Casestudy

Lack of compliance and due-diligence leads Mondelez to penalties

13 April, 2017

The Securities Exchange Commission (SEC) recently announced a $13 million settlement (approximately Rs 90 crore) with Mondelez due to payments made by its Cadbury plant operations in India.

For those of you who have heard about corruption risks in India, this news will come as no surprise. Before its acquisition by Mondelez India Foods, Cadbury was in the process of expanding its business of manufacturing in Baddi, Himachal Pradesh. It was determined that the enlargement would require more than 30 different approvals from various government authorities in India. As most of the companies do, Cadbury hired an agent. Without conducting any due diligence on the company or without entering a written contract, to assist in obtaining the required regulatory approvals and paid the agent something in the range of USD 100,000 for the work.

As per Indian press reports, the agent withdrew most or all the funds in cash from Cadbury. The payments made by Cadbury appeared to correspond in time with the dates crucial approvals came through. And the agent did not even prepare the approval applications, Cadbury employees did that work. Moreover, the agent did not provide documentary support for the services it was paid to provide, other than invoices listing the licenses and approvals obtained.

These facts added up to an FCPA books and records and internal controls violation, having “created the risk that funds paid to Agent could be used for improper or unauthorized purposes.”

How the SEC arrived at the $13 million USD penalty amount is not disclosed.

Challenges

Permissions, approvals and licenses can be obtained without paying bribes. Do not fall into “bribery panic”.

Let’s understand how bribery risk arises:

  1. Poor knowledge of what approvals or license a company must obtain.
  2. Not preparing for the governmental hurdles and the time involved in overcoming them.
  3. Having someone from the organisation with partial or no experience in this area oversee the process.

Best Practices

Don’t panic

Ascertain the approvals and licenses that the company needs. If you do not have the capacity to do so in-house, hire a legal consultant for this purpose. There is always a specific procedure and the compliance requirements.

Remember, you can’t be asked for “magical documents”.

 

Plan

Prepare a planner with the concerned approvals and documentation, to prevent a last-minute rush as that may expose the company to a greater bribery risk.

One of the Factor is buffer time for organising documents, board resolutions execution by the foreign directors, documents needed to be notarised in the United States etc.

Over and above this, allot a time to handle objections/ questions/queries/show causes from the concerned government authority.

By Dhruti Thakkar – Consultant- Corporate services and compliance at  N R Doshi & Partners

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