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SEC slaps Diageo $16 mn fine for bribery in India, Thailand

Last Updated : 29 July 2011, 12:42 IST
Last Updated : 29 July 2011, 12:42 IST

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In an order, the Securities Exchange Commission (SEC) said it imposed the penalty on Diageo Plc, which through its subsidiaries, made illegal payments of over USD 2.7 million to various government officials in the three countries.

Detailing out the corrupt practices of the company, SEC said: "In India, from 2003 through mid-2009 Diageo made over USD 1.7 million in illicit payments to hundreds of Indian government officials responsible for purchasing or authorising the sale of its beverages."

"Increased sales from these payments yielded more than USD 11 million in ill-gotten gains," it added.

The company operates in India through its subsidiary, Diageo India (DI) Pvt Ltd.
"For many years Diageo engaged in a pervasive practice of making illicit direct and indirect payments to government officials throughout India to obtain and retain liquor sales. As a result Diageo was unjustly enriched by USD 11.3 million from increased sales," it said.

Among other illegal practices, SEC said: "Diageo through DI, reimbursed an estimated USD 5,30,955 and made plans to reimburse an additional USD 79,364 in improper cash payments made by third party sales promoters to government employees of the Indian military's Canteen Stores Department."

According to SEC, Diageo also made illegal payments to employees of government liquor stores as well as label registration and excise officials.

Comments from the company's Indian arm could not be obtained despite repeated attempts.

Diageo sells brands such as Johnnie Walker whisky and Smirnoff vodka, among others in India.

In March, Kraft Foods had said the US market regulator was probing the company for possible corrupt practices in India by its arm Cadbury.

Regarding the corrupt practices of Diageo, SEC said the illegal payments were made to obtain lucrative sales and tax benefits in the three countries.

The total financial penalty of over USD 16 million includes disgorgement and prejudgement interest expenses of USD 11.3 million and USD 2 million respectively.
Besides, SEC also asked the company pay a civil money penalty of USD 3 million within a month of the order, which was passed on July 27.

To promote goodwill, SEC said that Diageo also distributed Diwali and New Year holiday gifts to employees of Indian military's Canteen Stores Department (CDS).

"Diageo India again hid the fact that it was reimbursing the distributors for improper payments to government employees by recording them on its books of accounts as ... selling commission," the market regulator noted.

In Thailand, SEC said the company illicitly paid about USD 600,000 to retain consulting services of a Thai government and political party official during 2004 to mid-2008.

According to the SEC, the company illegally made payments of USD 416 million in 2004, including hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business.

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Published 29 July 2011, 12:42 IST

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