Acres International to Appeal Lesotho Court Decision

Sept. 18, 2002

The following statement is Acres International's reaction to its conviction in a Lesotho court in connection with its contracts on the Lesotho Highlands Water Project. (Attachments at end are as background)

Acres International said it was shocked by the decision handed down by a trial judge in Lesotho and would immediately begin an appeal. Acres continues to strongly declare its innocence of the charges and will take vigorous action to protect its good name.

Acres is proud of its efforts to assist in developing countries around the world and it is also proud of its 78 year unblemished record for ethical business practice and its high reputation for integrity and honesty in international development.

The Lesotho court somehow arrived at a decision which is directly opposite to that of the World Bank Sanctions Committee, which dismissed the same charges against Acres in February 2002 after an exhaustive two and a half year investigation and a review of all of the evidence available to the Lesotho prosecution.

Acres, in good faith, retained a highly regarded Lesotho engineer as its independent local representative in Lesotho. In doing so, Acres was following a practice recommended by the World Bank, other development banks, the government of Canada, and international industry organizations, of appointing a local representative for assistance in complex, international projects. The compensation paid to the representative over the life of Acres' work on the Lesotho Highlands Water Project (1985-1999) was at the lower end of industry norms and government guidelines for comparable international projects. The representative was also the Honourary Canadian Consul in Lesotho.

Without Acres' knowledge, the representative was secretly paying part of his fee to the director of the water project. Acres had no knowledge or suspicion of these payments, could not have anticipated them, had no motive for them, and received no benefit. The unlawful payments were entirely between the now-deceased representative and the project director.

The company was successful in winning an initial Lesotho contract following a competitive bidding process supervised by the governments of Lesotho and South Africa, review and approval by the World Bank and peer review by an international consulting engineering firm. A second, follow-on contract was also subject to a multi-tiered approval process. The project director did not govern that process.

This decision sets a dangerous precedent that, if allowed to stand, will greatly increase the risk to companies (consulting engineers, contractors, suppliers, etc.) who do business in developing countries. The trial court surprisingly ignored Acres' entirely legitimate reasons for retaining a local representative in a particularly unstable country at that time, as well as the fact that Acres' agreement with the representative expressly prohibits illegal activities such as the payment of bribes. There was no evidence that Acres or its officers or employees knew of or encouraged the illegal payments. This decision means that Canadian and other developed country firms can be found guilty of crimes without any clear evidence showing that they had reason to know of or participated in the illegal actions of their independent representative.

Acres chose to proceed to trial first, believing a careful and balanced assessment of the evidence by the Lesotho court, in a country reputed to have an independent judiciary, particularly with the higher burden of proof required in a criminal trial, would reach the same conclusions as previous investigations and hearings into the matter.

Acres firmly believes that the decision is wrong at law and incorrect in its assessment of the evidence, and that an impartial and fair review of the case by the appeal court will vindicate the company.

August 27, 2002

By Fax: 011 27 12 328 4254 (Original by courier)

The Hon. Ronnie Kasrils
Minister of Water Affairs and Forestry
Government of South Africa
Sedibeng Building, 10th Floor
185 Schoeman Street
Pretoria, South Africa

Dear Minister Kasrils,

I am writing in response to your public statement of May 21, 2002 which included comments about companies before the Lesotho courts on allegations related to the Lesotho Highlands Water Project.

I must express my great concern that the timing, tone and content of your statement, made at a time when Acres trial was in progress before the Lesotho courts, created both an impression that all companies charged are guilty, and contributed to a highly prejudicial and politically charged environment that could undermine the prospect of a fair hearing. I am also concerned that, based on a mere presumption of guilt, innocent companies are being denied participation in future development projects.

Acres was established in 1924 and has become one of the world's leading consulting engineering, planning and management companies. We have successfully completed hundreds of projects in more than 110 countries during the 50 years we have operated internationally. We are proud of our unblemished record of ethical business practice and have never before, in our 78-year history, been accused of any wrongdoing.

We place great value on our reputation of conducting business in accordance with the highest standards of business ethics and corporate governance. In 1978, long before most national governments and international financing agencies required adherence to clearly defined principles of ethical business conduct, Acres instituted a stringent Code of Business Conduct, which included explicit statements forbidding any form of illegal or unethical activity by the company and by any of its employees. Over the years, this Code has been strengthened so that Acres can continue to be at the forefront of international "best practices". The Code has also been signed annually by every Officer and Manager since 1978, confirming their adherence to its high standards.

Acres outstanding global reputation for professional competence and integrity was earned on the strength of its record in hundreds of projects worldwide. This includes work done for your Ministry in South Africa and on the Lesotho Highland Development Project. In the 1980s, we were part of a South Africa-led consortium working for your Ministry on implementing a national water management system using leading-edge methodologies developed by Acres and applied in several other countries. This consortium was awarded the prestigious Water Engineering Award in 1988 by the South Africa Institution of Civil Engineers. We are also very proud to have executed our 13-year assignment on the Lesotho Highland Water Project highly professionally and under budget.

