Rival claims caterer bribed its way to commercial success

By Salamander Davoudi
March 29, 2006
The Financial Times
Original Source: http://news.ft.com/cms/s/387f5e64-bf58-11da-9de7-0000779e2340.html

When Compass first started to bid for contracts at the United Nations in 2000 it had little experience of the provision of food supply services to remote sites or military locations around the globe.
But the caterer’s business with the United Nations grew rapidly from the moment it entered the market. By 2005 it had become a main UN supplier and had won a series of contacts to feed peacekeepers from East Timor to Burundi.
The two US lawsuits filed this month by Es-Ko and Supreme Foodservice, two of the caterer’s international competitors, claim the company’s meteoric rise was due to bid-rigging and bribery of UN officials between 1999 and 2005.
Compass says it will strenuously resist the action. It says: “This claim contains no new information. It simply reformulates previous arguments. An initial review indicates that the damages claimed bear no relation to the value of the UN contracts awarded to ESS and the complaint will be vigorously defended.”
Es-Ko’s claim has been lodged with the courts but not yet served on Compass.
Es-Ko says ESS, a Compass subsidiary, carried out a “criminal scheme” and stole “valuable UN contracts”. “But for the illegal conduct of Compass Group/ESS the UN would have awarded Es-Ko contracts having a value of $574m [£328m],” it says in its claim.
Es-Ko and Supreme allege that Compass Group and ESS conspired with IHC Services, a New York-based company, in bribery and bid-rigging.
Since 1999, IHC has been a favoured supplier of ESS and acted as a “vendor intermediary” between it and the UN.
The nature of the relationship between the two companies was brought to light last year when documents emerged suggesting Ezio Testa, IHC’s chief executive, shared secret financial information with Compass about an upcoming UN tender to feed peacekeepers in Liberia.
“IHC
	 .	 .	 .	 supposedly acting as vendor intermediary for ESS, received millions of dollars as compensation for its participation in a conspiracy to secure for Compass Group/ESS valuable contacts by bribery and other illegal means,  Es-Ko says in its claim.
The 
UN contracts in question were to feed peacekeepers in East Timor, Liberia, Eritrea, Burundi, Cyprus, Kosovo and Sudan. Compass claims their total value is $270m.
In September 2004 ESS and IHC publicly announced a “New Best in Class” business partnership. Peter Harris, the chief executive of ESS at the time, approached Compass’s senior managers to inquire whether he could buy IHC on behalf of Compass. But Compass Group, under chief executive Mike Bailey, declined to pursue the acquisition.
“As a result of Compass Group’s internal evaluation of the possibility of acquiring IHC and its relationship with IHC, it was or should have been widely known among Compass Group’s senior executive management, inter alia, that the nature of the use of IHC by Compass group/ESS as a so-called vendor intermediary was improper,” says Es-Ko.
Es-Ko claims that Mr Bailey was involved with Mr Harris in formulating the initial business relationship with the UN. Es-Ko has reserved the right to include Mr Bailey in its legal action and questioned the decision to promote Mr Harris.
IHC was sold in June to a company registered in the British Virgin Islands, which was represented at the completion of the transaction by Mr Harris.
The UN official responsible for receiving contract proposals and awards, Alexander Yakovlev, resigned last June following disclosures that he had helped get a job for his son at IHC Services.
He has since admitted to having taken several hundred thousand dollars from companies seeking to secure UN contracts and pleaded guilty to wire fraud and money laundering charges.
The International Relations Committee, a US congressional committee, has concluded in a report that Mr Yakovlev sent almost $1m in bribe money to a secret account in Antigua Overseas Bank in the Caribbean.
“Some of those bribes were paid by Compass Group/ESS through IHC directly in exchange for highly confidential non-public information pertaining to Es-Ko’s bids on the contracts,” Es-Ko claims. “To avoid detection of these bribes Compass Group/ESS arranged for covert fund transfers to secret banks accounts maintained by Yakovlev.”
When Compass’s problems publicly came to light it hired Freshfields, the law firm that serves as its regular general counsel, to carry out an internal investigation at ESS. It has since dismissed several individuals including Mr Harris, the former chief executive of ESS. Es-Ko calls these actions a “cover up”.