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Tue, Jul 29, 2003 - Page 12 News List

MCI's cost-saving measures target of fraud investigation

AP , WASHINGTON

A possibly illegal cost-saving scheme by telecommunications company MCI is the subject of a federal investigation and could intensify questions over its contracts for work throughout the US government and in Iraq, lawyers and others with the probe said Sunday.

The fraud investigation involves MCI's alleged avoidance of charges it is supposed to pay local phone companies.

MCI said in a statement that ``access charges between local and long-distance carriers have existed for decades and are routine in the industry. As always, we take all inquiries by the US attorney's office very seriously and will cooperate fully with any investigation."

This development came in the past eight to 10 weeks when a former MCI employee called the FBI and disclosed an MCI project known as ``Canadian Gateway," according to two lawyers familiar with the events.

In this arrangement, MCI phone traffic is allegedly routed north of the US border and then dumped onto the network of AT&T, which ends up paying charges that MCI should pay.

The whistle-blower also contacted phone company Verizon and informed that company of an alleged MCI practice dating to the mid-1990s called ``Project In-vader," said the lawyers, speaking on condition of anonymity. MCI, before it became part of WorldCom, teamed with six to nine small companies that allegedly enabled MCI to disguise long-distance calls as local calls, thus avoiding paying access charges.

Separately, San Antonio-based SBC Communications has been looking into evidence of MCI allegedly employing methods to bypass local access charges, the lawyers said.

The New York Times first reported on the investigation in Sunday's editions.

The allegations are raising questions on Capitol Hill about the fate of MCI's federal contracts.

The latest disclosure ``may have an impact on MCI's suitability" as a federal contractor ``and to that extent we will look at it," said Michael Bopp, the staff director of the Senate Governmental Affairs Committee.

David Drabkin, deputy associate administrator for acquisition policy at the General Services Administration, said ``it's way too early to tell" whether the investigation by prosecutors in Manhattan ``will have any impact" on MCI's government contracts.

In mid-May, MCI received a government contract worth a reported US$45 million to set up a mobile network in Iraq. MCI does more than US$1 billion a year in business with the government.

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