Mondelez, Cadbury to pay $13mn to SEC in India bribery case

Global confectionery and food major Mondelez International will pay USD 13 million penalty to the US government for violating anti-corruption law by its subsidiary, erstwhile Cadbury India, in getting regulatory approvals for expansion of a unit in Himachal Pradesh.
The matter relates to violation of Foreign Corrupt Practices Act (FCPA) in India by Cadbury India, which had in 2009, took help of an agent to obtain "outside assistance" in securing various licenses and approvals to increase production capacity of one of its unit at Baddi, Himachal Pradesh.
Passing a "cease and desist from committing or causing any violations and any future violations" order against Mondelez last week, the US Securities and Exchange Commission (SEC) said, Mondelez shall "pay a civil penalty in the amount of USD 13 million (Rs 88.5 crore) to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury".

Commenting on the development, a company spokesperson said: "Mondelez International Inc and Cadbury Limited are pleased to have reached an agreement with the SEC to settle charges related to internal controls and books-and-records provisions of the FCPA, without admitting or denying the charges."
The spokesperson further said: "As part of the settlement, Mondelez International Inc has agreed to pay a civil penalty of USD 13 million to resolve the investigation."
Without naming the agent, the US SEC order says that Cadbury India paid him a total of USD 90,666 (Rs 61.70 lakh) for "providing consultation, arrange statutory/government prescribed formats of applications to be filed for various statutory clearances, documentation, preparation of files and the submission of the same with government authorities," for specific licenses.

Cadbury had transfered the sum into the agent's bank account, who was a local business person and tile and marble vendor, withholding tax upon receipt of the invoices, it added.

"Cadbury India's books and records did not accurately and
fairly reflect the nature of the services rendered by Agent No 1 Cadbury did not implement adequate FCPA compliance controls at its Cadbury India subsidiary, which created the risk that funds paid to Agent No 1 could be used for improper or unauthorised purposes," the US SEC order said.
On February 2, 2010 Mondelez acquired Cadbury and because of the nature of the acquisition, Mondelez was unable to conduct complete pre-acquisition due diligence, including anti-corruption due diligence.

"As a result of Mondelez's acquisition of Cadbury stock, Mondelez is also responsible for Cadbury's violations," SEC said.
In addition, Cadbury India's "books and records did not accurately and fairly reflect the nature of the services rendered by agent" and was in violation of the Exchange Act, by "failing to keep accurate books, records and accounts."
The US SEC further said that the company also failed to "devise and maintain internal accounting controls that were sufficient to provide reasonable assurances that access to assets and transactions were executed in accordance with management's authorisation and specifically to detect and prevent payments.