WorldCom on federal blacklist

The US Government has excluded WorldCom - now trading as MCI - from federal contracts, arguing that the tarnished telecoms giant lacked sufficient ethical controls.

The General Services Administration (GSA), the agency responsible for handing out much government work, has not cancelled the firm's existing federal contracts, which are valued at more than $1bn (£621m) a year.

But the exclusion from new business will be a severe blow to MCI, which is struggling to emerge from an $11bn accounting scandal and subsequent bankruptcy last year.

The company said it would not challenge the GSA decision.

"We are in the process of rebuilding our ethics program and understand that there is still more work to do," chairman Michael Capellas said.

Taint remains

MCI has not found it easy to live down its past.

As WorldCom, it was accused of falsifying balance sheets to hide expenses and inflate earnings, and investigations are still under way.

More recently, allegations have emerged that the company defrauded its telecoms rivals of hundreds of millions of dollars.

Competitors have accused the firm of masking long-distance calls as local calls, and diverting others to Canada to avoid paying US special-access fees.

MCI says it is being unfairly targeted by rivals, who want to ensure it does not emerge from bankruptcy.

No longer favoured

The GSA decision in part answers some critics, who have argued that the government has handled WorldCom far too leniently.

Most recently, the company was hired to set up a wireless phone network in Iraq, despite already being subject to scrutiny by the GSA.

At the same time, the energy and commerce committee of the House of Representatives has asked the Federal Communications Commission (FCC) to explain how it is investigating allegations about WorldCom.

The committee said it was concerned that what it called "a gross violation of regulations" could be allowed to go unpunished.