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China’s number one export: Graft?

Chinese President Xi Jinping and his Sri Lankan counterpart Mahinda Rajapaksa witness the signing of the Colombo Port City Project in September 2014 (Image courtesy of CCC)Sri Lanka this month became the latest of at least five countries to shut down huge China-backed infrastructure and telecoms projects tainted by allegations of corruption.

The new government in Colombo suspended a $1.5 billion construction project for a port upgrade awarded to China Harbor Engineering Co Ltd, a subsidiary of state-owned China Communications Construction Company, or CCC.

The new Sri Lanka government took over in January this year. The prior regime awarded the Colombo port project last September.

Sri Lanka finance minister Ravi Karunanayake said there’s no record of the mandatory environmental impact and feasibility studies for the project. Other government approvals are also missing, he told the South China Morning Post.

The $1.5 billion Colombo Port City project was a luxury real estate development on reclaimed land the size of Monaco, the SCMP said.

Last year, Tanzania accused CCC of corruption in connection to another port project. Prosecutors charged the former head of the Tanzania Ports Authority and his deputy with fraudulently awarding a bloated contract worth more than $523 million to CCC for a port expansion.

Tanzania abandoned the project after officials said costs billed by CCC were double those for similar port projects.

Prosecutors said the Ports Authority awarded the the mega-contract in December 2011 without obtaining competitive bids.

Beijing-based China Communication Construction has about 100,000 employees and $52 billion in annual revenues. It has a class of shares listed on the Hong Kong stock exchange.

In 2013, the Zambia government terminated a $210 million closed circuit television camera contract with China’s ZTE because of alleged corruption.

A government source said if the contract for traffic control had continued, Zambia could have lost $100 million through inflated billings.

The contract had been awarded “without an open tender procedure, raising suspicions of corruption,” reports said.

In Algeria in 2012, ZTE and Huawei Technologies were convicted of corruption. The companies were banned from state telecoms tenders for two years for bribing executives at state-owned Algérie Télécom.

In that case, an Alegerian court sentenced three Chinese executives to ten years in prison in absentia for paying $10 million in bribes through offshore accounts in Luxembourg.

In 2011, Uganda blocked a $106 million fiber-optic cable funded by a loan from the Import and Export Bank of China because of alleged inflated costs.

In Kenya, opposition lawmakers accused the government in 2011 of ignoring tender procedures when it awarded Pan African Network Group of China a contract for the country’s digital TV signal distribution.

Last week the Wall Street Journal said China’s billions of dollars of loans to Sri Lanka have also come under scrutiny for being offered at high interest rates.

The Sri Lanka finance minister Karunanayake told the SCMP: “We are not against China but against the Chinese companies manipulated by [the prior] Mahinda Rajapaksa regime into corrupt deals that are bleeding the taxpayer.”

The new government will look for graft in other projects that former President Rajapaksa awarded to Chinese and other companies, the finance minister said.

China has urged Sri Lanka to respect bilateral agreements and business contracts, and protect the interests of its investors.


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here

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1 Comment

  1. There are countries in Africa that should follow Sri Lanka example.

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