Group 9Rakesh RothuRavi KumarRajat AggarwalPiyush JainJinal JollySaurabh Sharma

Bribes & Kickbacks, Gifts & Entertainment

Background Cases

Question? Why corruption activities grew rampantly after Independence?

What

Why

• Our Economic set up formulated by the government • State controlled Economy detesting private companies• Suppressed productivity & competition besides lack of

innovation and R&D for 40 years (1947-91)

3 Economic IdeologiesGandhi’s Ideology: India full of self sufficient villages with minimal Gov. interference Nehru’s Ideology : Gov. controlled economy detesting private companiesPatel’s Ideology : Mixed economy which involved public private partnership for economic development • Only one of these would materialize and that depended on the outcome of election for 1st PM • Majority of votes went to Sardar Patel & almost none to Nehru • Gandhi asked Patel to step down and Nehru became an undisputed leader (reason unknown)• Nehru’s belief/opinion was that private companies always prioritize profit over national interest

and hence despised the private sector.• Renowned statistician Mahalanobis, helped chalk out a detailed plan of a socialistic economic

model • where private players were suppressed and Gov. had complete control of everything

including trade & commerce.• Heavy industries under Gov. control (Coal, mining, steel, machinery, infrastructure)• Small scale industries (& private companies) were licensed and hence indirectly under Gov.

control (Permit Raj or License Raj coined by C Rajagopalachari (British Raj))

• In 1930-40’s during the freedom struggle, most of our leaders had their own idea of the kind of India they wanted to witness, however the 3 ideologies out of them were more prominent:

Background Cases

1. License to start Biz (24 months)2. Import Machine (Restriction:

Pay more)

Biz Idea

Good news: “ you have received the license and machine”…

Bribe & Smuggling

Sudden shock: you were granted only to produce X amount of the product and which is well below the capacity of the machine

Bogus Company with a new name, who can get the machine on rent from the original company & produce the product

• Capacity of your machine = 10000 pieces• Company X = license to produce 1000 pieces• Bogus (9 companies Y) = license to produce 1000 pieces

Sony Case Chopper Scam

Sony Entertainment Unit – Bidding Fraud and Kickbacks

• Hackers released internal emails indicating fraudulent bids, kickbacks and excessive handouts to government officials

• Sony enlisted Ernst and Young to investigate into its businesses• Revenues from TV programming in India more than that of any other market

• Joint venture between Sony’s Multi-Screen Media Pvt. Ltd and Discovery• MSM Discovery buys programming and sells it to distributors • In competitive bidding, losing vendors didn’t exist or were tied to the winning vendor• Ernst and Young said it received allegations that MSM Discovery was receiving

kickbacks ranging from 10% to 15% of the fees• Some employees who were fired for kickbacks at another company were employed

at MSM• IPL tickets costing as much as Rs.25,000 each, laptop bags, gifts and entertainment

were provided to government officials and public servants• Sony sells electronics and so made certain payments to Indian Customs

Alleged collusion • Head of MSM colluded with an agent to raise the cost of movies that Sony bought by

as much as 35% in return for kickbacks• Sneha Rajani, deputy head of MSM was routing movie purchases through Manish

Shah of Goldmines Telefilms, raising prices of films

Sony Case Chopper Scam

Chopper scam (Choppergate) - 2013

• India signed a contract to purchase 12 AgustaWestland AW101 helicopters in February 2010 for the Communication Squadron of Indian Air Force

• A chandigarh based company, IDS infotech was used for routing kickbacks to India

• Brother of Ex union minister was alleged to have a role he had pending cases against him

February 2010

Order Placed to purchase 12 AgustaWestland AW101

12 February 2013 February 2013 February 2013 January 2014

Arrest of Giuseppe Orsi, the CEO of Finmeccanica

Role of the Brother of Ex union Minister of India was alleged.

Defence Minister Antony ordered a probe

India cancels the order and recovers ₹1620 Cr

27 February 2013

Formation of JPCCBI investigates the charges

• On 25 February 2013, CBI registered a Preliminary Enquiry (PE) against 11 persons, including the former Indian Air Force Chief, Air Chief Marshal and his cousins, besides four companies, brother of former Union minister, Chairman and Managing Director of IDS Infotech).

• In September 2015, a special CBI court issued an open non-bailable warrant (NBW) against Christian Michel based on CBI that he was needed to be questioned in the case to know how much amount he had received as "commission" in the deal.

