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Cognizant used L&T to bribe govt officials in India

Livemint logoLivemint 18-02-2019 Varun Sood

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Larsen & Toubro Ltd (L&T) facilitated the payment of $3.64 million in bribes to Indian government officials on behalf of Cognizant Technology Solutions Corp. to secure permits, ranging from environmental clearance to power, at the US company’s campuses in Chennai and Pune, a person familiar with the development said.

On Friday, Cognizant agreed to pay $25 million to settle a 2016 case under Foreign Corruption Prevention Act with US authorities. The Nasdaq-listed company routed the bribes through L&T to government officials in Maharashtra and Tamil Nadu in the three years to 2015, the person cited above said on condition of anonymity.

Although the US Securities and Exchange Commission (SEC) did not name L&T in the complaint that was made public, the person cited above said the construction arm of India’s largest engineering company made illicit payments and Cognizant reimbursed the money by disguising it as compensation for cost overruns.

The development also shines the spotlight on the dark underbelly of doing business in India, despite the country’s much publicized progress in the World Bank’s Doing Business 2019 report, where it jumped 23 places to the 77th rank.

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“One can view these payments as cost of doing business in India,” said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research. “The larger question that begs to be asked is what is the government doing and how successful it has been as India looks to make it easy for companies to do business in the country.”

The details about the illegal payments emerged when the US Department of Justice (DoJ) and the US Attorney’s Office for the District of New Jersey charged former Cognizant president Gordon Coburn and former chief legal officer Steven Schwartz on Friday with approving these illicit payments to Indian officials when it was getting its corporate offices built.

Cognizant India asked L&T in 2014 to pay $2 million in bribes to a senior government official for the issuance of a planning permit for its campus in Knowledge Industry Township in Chennai, according to the SEC probe.

A year before, in 2013, Cognizant India instructed L&T to pay $770,000 in bribes to a Maharashtra government official for seeking environmental clearance for a campus in Pune. Finally, L&T again paid $870,000 in bribes to government officials for construction-related permits in Siruseri, Chennai in 2015, again on behalf of Cognizant.

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Mint could not ascertain the names of the government officials in Maharashtra and Tamil Nadu who received these payments.

Embarrassingly for Cognizant, SEC found that Coburn asked company executives to “withhold future payments to Contracting Firm-1 if it resisted paying the bribe on Cognizant’s behalf”.

“Contracting Firm-1, which had been urging Cognizant to make the payment itself, ultimately yielded to Senior Executive-1’s pressure and made the payment in late May or early June 2014. Cognizant received the planning permit in November of that year,” said a statement in SEC’s complaint filed in a court in the District of New Jersey, seeking a trial by a jury.

For now, it is unclear what made L&T relent and agree to Cognizant’s demand for making these payments.

An email sent to L&T seeking comment went unanswered.

L&T’s infrastructure segment, which includes its construction business, is the company’s largest division, accounting for 72% of its 76,496.5 crore revenue in the year ended March 2018.

L&T’s managing director and chief executive S.N. Subrahmanyan headed the infrastructure business during the years when the company is alleged to have made these bribes to government officials.

Both Coburn and Schwartz deny any wrongdoing.

“We are disappointed that DoJ and SEC chose to pursue these allegations,” said Hank Walther, a partner with Jones Day, the law firm, and who is representing Coburn. “Mr. Coburn intends to vigorously fight all charges.”

Coburn resigned from Cognizant in October 2016 when the company told US authorities that some payments made in India could have breached the law.

Coburn subsequently joined Carlyle Group but resigned from the private equity firm last year, according to a second executive.

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“History has shown that sometimes the government gets its facts wrong, and this is one of those times. Mr. Schwartz is totally innocent and did nothing wrong. He will fight these false and unfair charges,” said Roberto Finzi, partner at Paul, Weiss, Rifkind, Wharton & Garrison Llp, and attorney for Schwartz.

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