Global giant KKR red-flags bribery, fraud risks in India

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Widening its list of potential risks faced in India, private equity major KKR has red-flagged issues like bribery, fraud and corruption among factors that could adversely impact investments in the country.

KKR (Kohlberg Kravis Roberts) is a leading global investment firm managing assets worth over $94 billion (nearly Rs 6 lakh crore). It specialises in leveraged buyouts globally. It has made significant investments in India as well through various funds and entities.

In its latest annual report filing with the US market regulator SEC, NYSE-listed KKR, however, said its funds also "invest throughout jurisdictions that have material perceptions of corruption according to international rating standards (such as Transparency International and Corruption Perceptions Index)."

India has been named by KKR as one such jurisdictions, while others are China, Indonesia, Latin America, the West Asia and Africa.

KKR said that "due diligence on investment opportunities in these jurisdictions is frequently more complicated because consistent and uniform commercial practices in such locations may not have developed.

"Bribery, fraud, accounting irregularities and corrupt practices can be especially difficult to detect in such locations," it added.

"Several of our funds invest in emerging market countries that may not have established laws and regulations that are as stringent as in more developed nations, or where existing laws and regulations may not be consistently enforced," KKR said.

While KKR has flagged off risks factors related to India in previous years also, those were mostly related to taxation matters and foreign exchange rates, and certain generic risks.

Disclosing one such 'risk factor', KKR said in its latest report that India and some other countries "have sought to tax investment gains derived by nonresident investors, including private equity funds, from the disposition of the equity in companies operating in those countries".

"With respect to India, a general anti-avoidance rule was introduced that would provide a basis for the tax authorities to subject other sales and investments through intermediate holding jurisdictions such as Mauritius to Indian tax. The proposed rule is presently scheduled to become effective for tax years beginning on or after April 1, 2015," it added.

Incidentally, the latest annual report filing came at a time when KKR co-founder Henry Karvis was on a visit to India and was heard telling select media groups about the group's interest to invest in mid and small size companies there.