By Aditya Kalra and Arpan Chaturvedi
NEW DELHI (Reuters) -An internal investigation ordered by Pernod Ricard (EPA:) concluded that top executives at its India business broke the law by colluding with alcohol retailers in New Delhi, according to a document seen by Reuters, even as representatives of the French giant denied wrongdoing in court and publicly. .
India's financial crimes agency, the Enforcement Directorate, in January 2023 accused Pernod Ricard India (PRI) of engaging in money laundering by illegally providing $24 million in corporate guarantees to help some retailers finance their licensing offers in exchange for stocking more Pernod brands.
The PRI lobbied New Delhi officials for a 2021 law allowing private retailers to run liquor stores, Reuters previously reported, in a major departure from the government's previous system that operated such stores.
A May 2023 draft report by Indian law firm Shardul Amarchand Mangaldas, which the PRI hired to conduct an internal investigation, said three executives, including the then-chief operating officer of Pernod's Indian operations, Rajesh Mishra, “have acted in violation of the DEP.” , referring to Delhi's Excise Policy, which prohibited manufacturers from investing in retail.
“There are conversations indicating that the CG (corporate guarantee) was a means to have control over market share through retail control,” says the report, which was based on a review of Pernod's internal communications and messages from WhatsApp.
“Their conduct also suggests a larger conspiracy between (the employees) and other industry players,” he said, adding that it could “have implications” for Pernod in legal proceedings.
The 66-page document also claims Mishra made a “factually inaccurate” statement to Indian federal agents during interrogation.
A person with direct knowledge of the matter said the draft's conclusions were identical to those in the final report sent to Pernod headquarters in Paris a few weeks after the draft was written.
Shardul Amarchand Mangaldas did not respond to a request for comment.
PRI said in response to detailed questions from Reuters that it denies “any wrongdoing by PRI or any of its executives in relation to the allegations raised by you in your email.”
“We have always collaborated with the respective authorities and we have faith in the judicial process,” the PRI added, without answering questions about the measures the company took after the law firm presented its report.
A Pernod spokesman in Paris did not respond to questions. The Enforcement Directorate and Mishra did not respond to requests for comment.
While the 2021 law has since been repealed and stores are returned to government management, the compliance measure remains the biggest regulatory hurdle in India for Pernod. India is the largest market by sales volume for the producer of Absolut Vodka and Beefeater Gin, according to Euromonitor.
Due to the investigation, PRI brands have been banned from sale in New Delhi, a key trend-setting market in India. The company is appealing the restrictions.
The report recommended that Mishra be fired or asked to resign. He said he was instrumental in initiating and passing the proposed financial assistance to retailers, although he advised against the “acrimonious termination” of employment amid court proceedings. Mishra is now a senior executive at Pernod in Malaysia.
India's Prevention of Money Laundering Act stipulates penalties of fines and between three and seven years in prison for accused found guilty.
In response to the regulatory action, PRI auditor BSR & Co, a subsidiary of KPMG India, asked its client to estimate the impact on its business, according to an August 2023 letter seen by Reuters. The company responded that its civil liability was estimated at $67 million.
PRI reported $189 million in profits for its latest financial year on revenue of $3.2 billion.
KPMG did not respond to a request for comment.
PREVIOUS DENIAL, CHALLENGES FROM INDIA
The PRI told Reuters in January and February 2023 that it “strongly” denies the Enforcement Directorate's allegations, calling them “factually incorrect.”
As recently as September 4, lawyers for Benoy Babu, a PRI executive named in Shardul Amarchand Mangaldas' report, asked the Delhi High Court to quash the case against him. They said the allegations against Babu, who was briefly jailed awaiting trial last year, were “false and baseless” and that authorities were relying on “hearsay evidence.”
The court has yet to rule on Babu's non-public submission, which was seen by Reuters. He did not respond to questions from the news agency.
India is a key market for Pernod. In 2023, it had a 16% share of the country's spirits market as measured by sales volume, according to Euromonitor.
But challenges abound: Pernod is contesting a $250 million federal tax claim for allegedly undervaluing imports and faces two antitrust cases, one related to its alleged collusion with retailers in New Delhi.
The easing of liquor store ownership policies in 2021 was potentially transformative for Pernod, with an internal PRI submission submitted by authorities to the court stating that the company wanted to “take control of retail stores” in New Delhi.
PRI took advantage of the policy change by offering corporate guarantees to selected retailers to help them obtain loans for store licenses, the Enforcement Directorate said.
The agency said this constituted an indirect investment in liquor retailers.
Mishra wrote in an email to then-Pernod Asia CEO Philippe Guettat on July 6, 2021, that he was hopeful that Pernod's close business partners would bid aggressively for the licenses and “we would like to provide financial support to 4 of them… Our support (~€23M)” in the form of corporate guarantees.
Guettat, now a senior executive at Pernod in France, responded that he was “aligned and supported the recommendation” if due diligence was carried out. Guettat did not respond to questions from Reuters. Excerpts from their emails were included in the report.
The Enforcement Directorate also interviewed executives, including Mishra, who told law enforcement officials that he was not in possession of a draft of Delhi's liquor policy before its release in 2021, according to the law firm's report.
But Shardul Amarchand Mangaldas found this to be “objectively inaccurate” because Mishra was in possession of non-public government documents and “then circulated the same within Pernod India”.
“Possession of the documents as indicated suggests a larger conspiracy… to formulate a favorable policy in conspiracy with public officials or their intermediaries.”
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