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The Lesotho Highlands Water Project:
Bribery on a Massive Scale
Fiona
Darroch
(August 8, 2004) In 1986,
The Lesotho Highlands Water Project (LHWP) was set up
between the governments of Lesotho and South Africa as a
multi-billion rand infrastructure project designed to
control the flow of the Senqu/Orange river and in doing so
provide water for the people of Gauteng province, and
electricity and money for the people of Lesotho.
Corruption concerns first surfaced in 1993 when a civil
government was elected in Lesotho. The government
commissioned an audit of both of the parastatal bodies which
shared responsibility for the project. The audit revealed
obvious and substantial administrative irregularities within
the Lesotho Highlands Development Authority (LHDA). After
an audit of its chief executive officer, Masupha
Ephraim Sole, Sole was
then subjected to a disciplinary enquiry, and subsequently
he was dismissed.
The investigations had revealed that Sole was clearly living
far beyond his means: his housing, cars, holiday
arrangements, and instances of nepotism were the obvious
indicators. Civil proceedings were instituted to recoup the
funds which had been misappropriated by Sole.
Civil proceedings began in 1996 and produced evidence of
bank accounts that included accounts with the Union Bank of
Switzerland.
In August, 1997, the Lesotho government applied to the Swiss
court for disclosure of a number of Swiss bank accounts,
including those belonging to Sole. The application was
resisted by a number of the contractors/consultants working
on the LHWP, but in early 1999, bank records were handed
over. Those which belonged to Sole indicated that he had
received millions of maloti for which he offered no
explanation. Civil proceedings concluded in October, 1999,
with judgment given against Sole for the sum of 8.9 million maloti. His appeal, in April, 2001, failed.
The bank records obtained from Switzerland indicated that
throughout the lifetime of the project, Sole, using
‘middlemen’ or intermediaries, had indirectly received vast
sums of money from certain companies and consortia who had
been awarded contracts in the project. The patterns, size,
and timing of the payments gave rise to the notion that
bribery had taken place on a massive scale.
The Lesotho government now decided to prosecute Sole as well
as many of the corporations and members of consortia who had
made secret payments into various Swiss bank accounts,
together with the intermediaries who acted as conduits. In
December, 1999, 19 defendants were charged with bribery. Sole
also faced charges of fraud and perjury. Seven of
the defendants failed to attend this initial hearing.
By February, 2001, the landscape had altered substantially.
The court had ruled that the defendants should not be tried
together, and a long program of trials of individual
defendants began with that of Masupha Ephraim Sole, on
June 11, 2001. He was charged with 16 counts of bribery and two
counts of fraud. During his trial, Sole chose not to give
evidence. Evidence which had been gathered for the civil
proceedings was now used to show that he had lied repeatedly
in denying the existence of any accounts in Zurich. Such
accounts existed, and showed a complex pattern of payments
which had been made indirectly to him by a very large number
of the contractors and consultants at work on the LHWP.
In a comprehensive judgment, finding Sole guilty as charged,
Acting Judge Cullinan, a former Chief Justice of Lesotho,
observed that the patterns of payments which had emerged
during the trial had arisen from transactions which
‘inextricably bound together’ the
defendant consultants/contractors, the intermediaries, and
Sole himself. Sole was subsequently imprisoned for 18
years, reduced on appeal to 15 years.
The trial of Acres International, the Canadian engineering
company, now followed. Prior to the criminal proceedings,
the World Bank had begun debarment proceedings against Acres
and Lahmeyer, a German engineering consulting firm, both of
which had received funding from the Bank for the contracts.
It is worth noting that the evidence of secret payments into
numbered Swiss accounts was not deemed to amount to
sufficient
grounds for the debarment of the companies at that stage.
Acres continued to apply for, and receive, funding for
projects from the Bank. However, the Bank reserved its
position, saying that it would reopen debarment proceedings
if new evidence against Acres were to emerge from the
criminal proceedings.
It was alleged that Acres had made payments to Sole through
the offices of Zaliswonga Bam, one of three intermediaries
originally identified. Bam had died of a heart attack in
1999. Although he was, at the relevant time, working for a
housing association in Botswana, Bam and his wife had
numbered Swiss bank accounts into which money was put
by Acres amongst others and a proportion of which was then
placed in one of Sole's many accounts.
Acres had to accept that it had made payments to Bam; the
company argued that such payments were customary practice,
and had been made pursuant to the ‘representation agreement’
it had made with Bam for services rendered by him to the
company in his capacity as its agent or representative. With
little evidence to substantiate their case, Acres argued
that Bam had performed such services, that payment of such
sums of money was commonplace in such circumstances, that
nothing adverse should be inferred from the fact that the
payments were made in such
secrecy, and that in any event, the company had had no idea
whatsoever that Bam was making payments to Sole.
