ITXC: Related Foreign-Bribery Proceedings

The ITXC FCPA case included a civil judgment ordering the former regional sales director to pay $188,453 in surrendered gains and interest, alongside related actions against two other executives over telecom bribery. The Securities and Exchange Commission alleged that ITXC paid employees of government-owned telephone companies to help secure carrier contracts in Nigeria, Rwanda and Senegal. For someone inside the business, the revealing connection was between the person choosing the carrier and the person receiving its commission.

ITXC was a publicly traded international telecommunications carrier based in Princeton, New Jersey. It supplied carriers around the world, primarily through voice over Internet protocol services. The Justice Department’s accounts of the executives’ guilty pleas describe payments intended to win and retain that business, while the SEC’s civil complaint traces the agent agreements, approvals and accounting entries behind them.

The Contract Bought Access to Telephone Customers

ITXC needed agreements with local carriers to complete calls to their customers. According to the SEC’s complaint against the sales executives, Nitel, Rwandatel and Sonatel restricted that access to increase the fees they could charge foreign carriers. Winning a carrier contract therefore opened a route to business that ITXC could not otherwise serve through that carrier.

The complaint alleged that the executives used employees of those carriers as paid agents to influence the contract decisions. Nitel was wholly owned by Nigeria’s government, Rwandatel by Rwanda’s government, and Sonatel was partly owned by Senegal’s government during the alleged conduct. We see the conflict in plain terms: ITXC was paying people on the customer’s side to steer the customer’s business.

Nigeria: The Agent Helped Choose the Winning Bid

The SEC alleged that ITXC first tried to win a Nitel contract by hiring a former senior Nitel official as its agent. That effort failed, and a competitor won the contract. When Nitel later invited ITXC to bid again, the regional sales director offered the agency role to a current deputy general manager who helped choose the winning bidders.

According to the complaint, the vice president for global sales and the managing director for the Middle East and Africa knew and approved that arrangement. The regional director promised the Nitel decision-maker a retainer and a share of ITXC’s profits if he steered a carrier contract to ITXC. After the carrier contract was signed, the vice president signed an agency agreement granting the official a percentage of the resulting profits.

The SEC alleged that the official signed the agency agreement as chief executive of an otherwise nonexistent corporation. ITXC sent payments from its New Jersey bank account to that company’s account in Nigeria and recorded them as legitimate expenses. The agreement’s corporate name concealed a payment relationship with someone who helped decide whether ITXC got the business.

Rwanda: The Customer’s Signatory Became ITXC’s Agent

The Rwandatel employee allegedly occupied both sides of the transaction. The SEC complaint says the regional director promised to pay him as an ITXC agent if he influenced Rwandatel to agree to favorable traffic-exchange terms, with the sales executives’ knowledge and approval. The employee then signed the carrier agreement on Rwandatel’s behalf.

ITXC later entered a formal agency agreement with that same employee, signed by its vice president for global sales. According to the complaint, compensation depended on the minutes of telephone traffic ITXC completed under the carrier agreement. The executives approved a payment from ITXC’s New Jersey bank account to the employee’s account in Dubai and caused it to be recorded as a legitimate expense.

For an insider reviewing commissions, that arrangement connects the payment calculation to the customer’s decision-maker. The carrier agreement shows whom the employee represented when the business was awarded, while the agency agreement shows how ITXC proposed to pay him. Read together, the documents explain the alleged conflict that either agreement alone could obscure.

Senegal: A Revenue Share for the Customer’s Employee

The SEC alleged a similar arrangement with a Sonatel employee. The regional director, with the sales executives’ knowledge and approval, promised him a percentage of ITXC’s revenue if he persuaded Sonatel to enter a traffic-exchange agreement. The vice president signed the formal agency agreement on ITXC’s behalf.

According to the complaint, the executives approved payments from ITXC’s New Jersey bank account to the Sonatel employee’s account in Paris. The company recorded those payments as legitimate expenses. The country and bank account changed, but the alleged bargain remained the same: a customer employee received a personal financial interest in steering business to ITXC.

The Sales Approvals Reached the Books

The SEC’s civil enforcement announcement alleged $11,509,733 in net profits from the contracts obtained through the payments. Its complaint accused the executives of disguising bribes as agent or consulting fees and bypassing internal accounting controls. We see why an approved expense can tell only part of this story: the sales decision and the accounting description can conceal the same payment in different ways.

The complaint also describes a reporting chain from the regional director to the managing director and then to the vice president for global sales. It alleged knowledge and approval at those levels, including agreements signed and payments authorized by the executives. An employee who understands those approvals may know why a commission exists, whose decision it was meant to influence, and why the expense description leaves that purpose out.

What the Executives Admitted and the Civil Cases Resolved

In its announcement of the regional director’s guilty plea, the Justice Department described his responsibility for negotiating African carrier contracts and hiring third-party sales agents. Its account of the criminal charge said the promised commissions depended on traffic generated under contracts the recipients helped award to ITXC. The regional director pleaded guilty to conspiring to violate the Foreign Corrupt Practices Act and the Travel Act.

The vice president and managing director pleaded guilty in separate criminal cases in July 2007. According to the Justice Department, they admitted conspiring with other ITXC employees and officers to make corrupt payments to carrier employees in Nigeria, Rwanda and Senegal to obtain and retain contracts. The Federal Bureau of Investigation investigated the criminal case.

The SEC announced in May 2008 that the court had entered civil judgments resolving its claims against all three former executives. The regional director’s civil payment obligation concerned his own gains and interest; the SEC alleged that he had personally benefited through embezzlement and a kickback connected to the scheme. The civil actions and criminal pleas concerned the executives, and the company’s contract profits explain the business they were accused of pursuing.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign-bribery information can qualify under separate reward programs, and our whistleblower experts can assess the payments and business decisions you know from inside a telecommunications company.

You Know Who the Commission Was Really For

If you know why a carrier employee appeared on an agent agreement or who approved a payment tied to a contract award, talk with our whistleblower experts. We connect your knowledge of the customer, the commission and the accounts, bring in foreign-bribery whistleblower lawyers who understand intermediary payments, and stay beside you through the case.