technology vendor named Satyam Computer Services was barred last February from all business at the bank for a period of eight years — and that the ban started in September.

The admission confirms what FOX News reported from its own bank sources on October 10 — a report the World Bank officially disparaged at the time.

The World Bank's revelation of the ban on Satyam comes at a watershed moment for the $2 billion (sales) outsourcing giant, which boasts more than 100 Fortune 500 companies as clients and which trades on the New York Stock Exchange. Last week, India's securities commission announced that it would investigate Satyam.

The move came after the company's founder-chairman suddenly announced the company would spend $1.6 billion to buy two distressed real estate and infrastructure companies that are run and partially owned by his two sons. After Satyam's stocked dropped 55 percent in value, the company reversed course.

The World Bank debarment — the harshest sanction the world's largest anti-poverty agency has imposed on any company since 2004 — was meted out for "improper benefits to bank staff" and "lack of documentation on invoices," according to Robert Van Pulley, the top World Bank information security official.

True to its secretive ways, the bank did not make the admission in public. Instead, Van Pulley made the comments in a meeting and two telephone conversations with officials of the Government Accountability Project (GAP), a 30-year-old whistle-blowing organization based in Washington.

One of the phone conversations was recorded, and FOX News was allowed to listen to the tape after the World Bank backed away from its initial insistence that the conversation remain unreported.

Even so, when asked to comment on the recorded conversation, Van Pulley did not return telephone calls from FOX News. But in a conversation last Thursday with GAP, he conceded the Satyam case had been turned over to the Justice Department in 2006 — as FOX previously reported — as well as to the U.S. Treasury Dept.

It is not known if a case against Satyam or World Bank officials is being pursued by either government agency.

Van Pulley was recently named acting head of information security of the World Bank Group, as part of a management shakeup in the wake of a FOX News series about cyber breaches, corruption and cover-ups at the bank. He is also in charge of the bank's procurement department, where he oversaw the Satyam contract.

From 2003 through 2008, as FOX News reported, the World Bank paid Satyam hundreds of millions of dollars to write and maintain all the software used by the bank throughout its global information network, including its back-office operations. That involved overseeing data that ranges from accounting and personnel records to trust funds administered for many of the world's richest nations.

But at the same time, Satyam was straying badly across the bank's ethical warning lines. In 2005, the bank's chief information officer, Mohamed Muhsin, was ousted after being accused of improperly buying preferential stock options from Satyam, even as he awarded the firm major contracts. A top-secret investigation led to Muhsin being banned permanently from the bank in January 2007. But for reasons that remain unclear, Satyam was allowed to remain in control of the bank's information network until early October 2008.

Van Pulley initially agreed to talk with GAP only off the record after the organization raised questions based on the FOX News reports with World Bank president Robert Zoellick. But GAP international program director Beatrice Edwards, a participant in the talks, objected.

"In this investment climate, there is really very little tolerance for maintaining secrecy about malfeasance at high levels of publicly traded companies," she warned Van Pulley. "And if your own vendors are engaged in bribery of high-level bank officials, and that is secret and off-the-record, that is a problem."

Van Pulley then reversed himself and allowed GAP to make his remarks public — but still refused to provide a written version of his admission. At press time, however, an anonymous World Bank spokesman conceded to FOX News that Satyam was "suspended" in February, declared a "non-responsive vendor" and then "made ineligible to be a bank corporate vendor" until the year 2016.

To date, the World Bank boasts it has banned 343 individuals and companies from doing business with the bank — in many cases permanently. A list of the debarred firms is on the bank's website, but Satyam's name is not included.

In October, Satyam declined to speak with FOX News about anything related to the World Bank, including any ban. But during a press conference several days after the article was published, a Satyam board director and senior executive, Ram Mynampati, denied the company had been banned from future work.

Securities lawyers contacted by FOX News say the debarment by the World Bank — one of Satyam's largest and most important customers — should have been announced by the company to its shareholders immediately and also filed with the U.S. Securities and Exchange Commission.

The World Bank's denials and quiet admissions about its troubled relations with Satyam also refocuses attention on an earlier set of bank denials, after FOX News in October reported that the Satyam-supervised computer network of the World Bank Group had been hacked repeatedly by outsiders for more than a year.

According to FOX News sources, one of the worst breaches apparently occurred last April in the network of the bank's super-sensitive treasury unit, which manages $70 billion in assets for 25 clients — including the central banks of some countries.

Sources told FOX News that bank investigators had discovered that spy software had been covertly installed on workstations inside the bank's Washington headquarters — allegedly by one or more contractors from Satyam. "I want them off the premises now," Zoellick reportedly told his deputies. But at the urging of the bank's then-chief information officer, Satyam employees remained at the bank through early October while it engaged in a "knowledge transfer" with two new contractors.

The bank has vociferously denied that any breaches of its treasury unit took place. And, in his discussion with GAP's officials Thursday, Van Pulley denied that Satyam was behind any of the bank's security breaches. Asked by GAP's Edwards who is responsible for the breaches, Van Pulley stated, "I'm not in a position to tell you," adding that "we're confident" it wasn't Satyam.

URL

http://www.foxnews.com/story/2008/12/24/world-bank-admits-top-tech-vendor-debarred-for-8-years