Acres has been wrongly accused in the Lesotho matter. Throughout this ordeal, we have sought to have the charges against our company tried first, immediately after Mr. Sole's trial, so that we could clear our name as quickly as possible.

Acres conduct on this project has already been reviewed very comprehensively twice since 1999 and each review has cleared Acres of any wrongdoing.

First, out of a concern for our reputation for integrity and ethical business practices, Acres instructed independent legal counsel in Canada and South Africa to carry out a comprehensive investigation in 1999, immediately after the allegations surfaced. That review confirmed that there had been no wrongdoing and accordingly, that the allegations against Acres were unfounded.

Second, the World Bank carried out an exhaustive two year investigation and hearing into the matter in 2000 - 2002, including a thorough review of the evidence possessed by the Lesotho prosecution and hundreds of documents provided by Acres, and also cleared Acres of any wrongdoing.

The trial in Lesotho therefore represents the third time that Acres has had to prove its innocence. The World Bank shared all its evidence with the Lesotho prosecution and, during the four and a half month trial, no new material evidence was brought forward by the prosecution. Moreover, the prosecution tendered no evidence of any wrongdoing by any Acres officer or employee during the trial and based its case entirely on circumstantial evidence, which was carefully examined by the two previous reviews which concluded that there was no wrongdoing on Acres part.

The Canadian International Development Agency also exonerated Acres after conducting its own forensic audit on a portion of the overall project which they funded.

With this background, I am confident that a trial court that fairly weighs all the evidence would reach the same conclusion as the two previous comprehensive reviews; namely that the charges against Acres should be dismissed. It would be truly astounding if the Lesotho court's judgment, based on precisely the same evidence, were at variance with earlier findings and Acres would have no choice but to appeal such a perverse decision and invoke all legal rights at its disposal.

It is troubling, therefore, that the politically charged atmosphere surrounding this matter has been aggravated by your statement made while our trial was in progress, thus raising doubts as to whether Acres can realistically expect to receive a fair trial in Lesotho.

Acres is also concerned that the atmosphere and impressions created by your statement will result in unfair damage to its reputation that could unjustly exclude Acres from ongoing developments in South Africa and elsewhere.

Yours sincerely,

Oskar T. Sigvaldason, Ph.D., P.Eng.

Date: 21 May 2002-


The Minister of Water Affairs and Forestry, Ronnie Kasrils has congratulated his Lesotho counterpart, Minister Monyane Moleleki and his government following the conviction of Mr Masupha Sole, the former Chief Executive of the Lesotho Highlands Development Authority (LHDA). This follows Sole's conviction in the Maseru High Court on 13 counts of receiving bribes from international consultants and contractors. South Africa has a major interest in the Project that is implemented by LHDA in Lesotho.

In his note to Minister Moleleki, Minister Kasrils commended the Lesotho Government on their resolve to fight corruption and their steadfast determination to prosecute those involved in the Sole briberies, at considerable cost. He also indicated South Africa's willingness to consider any request for help to fund the ongoing prosecution.

The bribes, paid during the early 1990's, were uncovered in 1997 in the wake of a disciplinary process and subsequent successful civil suit against Sole. This led to the criminal prosecution of Sole and various parties by the Government of Lesotho. Sole is the first party to be convicted, while the trials against the companies and intermediaries allegedly involved in paying the bribes are proceeding.

The South African Government strongly supported the continued efforts by the Lesotho Government to curb corruption. Throughout the investigations, Minister Kasrils, who is responsible for the LHWP, has provided moral support to his Lesotho counterpart. South Africa has assisted in the collection and evaluation of evidence. This is an important test case for the NEPAD initiative which aims at promoting good governance and weeding out corrupt practices of parties.

The successful prosecution of Sole should strengthen the Crown's cases against the other parties. It should also facilitate the recovery of the bribes from the parties who paid Sole. Although the bribes were small in comparison with the capital investment, the authorities are determined to recover the money from the parties who paid Sole. Where practical, moneys were withheld from the contractors.

The prosecuting team had to overcome the difficulties of obtaining banking records from Switzerland and the strenuous resistance by Sole and the other parties in the Swiss courts. All possible legal means were employed to thwart proceedings. No less than eleven interim rulings had to be handed down by the Maseru High Court.

The case has exposed a clique of parties and individuals that have participated in the malpractices and methods used, including so-called "representation agreements" to conceal acts of bribery. The lessons learnt in this process will be strictly applied in further development projects.

Minister Kasrils has also indicated that he will be briefing his colleagues on the implications of the case for the participation of international and local companies in future publicly-funded projects. Contacts will also continue with the representatives of the countries in which the companies concerned are based as well as with multilateral organisations such as the World Bank with a view to bringing the matter to a speedy conclusion.

In addition, it is proposed that the challenges of addressing corruption in large water projects will be debated during the Earth Summit as part of the programme at the so-called "Water Dome".

Source: Acres International Ltd.