Indian’s Larsen & Toubro Suspended by Worldbank

MUMBAI
The World Bank suspended Indian engineering company Larsen & Toubro Ltd.from bidding for contracts through September after the lender found that a company employee had forged documents to win a supply deal five years ago.

World Bank antigraft investigators found that the company, one of India’s largest, had failed to prevent the employee from falsifying documents to help secure a contract to supply ultrasound scanners for a health project funded by the lender in India’s southern Tamil Nadu state in 2008. The employee fabricated 13 positive testimonials about the scanners, purportedly from hospitals and clinics, to help win the contract, the investigators found.

The bank barred Larsen & Toubro from bidding for contracts between March 7 and Sept. 6.

A Larsen & Toubro executive acknowledged the fraud. The executive, Deepak Morada, said an employee had falsified the certificates without company sanction. When confronted by management, the employee resigned, Mr. Morada said Friday.

Larsen & Toubro has since sold its medical-equipment unit, and the World Bank suspension won’t have any significant impact on its overall business, Mr. Morada said.

Taking on a company as large as Larsen & Toubro, which has a stock market capitalization of about $16 billion, is significant. Most sanctions by the World Bank are against much smaller companies or individuals.

The bank bolstered its antigraft division four years ago and has since tackled more-serious crimes. This year alone, there have been more than 50 suspensions of companies and their subsidiaries in countries such as Serbia, Iraq, Paraguay and Madagascar. Last summer, the bank canceled a $1.2 billion loan to Bangladesh to build the country’s longest bridge, citing concerns over corruption in the project.

In the Larsen & Toubro order, which was dated March 7, the World Bank said that an Indian government agency implementing the health project in Tamil Nadu had received a complaint that testimonials about Larsen & Toubro’s scanners might be fake.

In response, a manager of Larsen & Toubro’s medical division wrote to the Indian agency in November 2008 that some medical facilities issuing the user certificates “may have mistakenly denied issuing” them, the World Bank order said. But the Indian agency canceled the contract and awarded it to another company in June 2009.

Larsen & Toubro didn’t dispute that the documents were forgeries but said they were the work of a “rogue employee” and that the company shouldn’t be held liable, a World Bank official familiar with the case said.

Nevertheless, the bank found that Larsen & Toubro had failed to put in place measures that could prevent or detect such frauds, its order said.

The employee’s termination and the company’s promise to bolster its compliance program helped to shorten the sanctions to sixth months, the official said. Typically, the World Bank bars companies from contracts for three years and sometimes reduces that suspension on appeal.

The suspension could reduce Larsen & Toubro’s ability to participate in other global aid projects. International lending institutions, including the Asian Development Bank and the European Bank for Reconstruction and Development, have signed an agreement to recognize each others’ so-called debarments.