Reference no: EM131296226

Financial scandal at Air Mauritius

In 2001, Air Mauritius, a national airline company, faced a major fraud scandal following revelations of financial malpractice involving, among other things, unauthorised payments and free tickets distributed to politicians and journalists. If it were ‘common practice' for Air Mauritius to distribute air tickets to politicians free of charge, does it make sense to sack its Director of Legal and International Affairs? Should the latter be held responsible for not denouncing something that benefitted the political class, and was known to be part of the ‘normal activities' of Air Mauritius? Or was this member of top management laid off for reasons that were not revealed to the public?

In October 2000, Air Mauritius appointed a new managing director (referred to here as the ‘VP') but the latter resigned six months later, returning to his former post as Legal Director of the National Aviation Company. The Chief Executive Officer, knighted in 1987, remained in post throughout.

Unfavourable exchange rates and rising fuel costs pushed Air Mauritius into a MUR214.4 million loss for the 2000-2001 fiscal year.

According to Air Mauritius, a sum of MUR85 million had been embezzled in the period 1981 to 1999. The National Aviation Company alleged that a pension of MUR16.8 million had been instituted for the former General Manager of Finance in Switzerland. While the former General Manager of Finance denied being indebted to Air Mauritius for the sum of MUR85 million, he declared having remitted a sum of MUR27.5 million to the police (Recueillis & Meetarbhan 2003). Mention was made of the existence of an illegal or secret fund. When this detail was revealed to the police, the latter issued ‘objections to departure from the country' to the company's former Chairman, the former Managing Director and the General Manager of Finance. In the meantime, some senior officials of Air Mauritius had confirmed to the police their involvement in the act of embezzlement, as well as that of other officials. The press was informed that the money in the ‘secret fund' was kept in cash at the Headquarters of Air Mauritius. The overseas trips of eminent figures, including those of the President of the Republic, were met from this fund.

While it was alleged that Members of the Cabinet were aware of the existence of the secret fund all along, there was some confusion on the functioning of institutions that are, in principle, accountable to the State. To what extent can one push the abuse of position to suit one's interests? How impartial is the Judiciary? The Commissioner of Police, in an interview with the press, stated that the media should intervene to explain to the population the way the Judiciary functions. He added that the dossier had been referred to the Director of Public Prosecutions (Recueillis & Meetarbhan 2003). The question arising is whether the Commissioner of Police acted on his own behalf or under instructions.

Hit by this massive fraud scandal, Air Mauritius chose to terminate the employment of its Director of Legal and International Affairs on the grounds that the latter did not notify his management of the financial malpractice prevailing in the company. Further to a Board meeting, the Director of Legal and International Affairs, who was also Managing Director of the company from September 2000 to March 2001, was fired on 9 October 2001. A communiqué was subsequently issued, stating, ‘the Company has also lost confidence in him as an employee'. The VP was accused of failing to report to the Board of Directors the alleged fraud and malpractice that took place within the airline company. It was understood that such instances of malpractice were revealed to him by the General Manager, Finance and Administration, in a tape-recorded conversation in October 2000. Was there intent to frame the Director of Legal and International Affairs as early as October 2000, hence the recording of the conversation on financial malpractice?

The Board of Air Mauritius also accused its Director of Legal and International Affairs of failing to disclose the contents of a report on the payment of special commissions by the Director of Internal Audit. Apparently, the act of illicit payments of commissions was communicated to VP in October 2000, when he headed the company as Managing Director. The Board stated how urgent it was to devise appropriate measures to restore confidence in the national airline organization. The Board stated that, 'it cannot permit people, both from within or outside, to undermine and destabilize the Company'. Does this statement make sense, considering that the act of giving away free air tickets to the political class constituted 'acceptable' practice at Air Mauritius? Following the dismissal of VP, whose brother is a high-ranking official in the Mouvement Militant Mauricien (MMM) party, allegations of embezzlement surfaced on the dealings of the company with Rogers & Co., the general sales agent of Air Mauritius for certain destinations, under different administrations. There were allegations that MUR97 million was lodged, in the form of fictitious transactions, in favour of Rogers Aviation. As well as payments of commission and personal misappropriation, significant amounts of 'black money' were supposedly channelled to the major political parties or used to fund overseas trips for senior politicians. Investigations started on 18 September, 2001, and numerous suspects were taken to Court, amongst whom were the former Chairman, the former General Manager of Finance and Company Secretary, a former Director of Rogers & Co. and two high officials of Air Mauritius (‘Pleins Feux sur les Enquêtes à Sensation' 2003, L'Express). Air Mauritius accused its former General Manager of Finance of having effected the illicit payment of 'special commissions', in addition to fictitious loans of MUR6 million to Rogers & Co., between 1981 and 1999. The resulting scandal, in turn, forced the resignation of the former Chairman of Air Mauritius. The ruling party at the time this scandal was publicised was the Mouvement Militant Mauricien/Mouvement Socialiste Militant Alliance.

