Financial Scandal at Air Mauritius

Large case

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?