The company comprehensively failed to convince the judge of
the virtue of these arguments. In a colourful and literary
judgment, Judge Lehohla concluded that in the light of the
established relationship between Acres and the LHDA, Acres’
personnel were so embedded in the LHDA that there was simply
no need for a ‘representative.’ Bam's
‘representative’ status with Acres was not public knowledge,
neither was it generally known that Bam was on the payroll
of other companies working on the LHWP. The judge could see
no evidence to show what services Bam performed, nor why he
performed them, particularly in light of the work he was
doing at the material time. The judge concluded that
the representation agreement was a sham, that Acres had
benefited from bribing Sole, to the detriment of its
competitors, and that the company was therefore guilty as
charged.
Acres was convicted, and sentenced to a fine of CAD3.8M. The
company refused to accept the ruling of the court,
suggesting that the Judge had not been up to the job, that
the trial had been unfair, and that this error would be
corrected in the Appeal Court. Acres then lost its appeal.
At the time of writing, the company, pleading poverty, has
paid a little under half of the fine which was imposed upon
it by the Court of Appeals.
After the appeal hearing, debarment proceedings were
recommenced by the World Bank and in August, 2004 the
Sanctions Committee debarred Acres from applying to the Bank
for financial support for a period of three years. Shortly
before the Sanctions Committee gave its ruling, the company
was bought by a larger corporation, Hatch. The implications
for Hatch's dealings with the World Bank remain unknown.
A trial against Lahmeyer followed the same pattern as the
Acres' proceedings, as did the appeal; and it is
anticipated that a similar pattern of events will flow in
the debarment proceedings with the World Bank, although one
cannot predict the view of the Sanctions Committee.
Proceedings have now been instituted against Impregilo, an
Italian company, with the first hearing timetabled for
October, 2004. Evidence is now being gathered against others.
Conclusions
Whilst these trials have earned Lesotho a unique place in
legal history, it has been an expensive business. At an
international level, many have expressed their admiration
for the determination which the Attorney General has shown
in proceeding with these difficult cases, and for the
tenacity of purpose in the prosecutors, without
whose sustained efforts the trials would simply not have
been possible. No financial support for these trials has
been forthcoming from outside the country. Many institutions
and governments promised financial support at the outset of
the trials, but none has yet been forthcoming. A conclusion
drawn by some in Lesotho is that institutional support for a
prosecution may be lacking from a country where the
defendant company is registered, and where there may be a
corresponding conflict of
political interest.
Many of the legal aspects of corruption have now been
thoroughly and recently tested in the Lesotho courts. In
particular, there is now clear, developed common law
jurisprudence on the questions of jurisdiction (where the
matters can be tried) and citation (with regards whether a
company has a legal personality). In addition, the
definition of bribery has been further refined to ensure
that equal resonance accrues to the two parts of the offense
- netting both the bribee and the briber.
From the perspective of the international community, these
trials pose challenges to Parties to the OECD Convention on
Combating Bribery about the ways in which corruption is
detected and punished in different parts of the world.
Canadian lawyers have expressed doubt as to whether Acres
would have been prosecuted in Canada. The high moral tone
taken throughout by Acres, which has, throughout, been
disinclined publicly to express remorse for its actions,
might have deterred a decision to prosecute. Lahmeyer could
not be prosecuted under the provisions of German criminal
law in any event, since corporate offenses are dealt with
under administrative law only, punishable by means of fines.
With regards to the international financial institutions, Judge Steyn gave the clearest indication of the Court's view of
their role in his ruling in the Lahmeyer appeal:‘ …that it
will revisit its practices and procedures in general, but
for present purposes, more particularly the practice of the
employment of representatives who can play the obfuscating
role played so frequently in this mammoth project. But also,
that it will be firm and resolute in enforcing its
disciplinary proceedings on any agency, company, individual
or institution who participates in the practice of
bribing those employed on development projects.’
In terms of the Acres debarment, the company has been
debarred for three years. The period of debarment is shorter
than it might have been, because the Sanctions Committee
took into account the fine that had already been imposed by
the Lesotho courts, and the fact that those who had been
responsible for the bribery no longer worked for
the company. The Bank has conducted its own inquiry into
corporate corruption in Lesotho: its procedures are not vulnerable to
judicial scrutiny. However, the trials in Lesotho have been
subject to such scrutiny at every turn; they have
effectively provided the World Bank with the materials used
in its debarment proceedings. The decision of the World Bank
to debar Acres has been heralded as a clear indication from
the Bank that it means business, in excising corruption from
its
lending practices. Responses to the debarment of Acres have
yet to emerge from other IFIs. There can be no doubt that
mutual debarment could become an ultimate deterrent to a
company considering the bribery of a foreign public
official.
Fiona Darroch is a barrister at law, in practice at Hailsham Chambers,
London. Part of her practice is in
international environmental and human rights issues, and she
has been following and writing on the Lesotho corruption
trials for two years.
This article first appeared
in the Pambazuka News.
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