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US companies face FCPA chill in India

As part of heightened anti-corruption measures, the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC) have recently trained their eyes on Indian violations of the US Foreign Corrupt Practices Act (FCPA).

Several multinationals, including Anheuser-Busch InBev NV, Mondelez International Inc., Oracle Corp. and Cognizant Technology Solutions Corp. have all come under the scanner for acts that allegedly breach the FCPA.

The regular reports of violations highlight the struggles foreign companies face when navigating India’s murky business environment. In spite of government promises to make doing business easier, multinationals often find the only way to circumvent a potential bureaucratic nightmare is to employ middlemen. That’s one area where the FCPA is most vigilant.



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How is India involved?

The SEC had earlier accused Mondelez India Foods Pvt. Ltd. (formerly Cadbury India Pvt. Ltd.) of poor internal controls and violating the FCPA in India. Without admitting or denying the allegations, parent company Mondelez International Inc. settled the investigation at a price of USD 13 million.

However, as part of this case, the Central Bureau of Investigation (CBI) recently summoned former employees of the confectionary giant for questioning. The investigation centres on certain payments to agents that occurred while establishing a new manufacturing unit in Himachal Pradesh. These payments, made to facilitate licensing and other permits, took place prior to Mondelez’s acquisition of Cadbury India.

In March, Cognizant said costs related to violations of the FCPA totalled USD 27 million in 2016, and that it expected further expenses related to these investigations in 2017. At issue were improper payments made toward the company’s India facilities and toward obtaining permits.

The world’s largest brewer, Anheuser-Busch InBev, also paid USD 6 million in 2016 to settle charges that it used third-party agents to bribe Indian officials and then tried to silence a whistleblower.

While these almost commonplace fines create some anxiety for foreign companies trying to do business in India, domestic firms also face increased scrutiny from potential US partners regarding their own anti-bribery regulations and commitment to transparency.

For more business news & legal news in India, visit BloombergQuint.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of Finaacle.com - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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