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Probed, fined for bribing in India

 Nantoo Banerjee |  2017-01-17 21:13:02.0  |  New Delhi

Probed, fined for bribing in India

Last week, Mondelez International Inc and its subsidiary, Cadbury, a global confectionery and snack food major, reached a $13-million settlement with the US Securities and Exchange Commission (SEC) over questionable payments made, or bribes paid, to influential persons through an “agent” by Cadbury’s unit in India in 2010 to secure various clearances. The news might have come as a shocker to India’s own Securities and Exchange Board (SEBI) in Mumbai and the company affairs department of the government in Delhi, which had no clue about “the speed money” Cadbury India paid to officials and probably some politicians as well to get licenses and approvals for a chocolate factory at Baddi located in Himachal Pradesh. 

The SEC-Mondelez settlement in the case was first reported in the Wall Street Journal in 2015. The media in India, too, picked up the news. Surprisingly, SEBI, which issues statements and prescribes rules almost daily, is yet to act on the news and haul up the public company for hiding such information that is of interest to all its stakeholders. Did the company’s auditors in India step into the information that might have been cleverly buried under miscellaneous expenses by the company, that year?  Interestingly, the SEC verdict did not reveal the names of illegal “speed money” receivers from Cadbury in India. 

In a separate case, in 2015, a demand of over Rs 570 crore was raised against Cadbury India for allegedly evading excise duty by fraudulently taking exemption for one of its ‘ghost’ production units in Himachal Pradesh, following an investigation initiated by the Directorate General of Central Excise Intelligence (DGCEI) had in 2011 for allegedly misusing ‘area-based exemption’ for its Baddi unit even before it came into existence. The DGCEI had, after the investigation, slapped a show-cause notice to the firm demanding about Rs 250 crore against excise duty evasion. 

Cadbury, then, said: “As a company, we promote a compliant and ethical corporate culture which includes adhering to all laws and regulations of the country we work in. The Company is examining the Commissioner’s Order and will challenge the same on appeal, as we firmly believe that we have correctly claimed exemption of excise duty. We also firmly believe that our executives acted in good faith and within the law in the decision to claim excise benefit in respect of our plant in Baddi. The issue relates to the applicability of excise exemption in respect of our Unit II of our Baddi plant, which has been manufacturing our much-loved products since 2009. The issue is one of interpretation, and it will be inappropriate on our part to discuss the details externally at this time since the matter is sub-judice and in the legal domain.” 

Mondelez was earlier known as Kraft Foods Inc. It acquired the UK-originated Cadbury in 2010. Cadbury’s Indian unit, that year, the SEC said, retained and made payments to an agent to interact with Indian government officials to get licenses and approvals for a chocolate factory in Baddi, which is located in the state of Himachal Pradesh. An internal report by Mondelez’s lawyers in 2011 had found that Cadbury used a consultant to funnel bribes to Indian officials in return for approvals and permits, which had ultimately allowed Cadbury to claim a tax exemption worth more than $90 million. The SEC said in its administrative summary that Cadbury’s India unit failed to conduct due diligence and monitor the activity of the “agent”. The “agent” submitted five invoices for payment for, among other things, preparing permit and license applications, when, in fact, the company’s employees did the work, the SEC said. After receiving each payment, the “agent” withdrew from its account most of the funds, and the SEC said Cadbury didn’t accurately reflect the nature of the services rendered by the “agent.”

Ironically, if such a well-known MNC as Cadbury, founded by John Cadbury in Birmingham, the UK, in 1824, and headed until a few years ago by Adrian Cadbury, the author of the globally-acclaimed Cadbury Code of Corporate Governance, 1992, well before the company was sold to Mondelez, could be involved in such corporate malpractices in a developing country, there is little reason to trust any of the MNCs or even some of the large Indian ventures on their business practices. But, what is a matter of grave concern is that such global exposure of bribes by large multinational and local corporations to secure business in India seem to generate little impact on those deals and their dealers in India, especially when they involve high-level politicians and their families. The government machinery takes too long to identify the culprits and build sound cases against them to convict and punish.

The corporate governance code and investigations by securities commissions or such bodies in EU and the USA had, in the past, established so many cases as Bofors gun deal or, lately, the Augusta aircraft deal, but their Indian agents, yielding high political connections, could not be convicted even after years of investigations by local official agencies. Even when the Comptroller and Auditor General of India established wrongdoing by powerful Indian telecom service providers, all listed public companies, by fudging their accounts to deprive the government of its share of revenues, under contract, to the tune of thousands of crores of rupees, they are hardly pulled up for breaching the corporate governance code by the relevant authorities. Every government and regulatory bodies under its command vow to fight corruption. But, in the end, they often find it easier to live with it.  

(The views expressed are strictly personal.)

Nantoo Banerjee

Nantoo Banerjee

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