Beam Suntory, an alcoholic beverage firm, paid the bribe to obtain and retain its business in India.

 

New Delhi: A 27 October 2020 order of the U.S Department of Justice (DoJ) has levied a fine of $19.5 million or Rs 143 crore on Beam Suntory, a U.S headquartered alcoholic beverage company for bribing Indian officials between 2006 and 2012.

The DOJ order flows from a 2 July 2018 order of the US Security Exchange Commission (SEC) which revealed that more than $2 million dollars (approximately Rs 15 crore at the present exchange rate) was spent by “Beam Suntory” to bribe Indian officials across 14 states, officials in Central Excise department and officials posted in military’s Canteen Stores Department (“CSD”) between the six-year time period of 2006 and 2012.

The said bribe amount was paid by the company, which produces alcoholic brands like Teachers, Jim Beam, Knob Creek, Bowmore, to Indian officials to obtain and retain its business in India. Of the total bribe, as discovered by the SEC, Rs 11 crore was distributed to officials in the CSD so that Beam’s product can be placed in the CSD canteens. The SEC found that products sold at CSDs were the largest revenue channel for Beam India.

The DoJ in its order stated: “Beam and its Indian subsidiary not only paid bribes to Indian government officials, they intentionally failed to implement internal controls to prevent bribery and falsified their books and records to conceal corrupt activity”.

The US SEC, in its order, which it delivered on 2 July 2018 had imposed a fine of $8 million or Rs 59 crore on Beam Suntory for violating provisions of the Foreign Corrupt Practices Act of 1977 through its Indian subsidiary, Beam Global Spirits & Wine (India) Private Limited or Beam India.

The Sunday Guardian wrote to Beam senior leadership (Beam was acquired by Suntory, a Japan based company in 2014) seeking their response to the below mentioned queries:

  1. Has the company identified its employees who bribed the Indian officials? How many were identified and what action, if any, was taken against them? 2. The US SEC has identified that the company also bribed officials in the Indian army. Who were these officials? Has their name and designation been shared with the Ministry of Defence, India? 3. Is the company open to share the name of the other Indian officials who took bribes from the company?

In its response, the company said, “Beam Suntory Inc. announced that the company has entered into an agreement with the U.S. Department of Justice (DOJ) that concludes the previously disclosed investigation into past conduct in the company’s India business. The matter stems from an investigation that the company initiated, reported to government authorities and publicly disclosed in 2012.”

In 2018, the company announced an agreement regarding the same matter with the U.S. Securities & Exchange Commission (SEC), in which the SEC publicly recognized the company’s self-disclosure, cooperation and remedial efforts.

“We are pleased to move past this matter. The conduct at issue began prior to our acquisition of the India business and was promptly addressed once discovered,” said Todd Bloomquist, general counsel of Beam Suntory. “Our company is committed to doing business the right way, and we take pride in our approach to resolving these issues, with integrity and transparency at every step of the process. The company uncovered the misconduct, promptly self-reported to the U.S. government, conducted a thorough and independent investigation in cooperation with the U.S. government, and took decisive corrective action. We’re confident in our ambitious growth plans in India, which are built on a business that has become a model example of success through sustainable and compliant business practices.”

The company, in its statement to The Sunday Guardian, added that the agreement with the U.S Justice Department requires the company to pay a fine of approximately $19.6 million, and recognizes the company’s cooperation with the Justice Department’s investigation.

The Sunday Guardian also mailed a questionnaire to the spokesperson of the Ministry of Defence, India, seeking whether it was aware of the SEC order and whether any action was taken against the officials. However, no response was received.

As per the SEC’s findings, “From at least 2006 through 2012, Beam’s Indian subsidiary, Beam India, made improper payments to various government officials in connection with obtaining or retaining business in the Indian market. Senior executives at Beam India directed schemes using its third-party sales promoters, distributors and other third parties in connection with sales, promotions, distribution, and other commercial activities. The promoters, distributors, and other third parties made illicit payments to employees at government-controlled depots and retail stores and various government offices to increase sales orders, get better positioning on store shelves, process and secure licence and label registrations, and facilitate the distribution of Beam India’s spirit products from its bottling facility to warehouses in other states.

The third parties received funds, or were reimbursed, for the illicit payments by providing fabricated or inflated invoices to Beam India”.

The SEC investigators further found that, “In 2011, Beam sought to introduce a new product in India. The label registration for the product stalled when the Indian excise official with the discretion to issue the registration told the third-party bottler of the product that an improper payment to him of one million Rupees (approximately his yearly salary or $18,000) was required to approve the registration. The illicit payment request ultimately made its way to three senior managers of Beam’s Asia Pacific/South America region (“APSA”). The payment to be made by the third-party bottler and a method of reimbursing the bottler for making the payment was approved. Within weeks after communicating this down to the third-party bottler, the label registration was approved by the excise official and Beam India’s bottler began canning and Beam India began distributing the new product.”

