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Subsidiary Paid Indian Officials, Xerox Reports

Disclosure: $600,000 to $700,000 was given to win government orders in 2000. Two other overseas units face unrelated legal or tax problems.

July 02, 2002|From Bloomberg News

Xerox Corp., whose accounting is under U.S. regulatory investigation, said that its Indian subsidiary made "improper payments" to government officials and that two other overseas operations face legal or tax problems.

The world's largest copier manufacturer said a majority-owned subsidiary in India, Xerox Modicorp Ltd., paid $600,000 to $700,000 during 2000 to win government orders. Xerox also said some transactions by a South African affiliate may have been improperly recorded, and Brazil has assessed Xerox about $380 million in taxes mostly for internal transfers of inventory.

The Stamford, Conn.-based company made the disclosures in a delayed annual report, filed Friday, which also restated equipment sales from 1997 to 2001 by $6.4 billion, more than twice as much as the company acknowledged in April.

Xerox's report of the Indian payments and the two other international concerns represent separate issues.

"When our new management team was installed in India, we discovered there had been payments to certain government officials to facilitate equipment sales," said Xerox spokesman Dan Minchen. "Our management team immediately ordered a halt to any such payment to government [officials] or anyone else in exchange for favorability of sales."

Under the Foreign Corrupt Practices Act, U.S. companies and executives are prohibited from bribing foreign officials. At the same time, the law allows small payments that are necessary to do business in other countries. Xerox officials said the payments in India on an individual basis totaled $100 to $200.

Xerox said it has discussed the payments with the Securities and Exchange Commission, which has sued companies if they failed to disclose bribes in their financial statements.

SEC Chairman Harvey Pitt said Sunday that Xerox, its officers, directors and accountants are still under investigation for inflating revenue.

India has set up a Central Vigilance Commission to combat corruption. Referring to the reported payments by the Xerox subsidiary, S.N.P.N. Sinha, secretary of the vigilance commission, said the panel will "look into this."

The Indian subsidiary, based in New Delhi, had been making the payments for a number of years, said Paul Arrowsmith, Xerox's spokesman for developing markets, including India, the Middle East, Africa and Russia.

Xerox discovered the payments in October 2000 and ordered a special audit that was completed last year, along with a legal review that the company received this year.

Arrowsmith said the payments "also involved errors in Xerox [Modicorp]'s books," which are now being audited by Deloitte, Haskins & Sells, an associate of Deloitte Touche Tohmatsu.

He said Xerox also plans to notify the Justice Department and the Indian government about the payments.

Xerox shares, which have fallen 34% this year, dropped 12 cents to $6.85 on the New York Stock Exchange.

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