Xerox Caught in India Accounting Fraud

by Ranjit Devraj

On July 20, the accounting firm of PricewaterhouseCoopers released its report which showed how Xerox Modi Limited (XML), the Indian arm of the U.S. firm, cooked its books to make fictitious payments "apparently styled as commissions, discounts and handling charges."

Searches carried out by the Income Tax Department at more than 20 locations in the national capital and the eastern metropolis of Calcutta resulted in the recovery of unaccountable cash worth more than $200,000 and tax evasion in excess of $5 million over the past five years.

Xerox Corp., which holds 68 percent stakes in XML, declined comment on the raids, which followed the parent companies' admissions to the Securities and Exchange Commission earlier this month that "improper payments" had indeed been paid to secure government contracts.

In April, the SEC alleged that Xerox Corp. had resorted to accounting improprieties to increase its pre-tax profits by $1.5 billion over a three-year period from 1997 through 2000.

During a recent visit to India, Randal Quarles, U.S. assistant secretary of the Treasury for international affairs, said his government was prepared to assist the Indian government with investigations into the illegal payments, but ruled out any joint investigation.

Either way, going by the widespread practice in this country of using "grease" to get government departments to move the right files at the right time, few expect anything substantial to come out of the present investigations.

Last year, the Delhi-based non-government organization Center for Media Studies (CMS) released the results of the first-ever survey on corruption in government offices in the six major cities of Delhi, Lucknow, Pune, Ahmedabad, Chennai and Hyderabad, which revealed a well-established parallel system of percentages in operation.

More than 60 percent of the 4,500 people interviewed by CMS said they had experienced corruption in government offices. Even government officials, who constituted a quarter of the interviewees, said they have had to pay bribes to get work done.

So entrenched has the system become that any attempt at reform is met with stiff resistance by politicians and bureaucrats fearful of losing the percentages they rake in, a good example being the current opposition to the privatization of power supply in the national capital.

On July 22, the Bharatiya Janata Party (BJP), which rules the coalition that governs India's central government and sits in the opposition in the Delhi State Assembly, called a crippling day-long strike in the capital to protest the privatization of power from the beginning of the month.

Leader of the BJP and former chief minister of Delhi, Madan Lal Khurana, has blamed privatization for a near collapse of power supplies in the capital and water shortages caused by lack of electricity to pump water.

"We are calling this strike to highlight the failures of the Congress party government and anyway the whole question of privatization is yet to be settled in the courts," Khurana said.

Privatization was resorted to in Delhi after the government declared its inability to control the more than 50 percent theft of power by industries and by people living in posh residential areas with the open connivance of employees in the government utility Delhi Vidyut Board.

At one point, even those who paid their electricity bills honestly would still have to pay "grease" money or get slapped with impossible and arbitrary bills.

That happened to Vibha Sagar Vaid, who lives in the middle class locality of Mayur Vihar and was sent a bill for $3,500.

Vaid, a homemaker, approached Parivartan (Change), an NGO that successfully demanded that the DVB provide information on her case under the little-used right to information law, and the bill was quickly rectified.

According to Rajiv Arora, founder of Parivartan, his NGO is busy attending to complaints of corruption at various government departments. "We have 1,500 complaints of harassment by DVB staff alone and another 700 against income tax officials," Arora said.

But NGOs themselves are not immune to having to make bribes.

Last week, the Intelligence Bureau, an arm of the interior ministry, indicted officials in the federal Tribal Affairs Ministry for extracting bribes from NGOs working with tribals in return for releasing government funds due to them.

Binny Yanga, who runs the Oju Welfare Association in northeastern Arunachal Pradesh state, complained that she had to pay nearly $15,000 to facilitate the release of government grants totalling $120,000, meant to help her group its work among orphans and destitute women.

These examples are but some signs of a larger trend -- the opening up of India's economy in the early nineties resulted in a dramatic rise in the number cases of bribery and graft involving transnational corporations that were quick to learn the ways of the Indian bureaucracy and, in the case of the U.S. energy giant Enron Corp., to "educate" as well.

Rebecca Mark, a former Enron executive, admitted to having spent $20 million to "educate" Indian officials to promote a 2,000 megawatt project, its biggest ever worldwide. Since then, the word "educate" has begun to replace "grease" as an ironic euphemism for bribery in the country.

Says E.A.S. Sarma, a retired bureaucrat with an impeccable record for honesty and a concern for the rising incidence of corruption: "It will not be fair to attribute the increase in corruption to liberalization, but in recent times some international corporations have been resorting to fraud and corruption to make short-term gains."

Last year, Bangaru Laxman, party president of the BJP -- which came to power in 1998 promising to reverse the corruption under the Congress party -- was forced to step down after he was caught on a web camera accepting wads of currency from reporters of a news portal called Tehelka.com. The reporters were posing as lobbyists for a fictitious arms manufacturer wishing to sell night-vision equipment to the Indian army.

According to the UN Development Project Report for South Asia in 1999, if corruption could be brought down to the levels of Scandinavian countries, India's GDP would automatically gain 1.5 percent and foreign direct investment would grow by 12 percent.