Wednesday, December 24, 2008

World Bank barred Satyam from Doing Business

The World Bank has barred India's Satyam Computer Services from doing business with it for eight years, in one of the severest penalties by a client against a large Indian outsourcing company.

The aid institution yesterday confirmed a report that said that it had barred Satyam, India's fourth-largest outsourcer by revenue, for providing "improper benefits to bank staff" in exchange for contracts and providing a "lack of documentation" on invoices.

"The report is true," the World Bank in New Delhi said. It declined to provide further details. Satyam said: "We do not comment on individual clients."

India's information technology outsourcing sector is one of the country's main export drivers, generating about $40bn in export income a year by handling clients' computer systems, software and business processes such as mortgage applications.

The industry's reputation for maintaining high standards of corporate governance and data security is critical to ensuring that it continues to attract the business of Fortune 500 clients and government and multilateral agencies such as the World Bank.

The sanctions come at a bad time for Satyam, which is in crisis over an abortive attempt by its board to pay $1.6bn for companies controlled by the family of B. Ramalinga Raju, its chairman, without seeking wider shareholder approval.

The World Bank action follows reports from Fox News in Washington that between 2003 and 2008 the institution paid Satyam hundreds of millions of dollars to write and maintain its software.

The World Bank found irregularities related to its contracts with Satyam but, for reasons that remain unclear, Satyam stayed in control of the bank's network until early October this year, Fox said.

Som Mittal, chairman of the National Association of Software Services Companies (Nasscom), which represents India's information technology outsourcing industry, said yesterday that he could not comment on individual cases.

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