Cognizant settles bribery case, to pay ₹ 170-cr penalty

US-based technology major Cognizant Technology Solutions has agreed to pay a hefty penalty of $25 million (around Rs 170 crore as per current exchange rate) to the US Securities Exchange Commission (US-SEC) in connection with a case of bribery in Tamil Nadu and Maharashtra.

The company is supposed to deposit the sum within 10 days of the judgement (February 25), the US-SEC ruling said.

The IT company has been asked to pay the penalty for alleged bribes to the tune of $3.6 million (about Rs 25 crore) between 2014 and 2016 to Indian government officials in Tamil Nadu and Maharashtra to secure permissions for constructing a tech campus.

The case came to light in September 2016 after Cognizant made a confession to the US-SEC.

Cognizant’s construction project in Chennai, referred to as the Knowledge Industry Township (KITS) campus, represents the company’s largest owned facility in India, encompassing 2.7 million square feet with a capacity for approximately 17,500 employees. Cognizant engaged a contracting firm to build the facility and obtain all necessary government permits. Construction began in 2011 prior to the issuance of a required planning permit.

"Between 2014 and 2016, Cognizant, acting through executives in the United States and India, authorised contractors to pay on the company’s behalf and reimbursed them for a total of approximately $3.6 million in bribes to Indian government officials to obtain government construction-related permits and operating licences in connection with the construction and operation of commercial office buildings," the ruling by SEC said.

In 2014, Cognizant authorised a contractor (said to be L&T) to pay a $2-million bribe to a senior government official for the issuance of a planning permit for a project in Chennai, it added.

According to a story in business daily Mint, Cognizant had bribed government officials to secure permits, ranging from environment clearance to power among others, to build its technology campuses in Chennai and Pune.

Although the US-SEC did not name L&T in the complaint that was made public, the person quoted in the Mint story 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.

As per the break-up of the penalty to be paid by Cognizant, it was asked to pay disgorgement (a situation in which a person or organisation is forced to pay back money they have made in an illegal way) of $16.39 million (about Rs 110 crore), prejudgement interest of $2.8 million (about Rs 20 crore), and a civil monetary penalty of $6 million (about Rs 43 crore) to the SEC for transfer to the general fund of the United States Treasury.

“In view of the foregoing, the commission deems it appropriate to impose the sanctions agreed to in Respondent Cognizant’s offer,” the ruling by the US District Court said.

It has been established that senior officials from the company have paid $6.14 million (about Rs 43 crore) as bribes to government officials in Tamil Nadu and Maharashtra — spanning between 2009 and 2016.

In an order, the US-SEC has accepted the Offer of Settlement by Cognizant Technology Solutions Corporation. The following document explains the details of Cognizant's bribe payments made in Chennai, Tamil Nadu, to secure permits for the construction of its project in the KITS campus:

In the following document of the United States District Court, District of New Jersey, the court proceedings are recorded. The officials of Cognizant, who are defendants in the court case, confessed before the Court officials that they had lied to Cognizant's Auditor in order to conceal the improper payments to the Contracting Firm. Coburn and Schwartz, the officials of Cognizant (or defendants) failed to disclose to Cognizant's auditor the scheme to bribe the government official for the planning permit, the disguised payments to the Contracting Firm, the resulting false books and records of Cognizant, and their intentional circumvention of the company's Code of Ethics and internal accounting controls:

The following document is a press release issued by the US Securities and Exchange Commission. The release states that Cognizant and two former executives are charged with the violation of the Foreign Corrupt Practices Act (FCPA). The release also states that Cognizant Technology Solutions Corporation has agreed to pay $25 million to settle charges for the said violations under FCPA:

Advisory to employees

Meanwhile, Cognizant has issued an advisory to all its employees asking them to adopt the company’s revised “code of ethics”. It has also instituted measures to ensure top-notch anti-corruption compliance and internal controls over financial reporting.

In an internal email circulated to employees, Cognizant CEO Francisco D'Souza said, “We continue to ensure that all of you have training on anti-corruption and our compliance policies and procedures. We've also implemented a revised code of ethics.”

While the developments close out all US government proceedings against the company, the US government also announced action against two former Cognizant executives.

“This matter does not involve our work with clients and has not had an impact on our ability to provide the quality of services our clients expect from us. I’d ask you all to now continue to remain focused on delivering to our clients in our usual, high quality way,” D’Souza said.