In 2006, Beam Global Spirits & Wine (India) Private Limited books, records, and financial accounts were consolidated into Beam’s books and records and in 2011, Beam India’s management started reporting to Beam’s APSA region management in Australia.

The company regularly made direct and indirect payments to Indian government officials in connection with inspections of the bottling facilities, distribution of its products, label registration and warehouse license applications and renewals, and advantageous product placement and promotion in both government and retail stores. It also made payments to government officials responsible for ordering alcoholic products for distribution in government run retail channels in order to secure and increase sales of spirit products. The Indian management maintained a second set of financial records that tracked the payments and disguised the schemes in the entity’s books and records to make it appear that the illicit payments were legitimate business expenses.

According to the findings when Beam acquired the assets of the Indian entity, it also retained existing management of the entity who knew of and orchestrated the bribe schemes. Those retained managers continued the schemes at Beam India without interruption from the 2006 acquisition through the end of the third quarter 2012.

“From 2006 through the end of the third quarter 2012, Beam, through Beam India, sold liquor products in six markets where the Indian state government regulated both the distribution and retail sale of alcoholic products. These included the Indian states of Delhi, Tamil Nadu, Andaman & Nicobar, Orissa, and Karnataka and the Indian military’s Canteen Stores Department (“CSD”). During this period, Beam India used third-party promoters to market its products in the government channel. The third-party promoters, with Beam India’s knowledge and authorization, also directed improper payments to government officials at retail stores and depots in order to secure orders of Beam products as well as placement of Beam products in a prominent shelf position in retail stores. For example, over the period, Beam India paid more than $1.5 million to its promoter in the CSD channel and over $550 thousand to its promoter in the state of Delhi to make improper payments to government officials at government-controlled retail stores and depots in those markets. The illicit payments were falsely characterized in Beam India’s books and records as legitimate business expenses for “Customer Support,” “Off-Trade Promotions,” “Commission to Distributor/Promoter,” and “Commercial Discount, Ongoing” which disguised the true nature of these payments. Ultimately, the related expenses were consolidated in Beam’s general ledger system coded as “Selling and Distribution Expenses,” reads the findings.

From 2006 through the end of the third quarter 2012, Beam India also made improper payments to ensure timely inspections at Beam India’s Behror manufacturing facility, to Indian government officials in 14 states to secure and expedite the processing of annual label registrations for distribution of Beam’s products from Rajasthan to other Indian states where the liquor was to be sold, and for warehouse licenses in several states that served as depots for Beam India’s products. The payments fell into two categories, payments to lower-level government employees to ensure routine administrative processes and payments made to senior level ministry officials who had discretion to issue or renew label registrations or warehouse licenses, necessary for the distribution and sale of Beam’s products in the various states.

In May 2011, Beam India contracted with a third-party bottling facility to produce a Ready to Drink (RTD) drink.

“Applications were then filed with the Excise Ministry to obtain the label registrations required to operate the facility and bottle RTD products in that state. The label registration process stalled for several months until the third-party bottler met with a senior excise official, who demanded an improper payment of one million Indian Rupees (approximately equal to the official’s yearly salary or $18,000 at the then exchange rate) to approve the label registration. The third-party bottler requested that Beam India fund the improper payment. Beam India management then sought approval to make the payment from Beam’s APSA management located in Australia. The payment was approved and certain APSA senior management discussed how to disguise the payment by having the third-party bottler pay it to the Excise official, and then submit false invoices to be reimbursed for the illicit payment. After an APSA senior manager communicated the authorization, a Beam India senior manager implemented the scheme whereby the third-party bottler made the illicit payment. Within weeks after discussing the payment demand, the needed approvals were received from the Excise Ministry. Thereafter, the third-party bottler submitted two false invoices to Beam India, purportedly for consulting services rendered at the bottling facility, in the approximate amount of the payment demand, which Beam India paid,” says the findings.

The SEC order says that while deciding the fine that it imposed on Beam, it considered its “self-disclosure, cooperation, and remedial efforts”. “Beam voluntarily disclosed this misconduct to the Commission staff and timely shared the facts developed during the course of an internal investigation by a special committee of its board. Beam also cooperated by voluntarily producing documents, summarizing its factual findings, translating numerous key documents, providing timely reports on witness interviews, and making current or former employees available to the Commission staff, including those that needed to travel to the United States or elsewhere for interviews.”

In effect, the names of the various tainted Indian government officials, including military officials who were bribed by Beam, are now a part of US official records.