Dark Fiber, Dark Swap

During the late 1990s telecom boom, very large amounts of optical fiber were laid in Europe, Asia, and the U.S. However, at the same time new multiplexing techniques increased the amount of data that could be passed through optical fiber at least 20-fold. As a result, a large amount of the optical fiber laid was never used, i.e., it never illuminated by lasers and remained “dark fiber.”

A “dark swap” was an accounting fraud carried out by some telecom companies that had large quantities of such dark fiber, which worked by selling rights to use such dark fiber to another telecom company, and then in a back-to-back round-trip or reciprocal transaction, buying similar rights to use the other telecom’s dark fiber; neither telecom usually needed the dark fiber capacity. Instead, they could book the sale as revenue and the purchase as capital investment (CapEx), thus flattering the balance sheet and avoiding a ‘write-down’ of the asset value of the dark fiber.

The term ‘dark swap’ has come to describe as a generic class of accounting frauds where companies sell similar non-performing assets to one another in back-to-back transactions, booking the deal as revenue and capital investment, regardless of whether they involve optical fiber or telecom assets. In essence a Dark Swap was a telecommunications industry subclass of Round-Trip Transaction.

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