- The Washington Times - Thursday, July 31, 2003

The federal government suspended business with telecommunications giant MCI Worldcom yesterday after an investigation found that the company lacked internal controls and ethics.

MCI’s government contracts are valued at more than $1 billion a year and are the lifeline of the company’s faltering business, which is now in a New York bankruptcy court.

The decision was prompted by a scandal that broke out last month involving accusations that MCI had manipulated long-distance calls to avoid competitors’ access fees. Worldcom also was involved in a record-breaking $11 billion accounting scandal last year.

“It is important that all companies and individuals doing business with the federal government be ethical and responsible,” said Stephen Perry, administrator of the General Services Administration, which is in charge of choosing government contractors.

The Bush administration came under pressure from critics in Congress for continuing to do business with Worldcom, although it had quickly barred Enron, Arthur Andersen, and other companies implicated in equally massive scandals last year.

“The GSA has made the right decision in taking decisive action to protect the American taxpayers from doing business with a company that has demonstrated a flagrant lack of ethics,” said Senate Governmental Affairs Committee Chairman Susan Collins, Maine Republican, who had asked the administration last month to review Worldcom’s status.

“This decision reinforces a sound principle: to do business with the federal government, a company must uphold satisfactory ethical standards, not only with the government itself, but also in its business activities generally,” she said.

MCI said it will not challenge the decision.

“Today’s announcement will not affect MCI’s existing contracts with state and federal government customers who can continue to count on us to provide the industry’s best service and support,” MCI Chairman Michael Capellas said.

“We are in the process of rebuilding our ethics program, and understand that there is still more work to do.”

After WorldCom was driven into bankruptcy by the accounting scandal last year, it said it would adopt the name of its MCI long-distance division in a bid to clean up its image. But with the latest scandal, MCI’s name has become tainted as well.

A bankruptcy court is considering efforts by the company to emerge from Chapter 11 bankruptcy protection, but the decision yesterday appears likely to deal a blow to the company’s struggle to survive.

Worldcom, once among the fastest-growing and most aggressive players in the telecom and Internet boom, is accused of falsifying balance sheets to hide expenses and inflate earnings. Its collapse and bankruptcy wiped out up to $200 billion in shareholder wealth.

The latest scandal intensified this week when MCI’s competitors, including AT&T; Corp. and Verizon Communications Inc., accused it of routing long-distance calls through Canada to avoid paying local access charges. The Justice Department is investigating.

Critics and competitors say the government was too lenient with the company by continuing to award it work, while fashioning a $750 million securities-fraud settlement with Worldcom that appeared carefully designed to keep the huge contractor in business.

Worldcom provided extensive Internet services to sensitive federal agencies, including the departments of Defense, State and Veterans Affairs, the Social Security Administration and the Federal Deposit Insurance Corp. This spring it won an exclusive contract to build a wireless phone network in Iraq.

This article is based in part on wire service reports.

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