ITT "Questionable Payments" Top $19 Billion in 1970s

International Telephone and Telegraph (ITT) recently upped the figure on its overseas "questionable payments" - bribes or possible bribes - during the last decade to nearly $20 million.

A report issued on May 13 by a special review committee of ITT's board of directors concludes that from 1971-1975, ITT made questionable payments of $13.95 million. This estimate is substantially higher than the $8.7 million figure the committee reported in 1978, or the $3.8 million the committee initially acknowledged in 1976.

From 1976-1980, ITT's questionable payments continued, according to the 101-page report. The amount of new payments discovered is $5.7 million, the report estimates, although it adds that "we have made no systematic effort to discover all possibly questionable transactions in which ITT subsidiaries may have engaged after the end of the 1971-1975 period."

The findings of "substantial payments" both in the 1971-1975 period and afterwards "were extremely disturbing to us," stated the report, written by ITT board directors Terry Sanford and Thomas W. Keesee, Jr., under a consent agreement ITT signed with the Securities and Exchange Commission.

A number of revelations appear in this latest ITT report:

• ITT admits to making over $1 million in questionable payments from 1974-1979 in connection with a Vienna General Hospital contract. The Austrian government late last year convicted ITT Austria's managing director, board chairman, chief financial officer and marketing director for making such payments (see MM, February, 1982).
• "payments totalling approximately $30,000 were made in an Asian country in 1976."
• "a payment of $10,000 was made to a government official in a Latin American country" sometime after 1975.

The report also exposed an unusual way ITT made some of these questionable payments. "We learned for the first time," the report says, "of a series of transactions in which two companies had made payments, mostly in cash, on behalf of other ITT entities."

This technique, according to the report, worked in the following manner: one ITT subsidiary would funnel money to another ITT subsidiary, which would in turn make the questionable payment on behalf of the first subsidiary. Afterwards, the first subsidiary would reimburse the second for the payment.

The authors of the report were concerned about this "cash transfer" arrangement. "We had not expected to rind cash being moved about as it was... The explanation appears to be that the method of transfer was almost undetectable as long as the European subsidiaries refused to allow access to their books."

What is more, ITT also made a questionable payment on behalf of a totally-unrelated corporation. "In one instance," states the report, one of the four European subsidiaries [of ITT, under investigation by the committee] advanced $500,000 to an ITT subsidiary which was acting as agent for a non-ITT corporate principal. The ITT subsidiary appears to have paid the money to a government official to influence the award of business to the non-ITT principal corporation" in possible violation of local law, the report notes.

In trying to assign responsibility for the existence and scale of these payments, the authors of the report placed some fault with "overseas subsidairies of the Corporation, managed principally by foreign nationals with different traditions and attitudes towards doing business."

The report also criticized senior ITT management during the reign of Harold Geneen, who stepped down as chief executive officer in 1978.

"Until the present top management took office," the report states, "signals from headquarters to foreign managers may not have been as clear and firm about enforcement of the (company's anti-bribery) policies as with hindsight one might wish."