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06/05/2003 | A 'Graveyard of Dreams'

Martin Edwin Andersen

It was Oct. 15, 1997, and an auditorium packed with top business leaders in Sao Paulo - Brazil's industrial hub - was for Bernard van der Lande the realization of an American dream. In less than two decades the hard-driving, Dutch-born Georgia entrepreneur had built his Ashford International (AI) information-technology company into a thriving business with annual sales of $25 million. Now, the president of the United States was telling Brazil's business elite how the example set by AI, which only months before had won the U.S. Department of Commerce's presidential "'E' Award for Excellence in Exporting," was a model for a "world-class" Brazilian-American technology partnership. "Ashford International recently launched a project with Sao Paolo's local government supplying 5,000 multimedia computers for 1,000 area schools," Bill Clinton told the Brazilians. "That's good for the students and good for the Stone Mountain [Ga.] company and its workers." 

 

What happened next did not reflect the incipient "world-class" partnership hailed by Clinton. Rather, it is a cautionary tale about how projects funded by U.S. taxpayer-supported multilateral development banks (MDBs) may be very good business for local people but often are a graveyard of dreams for small and independent American businessmen. Before Clinton appeared in Sao Paulo, AI had a solid record of winning MDB contracts. But as the president spoke, van der Lande had no way of knowing that Brazil, and projects funded there by the Inter-American Development Bank (IDB), would leave him without rights or recourse as he and his company fell victim to alleged IDB cronyism and procurement fraud in the face of official U.S. neglect. 

In 1998 the Brazilian economy crashed and the country became desperate for new information-technology business to sustain its failing computer industry in the wake of a devastating private-sector shakeout. According to knowledgeable sources, official pressure may have been applied on the bank to direct contracts to Brazilian suppliers. What is certain is that AI lost 26 consecutive bids with the IDB - all reportedly due to "technicalities" thrown up by procurement specialists who, van der Lande says, bent over backward to make life difficult for his company while favoring his competition. The pretexts van de Lande says AI was given by IDB-funded projects as the reason for throwing business elsewhere included the refusal by project managers to accept local U.S. incorporation papers, independently audited balance sheets and IRS certificates showing U.S. taxes paid. "For a company to be disqualified on those grounds," van der Lande observed, "is ridiculous."

Van der Lande pointed out that most of the contracts taken away from AI went to a single competitor. In one dispute, the IDB even brought in as a special reviewer for a disputed contract an "expert" who worked as a consultant for a local company that competed with AI in Brazil. In another, a Brazilian competitor filed three lawsuits against awarding AI a contract valued at $160,000, costing the American company $50,000 in legal fees, and $80,000 when the IDB affiliate took AI's performance bond. Ashford also was forced to pay $50,000 in value-added taxes for which Brazilian competitors were reimbursed at the end of the fiscal year, but that local bank representatives insisted applied, without possibility of reimbursement, to the Americans.

Van der Lande refused to give "grease payments" of 3 percent of the contract price to local IDB administrative subcontractors - which would have been a violation of the U.S. Foreign Corrupt Practices Act -a suggestion made to him by a friendly former IBM official who claimed that this was the way business got done. (In neighboring Argentina, several senior IBM officials were convicted recently of bribing senior government officials in the mid-1990s for a $400-plus million information-technology program with Argentina's official bank.) 

Today, AI's sales are barely $1 million, compared to $25 million three years ago. Understandably, van der Lande is angry, and officials at both the Commerce and Treasury departments are included in his list of those responsible for Ashford's plight. Neither the IDB nor the U.S. offices van der Lande cited had any comment on AI's case. Former U.S. executive director at the IDB, Larry Harrington, who independent observers say was well-intentioned but ineffectual at the bank, intervened on van der Lande's behalf, according to documents obtained by Insight. It was Harrington's suggestion that van der Lande demand an official audit.

Harrington refused to comment on the Ashford case to Insight, saying, "As far as personnel and procurement cases, I do not feel it would be proper for me to respond on an individual basis. I do believe that the U.S. Director's office made every effort to handle any case that came to our attention in a serious and professional manner." 

The IDB, van der Lande tells Insight, does "not provide the required environment of transparency in the international bidding process, which is unfairly biased toward local companies. International companies like AI are used to provide the appearance of international competition for procurement projects when in fact the process does not provide for the fair consideration of international bids." Selective enforcement of the IDB's own policies, as well as local regulations and laws that tend to reward cronyism and punish international competitors who raise questions about the process, allow the bank maximum flexibility in escaping successful lawsuits by claiming "sovereign immunity" from other local laws. The U.S. Commerce Department's "lack of resolve," he adds, has made this situation worse, by not being an effective partner or advocate in this process."

Like fellow U.S. businessman Steve Worth, who alleged he was defrauded in an IDB-sponsored project in Panama [see "Dissed and Dismissed," April 1], van der Lande complains that the bank's internal policing mechanisms are cumbersome and incompetent at best. "The people who are supposed to watch over the system," he says "often show immediate hostility to those coming forward with complaints about how the system is allowed to work." Van der Lande expresses amusement at claims made to Congress by Jose Fourquet, the current U.S. executive director, seeming to take credit for resolution of the problems Worth said he still faces at the bank. "I got one of those same letters from Fourquet myself," van der Lande tells Insight. "His assertion is a big disappointment." 

Van der Lande also found a parallel to Worth's experience with the IDB in another respect - the alleged ineffectiveness of the bank's auditor-general's office in investigating complaints of wrongdoing. Van der Lande pointed out that Harrington officially requested that an audit be conducted to determine the accuracy of the entrepreneur's complaints. He said that it took 10 months after a meeting with Auditor General William Taylor to report back with a summary of the green-eye-shade office's findings. In a July 31, 2002, letter to Taylor, van der Lande complained that the summary lacked "in depth, research and real effort. We feel that it doesn't touch on the real issue and is basically a rehash of discussions we have had with your procurement staff and the various agencies with which we have the disputes." Van der Lande sent Taylor a point-by-point rebuttal of the summary, in which bank staff absolved the institution of any responsibility for the actual damages caused to AI. Van der Lande estimates the damages to be upward of $5 million.

Van der Lande then requested that an in-depth investigation be done. The IDB responded that, for its purposes, the case was closed.

"If I could take the bank to court, I would," van der Lande says. "But the IDB claims sovereign immunity, meaning that it is outside U.S. legal jurisdiction, and the three different law firms we have consulted say it will be nearly impossible for our claims to be considered, much less get the type of relief that Ashford is owed. But I will not give up, even if it is just to warn others not to fall into the same trap." 

Martin Edwin Andersen is a reporter for Insight.

Insight Magazine (Estados Unidos)

 


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