In parallel with the investigation of the above scandal, the transactions of TA, a businessman of Mauritian origin based in the United Kingdom, and allegedly the main beneficiary of the funds embezzled at the Mauritius Commercial Bank (MCB), to the detriment of the National Pensions Fund (NPF), were clarified with the help of his associate, DHY. DHY made statements to the Independent Commission Against Corruption (ICAC) to shed some light on various aspects of this complex case. Following DHY's statements, the MCB requested more details and confirmation through particulars of appeal. One of the main revelations of DHY's statements to the ICAC was undeniably the political issue. He asserted that the Mauritian businessman settled in London wanted to revive the Union Démocratique Mauricienne (UDM), a political party that was active in the 1970s. It was believed that TA, donated MUR1 million to the UDM party. It was also said that TA provided financial help to the Labor Party for the organisation of congresses as well as for the actual Prime Minister's air ticket to return to Mauritius. It is worth mentioning that the PM had lived in the UK until the early 1990s, when he became active on the political scene. TA also provided financial assistance to a short-lived newspaper, ‘l'Indépendant'. In addition, there were allegations that funds could have been used to finance political activities linked with the commemoration of the late SSR's (the Prime Minister's father) birthday. A cheque of MUR900,000, drawn by TA and dated 16 September, 1993, was alleged to have been used to that effect. TA's main contact in the Labor Party was allegedly the former Minister of Finance under the Labor Party, then currently the head of an important ministry. There were allegations that TA helped the latter pay off his debts. The press reported that the common perception was that TA expected the latter to return the favour as and when he acceded to the post of Minister. However, the former Finance Minister denied all the allegations, making the point that he had already collaborated with the investigators on the issue and would continue to do so, if necessary. The former Finance Minister, now a member of the current government, held that DHY's revelations were purely Machiavellian politics.

In his testimony, DHY mentioned that TA's investments in Mozambique, which also involved the former Financial Secretary, concerned a paper converting project. He gave more details about the money transfers by TA from the accounts of companies he controlled which were called 'Handsome Investment', ‘Mangarian and Searock Paradise', 'Belle Beach Ltd.' There were allegations that a sum of MUR83 million was transferred between 1997 and 1999. DHY did not spare the former Chief Manager of the Mauritius Commercial Bank, RL, who supposedly acted as an intermediary for TA's companies. RL was the one who proposed that bills of exchange endorsed by the bank be made. The cheques were dated 30 December 1994 and were payable to the MCB. The cheque numbers were 2126363-64-65-66-67-68-69- 70, in the amounts respectively of MUR918 700, MUR262 500, MUR183 700, MUR281 250, MUR275 000, MUR82 500, MUR1,089 750, MUR112 575.

These cheques, drawn following RL's instructions, The instructions were to draw the cheques separately. DHY explained how TA used bills, drawn mainly through the National Mutual Fund, to pay off his debts. Assuming all this were true, the investigation to solve the MCB-NPF financial scandal would have made a huge step forward.

Questions

1. Comment on the role of the Board of Air Mauritius regarding the dismissal of the Director of Legal and International Affairs.

2. Discuss the act of funding the trips of political people.

3. Comment on the culture of favouritism common to emerging nations. How does this relate to the concept of particularism?

4. Assuming DHY's revelations reflect the truth, what can we say about the role of the former Finance Minister?

5. Discuss the fact that the former Finance Minister is still in the government.

6. What are the likely implications of the type of fraud experienced at Air Mauritius on the airline and its customers?