International carrier investigates possible unlawful payments made by its recent acquisition, ITXC

August 17, 2004

3 Min Read
Teleglobe Launches Bribes Probe

In a year chock full of financial probes, Teleglobe International Holdings Ltd. (Nasdaq: TLGB) has become the latest telecom company to begin an internal investigation into corrupt business practices.

The international operator might be wishing it had poked around bit more into affairs of global VOIP carrier ITXC, which it acquired earlier this year, as the problem lies with ITXC's African operations, according to the company's filings (see TeleGlobe Gobbles Up ITXC).

In a Securities and Exchange Commission (SEC) filing made late Monday, Teleglobe noted that, as part of its "ongoing review of ITXC's operations" following the merger, it had "identified and is investigating potential instances of noncompliance with the Foreign Corrupt Practices Act relating to ITXC's operations in African countries."

Basically, that means it's uncovered evidence of bribes. In a nutshell, the Foreign Corrupt Practices Act "prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business," according to the U.S. Department of Justice (DOJ), which is the Act's chief enforcement agency. The SEC is also involved in a "coordinate role."

In its SEC filing, Teleglobe says it has notified the DOJ and SEC about the matter, and that it "does not believe it is likely that any material adjustment to its financial statements is or will be necessary as a result of its investigation."

ITXC identified Africa as a growth region for VOIP in 2000, and appointed a sales director, Dr. Yaw Osei Amoako, specifically to target the continent. It subsequently interconnected with a number of national and smaller carriers, including the incumbent operators in Chad, South Africa, and Zimbabwe.

So what's the deal? Teleglobe is remaining predictably tight-lipped about the probe. Spokesman John Landau says there are "no further specifics we can make public." He says the situation came to light as part of "ongoing financial control processes" and weren't related to the company's recent quarterly results. The carrier has just announced a large second-quarter net loss, blaming the cost of integrating ITXC for the dip into the red following a first-quarter profit (see Teleglobe Reports Q2 Loss and Teleglobe Tanks on Q1 Results).

The carrier's share price was down 10 cents today at $3.65.

Financial investigations by internal teams and external organizations have been all the rage in 2004, mostly by equipment vendors (for examples, see Problems Mount-y Up for Nortel, Sonus Soothes Numbers Nerves, and SEC Details Lucent Fraud Charges).

— Ray Le Maistre, International News Editor, Light Reading

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