The move comes at the end of a week of bad news for MCI. First came word that the U.S. Attorney's office in Manhattan was probing the company's creative routing of calls to minimize access fees it had to pay to local carriers. In the so-called Canadian Gateway scheme, MCI allegedly routed domestic long-distance calls that its customers placed to certain locations in the U.S. where local carriers charged high access fees through Canada and back to rival carrier AT&T, which then had to pay the access charges. Then came the announcement of another investigation of the company for disguising long-distance calls as local. Altogether, investigators say, MCI could have evaded hundreds of millions of dollars in access fees.
MCI maintained that its darkest days were over when it cleansed its corporate suites of such executives as former CEO Bernard Ebbers. But just last week, MCI's outside auditor, KPMG, testified before a Senate committee that it still could not vouch for the company's internal controls. GSA cited a KPMG report as well as reviews of the company conducted by former Attorney General Richard Thornburgh and William McLucas as being decisive factors in its decision to suspend the carrier.
GSA was under increasing pressure to do so. It received a harsh letter from Verizon general counsel and former U.S. Attorney General William Barr this week saying, among other things, that "The United States is now on notice that it is effectively serving as a 'fence' for stolen property." Verizon claims that MCI was able to outbid its rivals for government contracts in part because it had robbed other carriers through the rerouting scheme.
GSA did not even take the steps to formally consider barring MCI from government contracts until June a year after the first revelations that the company had misrepresented its true financial condition by $11 billion through accounting fraud the largest fraud in corporate history. The delay prompted questions on Capitol Hill, where lobbyists from the White House as well as former NY Mayor Rudy Giuliani's firm were dispatched to head off a measure earlier this month that would have barred the company from future contracts. The measure was watered down and then attached to an appropriations bill which had not yet passed the full House.