- The Washington Times - Monday, July 28, 2003

A top lawmaker yesterday questioned whether WorldCom Inc. should continue receiving government contracts amid charges that the company diverted the telephone calls of critical government agencies to Canada to reduce costs.

AT&T; Corp., rival of WorldCom’s MCI long-distance service, charged in court papers yesterday that the bankrupt telecom giant diverted calls placed by the State Department, U.S. Postal Service, U.S. Agency for International Development, Library of Congress and even one member of Congress, and in doing so potentially compromised national security.

“If these allegations are true, MCI WorldCom may be guilty of defrauding the government,” said Senate Governmental Affairs Committee Chairman Susan Collins, Maine Republican, questioning whether WorldCom “compromised secure information.”

The latest charges of fraud “suggest that MCI was engaging in fraud long before WorldCom acquired it, and may still be engaging in fraud today” despite the company’s assertion that it fired all the perpetrators of WorldCom’s record-breaking accounting fraud last year, she said.

The new evidence may disqualify WorldCom from winning federal contracts, she said. “Under the law, generally no federal agency can contract with a company unless it is found to possess adequate integrity and ethics to do business with the government.”

WorldCom is a major government contractor, providing telephone and Internet service to the departments of Defense, State, Commerce and Veterans Affairs as well as the Social Security Administration. In the spring it won a much-sought contract to build a mobile-phone network in Iraq.

Enron Corp., Arthur Andersen and other companies were implicated in massive fraud in the past year and a half. But the Bush administration did not consider barring WorldCom from government business until earlier this summer when Miss Collins raised questions about its contracts.

The General Services Administration, at Miss Collins’ request, is reviewing WorldCom’s status. Yesterday, the agency said it did not yet have enough information on the new charges to make a determination.

Any decision to exclude WorldCom from government contracting almost certainly would force the company out of business. Chief Executive Officer Michael Cappelas once boasted that the company constitutes the “backbone of the Internet,” providing critical services to the government, and is in effect “too big to fail.”

WorldCom already has agreed to a record $750 million settlement with the Securities and Exchange Commission to settle accounting-fraud charges.

The new charges come as WorldCom is in the final stage of negotiations with creditors on a plan to emerge from the largest bankruptcy in history with a fresh start and cleaned-up image, including adopting the name of its MCI service to emphasize its break from the past.

In a filing before the U.S. Bankruptcy Court in New York opposing WorldCom’s reorganization plan, AT&T; charged yesterday that MCI for years has masked many of its long-distance calls as local and diverted others to Canada to avoid paying costly access fees to local carriers across the country.

In some cases, MCI effectively forced AT&T;, the largest long-distance carrier, to pay the access charges in its place, AT&T; said. MCI is the second-largest carrier.

The charges by AT&T; and other WorldCom rivals, Verizon Communications Inc. and SBC Communications Inc., are being investigated by the Justice Department.

MCI officials “demonstrated their willingness to play fast and loose with our national interests to line their pockets with cost savings from local telephone tariffs they dodged,” AT&T; said in the court filing.

The Canadian scheme, which AT&T; said began in 2001, was well-known within WorldCom as “the Canadian Gateway Project” and used WorldCom connections with Bell Canada and Manitoba Telephone Systems, AT&T; said.

AT&T; said it will file fraud and racketeering claims against WorldCom in an effort to recover the “untold millions in operating expense” that were passed on to AT&T.;

WorldCom had no immediate response to the charges yesterday. The company has said that disputes over circumventing access fees are common in the dog-eat-dog telecommunications business, and its rivals are trumping up charges in an effort to eliminate competition by forcing it into liquidation.

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