After bribery disclosure, Cognizant goes slow on greenfield expansion

Cognizant had stated the company paid around $28 million to the US Department of Justice to settle the charges that it violated

Cognizant, an IT services company, is treading cautiously on capacity expansion in India, especially with regard to setting up its physical infrastructure, after its disclosure to the US Department of Justice and the Securities and Exchange Commission (SEC) of the violation of Foreign Corrupt Practices Act (FCPA). 

While the Nasdaq-listed firm is not pursuing greenfield expansion in the country and relying on leased facilities for new demands, the incident, which came to light in 2016, is also said to have claimed 200-300 jobs so far mainly in areas like administration, legal, and procurement. 

Meanwhile, the DMK, the main opposition party in Tamil Nadu, has made this a political issue by seeking a probe into the matter in the country.

Cognizant on Friday had stated the company paid around $28 million to the US Department of Justice to settle the charges that it violated the FCPA when two of its former executives were authorised to bribe government officials in India to expedite approvals for real-estate facilities. The amount of bribe, which is said to be about $3.64 million, were paid through engineering major L&T, according to several sources in the know.  An email sent to L&T on Sunday seeking comments on its involvement in the bribery issue did not yield any response till the time of going to press.

In reply to a query, a Cognizant spokesperson said executives who participated in the wrongdoing were no longer with the company. 

According to the company, the US Department of Justice noted Cognizant’s remediation, including sacking and disciplining employees and contractors involved in the mischief. “Within two weeks of the Board learning of potential improper conduct, we self-reported the matter to US authorities. That self-reporting to the US authorities occurred over two years ago, and we have been cooperating with the government since that time. Our audit committee engaged experienced outside counsel to conduct a thorough investigation. That investigation took substantial time and resources,” the company said in the statement. 

However, the company declined to comment on whether bribery was the reason why it was not pursuing greenfield projects in India. The SEC order stated from 2014 to 2016 some Cognizant’s executives had authorised contractors to bribe, on the company's behalf, government officials in India to obtain permits and licences for constructing and operating office buildings.

In 2014, $2 million was authorised to be paid to a senior government official for issuing a planning permit for a campus of 2.7 million square feet in Chennai. Payment, along with a scheme to conceal a $2.5 million reimbursement, was authorised to the contractor. The same contractor was authorised to pay $770,000 to a government official for environmental clearance for a project in Pune and another $870,000 for construction-related permits in Siruseri, Chennai. The company invested Rs 1,500-2,000 crore in these projects.

Following this, President Gordon Coburn and Chief Legal Officer Steven E Schwartz, who authorised the contractor to pay the bribe, were asked to go. The company employs more than 250,000 people in India, a majority of whom are in Chennai.