India investigates 'improper payments' by Xerox

India's Finance Minister has ordered a probe into the "improper payments" that Xerox Corp. said its Indian joint venture had made in connection with government contracts.

Xerox said Xerox Modicorp Ltd. in Gurgaon, India, paid bribes to government employees in connection with sales of its equipment to Indian government customers, but puts the blame squarely on the management team appointed by its Indian joint venture partner, ModiCorp Ltd. of Delhi.

ModiCorp, recently renamed SpiceCorp Ltd., had a majority stake in the joint venture from 1983, and managed the joint venture until August 1999 when Xerox acquired a 68 percent share in the equity of the company.

Xerox, in Stamford, Connecticut, discovered the improper payments to Indian government officials in October 2000, after it had replaced the management appointed by its Indian joint venture partner, it said in a statement Thursday.

The disclosure about the irregularities at Xerox Modicorp came up in connection with Xerox's announcement last week that it was restating its earnings for 1997 to 2001 due to accounting irregularities. As part of that restatement, Xerox filed a new 10-K form with the U.S. Securities and Exchange Commission (SEC) on Monday, in which it referred to the payment of bribes in India.

"Upon learning of the improper activity (in October 2000), Xerox immediately ordered that the practice be stopped," said the statement issued by Xerox from London.

"Xerox had attorneys in the United States and the auditing firm of PricewaterhouseCoopers investigate the issue independently. On completion of the investigation, which validated the company's internal findings, Xerox voluntarily disclosed the issue to both the SEC and Department of Justice of the U.S. The company also voluntarily notified the appropriate Indian authorities," it continued.

The senior managers responsible for the improper disbursements are no longer with Xerox Modicorp, according to Xerox.

Now that India's Finance Minister has ordered a probe into the irregularities reported by Xerox, it is unlikely that Xerox will be able to disentangle itself from the bribe scandal easily, said an analyst, speaking on condition of anonymity.

SpiceCorp is likely to counter with the argument that Xerox had its members on the board of the joint venture, and Xerox nominees were managing some key functions in the company, even before Xerox acquired a majority stake and total management of the company, the analyst said.