• On 27 February 2013, UPA-II Government introduced a motion in Rajya Sabha (the upper house of the Parliament of India) for an investigation led by a 30-member Joint Parliamentary Committee (JPC)

• This resulted in a walkout by most of the opposition parties like BJP, JD(U), Trinamool Congress, CPI, TDP and AGP

• India cancelled the ₹3,600 crore deal with AgustaWestland in January 2014.The contract was frozen in February 2013 after allegations surfaced that Rs 360 crore was paid as bribe

• India encashed over ₹250 crore made by AgustaWestland as bank guarantee in the Indian banks in January 2014

• By June 2014, India had recovered the entire amount of around ₹1620 (45% of total contract value ₹3600 crore) it had paid to AgustaWestland

Cancellation of the contract by the Indian Government

Recovery of Bank Guarantee

Investigation

Joint Parliamentary Committee (JPC) investigation

Overview

Sony Case Chopper Scam

Louis Berger: Goa bribery caseSony Case Louis Berger Case

About the company• Founded in 1953, New Jersey• Provide engineering, architecture, planning

and infrastructure redevelopment solutions• $1 Bn company• Present in 50 nations• Contracted for post-conflict redevelopment

projects in in Iraq and Afganistan

The Goa bribery case : 2009-10

• $976630 paid by Louis Berger to a Goa minister and other officials in 2009-2010

• To win a water sewerage management project in Goa

• Money transferred through Hawala operations

• The company confessed in a U.S court in July 2015 and revealed the details of people involved

• Put the blame on former employees

Before 2009• Convicted for overbilling the reconstruction

contracts in Afghanistan and Iraq• Involved in bribery cases in Indonesia from

2006• Paid $ 69.3 Mn to resolve the probes

Louis Berger: Goa bribery caseSony Case Louis Berger Case

Involved Officials1. Mr. Digambar Kamat : Former Goa CM2. Mr. Churchill Alemao : Former Goa PWD minister3. Mr. Satyakam Mohanty : Former Louis Berger VP

Breach of Laws1. FCPA : Foreign Corruption Prevention Act of

1977, US2. PCA : Prevention of Corruption Act of 1988,

India

After Effects1. Louis Berger paid $17.1 Mn to resolve the

U.S bribery probe

2. An independent audit committee oversees the compliance and ethics department within Louis Berger

3. 2 top officials of Louis Berger resign

4. Employees can report suspect conduct through a global helpline

5. Investigations still going on, ministers’ home raided, evidences found

Ethical issues involved1. Prevention of competition2. Lack of regulatory compliance3. Breach of company values (Integrity)

Pharma Sector

Pharma SectorOne of the most corrupt services in India

- British Medical Journal (BMJ)Governing Body Medical Council of India (MCI) itself is riddled with corruption: MCI chief Ketan Desia arrested for taking Rs 2 crore bribe

– Apr, 2010

Govt InterventionIncome Tax Dept: Expenditure on gifts would not enjoy any tax benefit for the companies if it is not allowed. Also, gifts would be considered income for the doctors

Govt implements Uniform Code of Pharmaceutical Marketing Practices (UCPMP) from January 1 this yearWhich bans gifts given to distributors, wholesalers, retailers, healthcare professionals and family members (both immediate and extended)

So far:MCI has summoned more than 500 doctorsMCI blacklists 129 doctors - Sept 2015

Companies –In India, gift-giving drives drug makers marketingCoffee maker, cookware and vacuum cleaner as gifts for doctors – One of the strategy listed in Abbott Healthcare sales-strategy guide (second quarter of 2011 in India)Other things which companies give are:Paid International Conference and seminar tickets, household electronics, cars, cash too

Sony Case Louis Berger Case

Walmart India bribery casePharma Sector Walmart case

Overview• With the retail sector to be worth over $ 1

trillion in 2020, India was a top destination for Walmart

• The company was following the US Anti-Corruption Law

• It entered India, with the aspiration to become the biggest retailer

• Followed the US • In late 2012, it revealed that it had spent $

25 million for lobbying activities• Uproar in India- Demands investigation• Walmart still believed the funds were used

for legal lobbying• Difference between lobbying in India and

the US.• Protests against FDI in multi-retail by

opposition parties, used Walmart’s case• Issue became politicized• The major issue is that the distinction

between bribery and lobbying is unclear.

Who could have paid the bribe?• Employees: Did the employees know about

the US anti-corruption law ?• Landlords: Did the landlords of the stores

break local laws or pay bribes which securing building permission ?

• Consultants: Two companies were hired to procure 51 licenses needed for a retail store

• Suppliers: Did the suppliers follow fair labour and other practices

Aftermath• Suspended its India CFO and 4 other senior

employees• About 50 investigators from KPMG,

Greenberg Traurig and others law firms are checking documents going back to 2009,

• Walmart bought out Bharti’s 50% stake and decided to make a long hard look at its future plans in India

Thank You