Posted on 20-9-2002

Another Hole Appears In Corporate Business Model

MASERU, Lesotho, September 18, 2002 (ENS) - Advocates of corporate
accountability are pointing to the sweeping implications of a landmark
verdict delivered Tuesday by the High Court in the tiny kingdom of Lesotho
that a Canadian multinational company was guilty of paying bribes to win
contracts on a dam project.

Probe International said that Tuesday's conviction on corruption charges of
engineering firm Acres International, based in Ontario, Canada, could
change the way in which multinational companies undertake projects, such as
building dams, in developing countries. "The Lesotho verdict is significant
and has sweeping implications, including the potential to eradicate the
widespread corruption we see happening in large-scale development projects
involving multinational firms in developing countries," Probe's executive
director Patricia Adams said Tuesday from the organization's Toronto office.

Following a seven month trial and a judgment that took three days to read
out, Acres was convicted by Lesotho's Chief Justice Lehohla on two counts
of bribing an official to secure contracts on a multibillion dollar dam
scheme in the impoverished Southern African country. Acres was found guilty
of paying over US$260,000, through an agent, to Masupha Sole, the former
chief executive of Lesotho's Highland Water Project. Acres will be
sentenced on October 7. Sole was convicted earlier this year of receiving
the bribes during his tenure at the World Bank funded $8 billion project,
one of Africa's biggest engineering works involving dams and tunnels to
divert water to neighboring South Africa and generate electricity.

In a press statement issued Tuesday Acres said it was "shocked" by the
decision and continues to "strongly declare its innocence of the charges."
The company said it will take "vigorous action to protect its good name"
and would immediately begin an appeal. Acres's defense is that it had no
knowledge that its agent was passing on money to Sole, a claim rejected by
Judge Lehohla as a strategy to cover up bribery. The firm's lawyer Milos
Barutciski criticized the verdict for running counter to a two and a half
year World Bank investigation which concluded in February by dismissing
corruption claims due to lack of evidence. "The Lesotho court went to
extraordinary lengths to act in complete disregard of a massive volume of
evidence collected during the World Bank's extensive and thorough
investigation that found that Acres was not guilty of corruption," said
Barutciski.

Campaigners are now demanding that the World Bank, which funded the Lesotho
water project, follow through on its own promises to get tough on companies
found guilty of corruption by striking Acres off its list of approved
contractors. Bank policy prevents it from doing business with any firm
found guilty of corruption on one of its contracts. "We expect the Bank to
disbar Acres now that they have been found guilty of corruption on a World
Bank contract," said Ryan Hoover of the Berkeley based International Rivers
Network. "Anything less than disbarment would undermine not only the World
Bank's own corruption policy, but also its poverty alleviation objectives."
Acres was the first of several Western contractors to enter the dock in the
high profile corruption trial first brought by Lesotho authorities in 1999.
Two other firms, Germany's Lahmeyer International GmbH and French firm Spie
Batignolles, have been charged with bribery and are awaiting trial.

The Lesotho Highlands Water Project, one of the world's largest
infrastructure projects, is a multi-purpose undertaking between the
mountainous Kingdom of Lesotho and South Africa which completely surrounds
the smaller country. More water is needed by South Africa's arid Gauteng
province, which is expanding rapidlybut has only the single source, the
Vaal River. Johannesburg is located in Gauteng, over 40 percent of the
country's population lives in the province, and some 60 percent of all
industrial and 80 percent of all mining output is generated there. The
Lesotho Highlands Water Project is reversing the flow of the Sengu/Orange
river in the rainy highlands of Lesotho directing the water into the Vaal
River. This is being accomplished by means of five dams, 200 kilometers
(124 miles) of tunnels blasted through the Maluti Mountains, and a 72
megawatt hydropower plant.

Construction began in 1984, and the first dam, Katse, began delivering
water in 1998. Mohale, the second dam, is now in the final phases of
construction. The entire project is expected to cost US$8 billion by the
time of its completion in 2020. Current donors and lenders include the
World Bank, Development Bank of South Africa, African Development Bank, the
European Development Fund, various export credit agencies, and European
commercial banks.

The Lesotho verdict comes in a week when the newly formed African Union is
meeting in the Ethiopian capital of Addis Ababa to draw up a pan-African
blueprint to fight corruption, which it says costs the continent an
estimated $150 billion each year.