ITXC judgement lifts the carpet on bribes to seven African telcos for contracts

6 Sep 2008

      Everyone knows it happens but the conclusion of the trial of three  
former ITXC employees has aired publicly how it is done. Employees of  
seven African telcos – all state owned with one exception – were  
given bribes to obtain wholesale VoIP voice contracts. The sums  
involved were not large but court documents reveal how it was done  
and some interesting incidental detail about its pitfalls as a way of  
approaching sales acquisition.

Founded in1997 by Tom Evslin, a former Vice President at AT&T, ITXC  
was one of the new breed of VoIP based carriers that set out to  
conquer the world. One of its key markets was Africa because of the  
plentiful arbitrage opportunities offered by the extremely high costs  
of international calling. ITXC sold low-cost international wholesale  
minutes to incumbents who were therefore able to either lower their  
prices or (as was often the case) simply increase their margins.

The company was sold to Teleglobe and it was during that process that  
the bribery allegations first emerged. ITXC’s in-house attorney asked  
its sales department to provide a list of ITXC agents who also worked  
for telcos. On 27 October 2003, this person sent the following list:  
Sonatel, Nitel (through Standard Digital), Telkom Kenya (through  
Adwest), Ghana Telecom and Angola Telecom.

Subsequently Teleglobe was sold to Tata’s VSNL. Three former ITXC  
employees were charged under the US Foreign Corrupt Practices Act:  
former Managing Director Roger Young, former Vice President Steven J.  
Ott, and Yaw Osei Amoako. Other co-conspirators were named but not  
charged as some were not US citizens. Young and Ott received reduced  
sentences because they co-operated with the investigation which is  
“on-going” according to the Department of Justice statement. Young  
was fined US$7,000 and Ott US$10,000, with latter also getting five  
years probation, six months community confinement and six months home  
imprisonment.

A third defendant in the case, Ghanaian Yaw Osei Amoako (a US  
citizen), pleaded guilty on Sept. 6, 2006, and was sentenced on Aug.  
1, 2007, to 18 months in prison, a $7,500 fine and to serve two years  
of supervised release following release from prison.

The carriers named in the court case were:

Nigeria’s Nitel: “On or about October 25 2002, ITXC and Nitel  
executed a VoIP Network Services Agreement…” In November ITXC then  
entered into a sales agreement with Standard Digital International,  
an agreement that was signed by Nitel’s General Director of  
International Relations, a member of the committee that reviewed the  
bids of those companies competing for the contract.

On or about 10 October 2003 prior to ITXC signing with Nitel sent an  
e-mail saying:”I was able to get (the person at Nitel) to chat with  
(defendant Ott) in my hotel room and he poured out what we have to do  
to get the deal through with (sic) getting him in trouble favouring  
ITXC.” The following day he wrote:”Prior to sending real traffic,  
Nitel is ready to sit down and give ITXC special rates. Do I trust  
them on this? Yes. The Agents are the negotiators but is (sic) afraid  
of other operators (sic) actions and political contacts with  
Ministers, President and Vice President.” In 2003 there was a “cost  
dispute” which required payment of a further approximately US$150,000  
to the sales agent.

ITXC agreed to pay Standard Digital a retainer fee of US$10,000 and a  
commission of 12% of ITXC’s profits from these service agreements.  
Between November 2002 and May 2004 ITXC wired approximately US 
$166,541.31 to Standard Digital.

Rwandatel: The contract between ITXC and Rwandatel was entered into  
at the end of February 2002. ITXC made the Rwandatel employee  
negotiating the agreement its sales agent and agreed to pay him “one  
cent per minute for certain traffic to Uganda, Burundi and Rwanda  
terminated through Rwandatel. The sum sent in this instance was  
approximately US$26,155.11.

By the end of 2002, a dispute arose between the Managing Director of  
Rwandatel and the bribed employee over the latter’s failure to share  
the money. There was then an e-mail exchange as to whether the size  
of the sum could be revealed to which “co-conspirator 2” replied:”…we  
can reveal the information, although in the ordinary case, we  
shouldn’t (but this doesn’t seem to be an ordinary case).”

Subsequently they met the Managing Director who wanted to change the  
agent receiving the commissions to someone nominated by him. As a  
result the process became more complicated:”We also agree the current  
agent must not be informed of the meeting and of the new  
arrangement.” But they were happy with is complication:”The way I see  
it, (the original employee bribed) cannot cause any trouble to ITXC  
as the Managing Director is in charge. He cannot sue because he would  
be arrested for receiving kickbacks.”

Senegal’s Sonatel: The contract was signed in February 2001 and the  
following month the employee negotiating the contract entered into a  
“Non-Exclusive Regional Agency Agreement” which offered commission on  
revenues earned by ITXC. Between March 2001 and October 2003 US 
$74,772.06 was paid to this Sonatel employee.

But there were problems as France Telecom, the private shareholder in  
Sonatel could clearly see all was not right. An e-mail in September  
2002 was sent to Ott stating:”(The bribed employee) is the only one  
defending us in (the Sonatel monthly Board meetings) and he tells me  
(France Telecom) is becoming very suspicious. We need to get him out  
of the spotlight asap.” The problem continued as an e-mail in May  
2003 makes clear:”Sonatel is not an easy organization to deal with.  
France Telecom is gripping them pretty tight. (The bribed employee)  
is not the force he used to be – but we still need him and he can  
still do good. Just be prepared not to get the most complete or  
direct answers to your questions.”

Ghana Telecom: The ITXC agreement was signed in February 2001 but  
came to grief in December 2002 when Ghana Telecom disconnected its  
link to ITXC over a “cost dispute”. ITXC then offered to retain a  
General Manager in the International Department as ITXC’s sales agent  
and pay him commissions “in exchange for his assistance in settling  
this dispute.”

Mali’s Sotelma: The contract was negotiated in 2002 and in order to  
conclude the negotiations ITXC signed the overall boss of Sotelma,  
its Director-General as its sales agent and paid commissions on  
traffic generated. E-mails about the arrangement stated that:”I have  
the Director General in the deal as an agent who is been (sic)  
fronted by his lieutenants.”

It will be clear from the summary of the available public documents  
that this approach to business has a number of pitfalls. The bribed  
employees in two instances subsequently had to sort out “cost  
disputes” which were the pretext for asking for more bribes. In one  
instance, the bribed employee failed to share his gains with the  
managing director. In the only company with a private shareholder  
(which also sells wholesale minutes), the bribed employee became  
isolated under commercial questioning: this provides a strong if not  
always decisive argument for privatisation.

 From the telco side, what has been known privately for years is now  
revealed clearly and publicly by the Rwandatel and Sotelma examples.  
Corruption is systemic and goes right to the top and bribes are  
expected to be shared with the boss of the organisation and woe  
betide anyone who tries to keep the money to themselves.

NB: Sory for crossposting..

Eric M.K Osiakwan
ICT Integrator
Internet Research
www.internetresearch.com.gh
emko@internetresearch.com.gh
42 Ring Road Central, Accra-North
Tel: +233.21.258800 ext 2031
Fax: +233.21.258811
Cell: +233.24.4386792

Eric M.K Osiakwan

Brian Munyao Longwe

Eric M.K Osiakwan

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