Nationality of Foreign Officials: India
Summary of Allegations:
Between 2006 to 2012, executives from Suntory, its Indian subsidiary Beam Global Spirits & Wine (India) Private Ltd (“Suntory India”) acquired in 2006 and Australian subsidiary (“Suntory Australia”) authorized to pay bribes via third-party promoters and distributors to Indian officials to secure numerous business advantages, including approvals on Suntory’s local market licenses, procurement orders and better placement at government-controlled entities, and the capacity to distribute Suntory products across states in India.
Media reports on 11 October 2012 revealed that the U.S. Department of Justice is investigating possible FCPA violations by Beam Inc's Indian subsidiary, Beam Global Spirits & Wine (India) Private Limited ("Suntory India"). The reports allege that Suntory India has put its Asia Pacific management team in charge of the investigation, and has asked local senior management, including the managing director Harish Moolchandana, not to report to work while the investigation is ongoing. Allegations include excise duty violations and invoicing irregularities. The reports indicate that the subsidiary's top sales and finance executives and regional sales directors are under investigation. In an unpublished communication, Beam spokesman Clarkson Hine is reported to have written: "Based on a routine internal audit of operations in India, we are taking a closer look at the actions of certain individuals and practices in the India business."
About 22% of the Company's net sales are attributable to its APSA division, which includes Australia, India, and China, among others; unusually for such companies, in 2011 and 2012 the company's sales have grown faster in India than in China.
On 8 November 2012, Suntory filed its SEC Form 10-Q, and explained,
"As a result of information obtained through our internal compliance procedures and an internal audit of our India business, we commenced an investigation into whether the business has been conducted in compliance with Company policies and applicable law, including the Foreign Corrupt Practices Act. We have voluntarily notified the U.S. Department of Justice ('DOJ') and the Securities and Exchange Commission ('SEC') of our investigation and intend to cooperate fully with the DOJ and SEC. We are presently unable to predict the duration, scope or result of the internal investigation or of any potential investigations by the DOJ or the SEC. At this time, we also cannot reasonably estimate the potential liabilities that may result from this matter, and no accruals for these potential liabilities have been established as of September 30, 2012. However, it is reasonably possible that such liabilities could have a material impact on our results of operations, cash flows or financial condition. In addition, the ongoing conduct of the investigation and our implementation of remedial measures are likely to have a disruptive effect on our India business over the near term.
A substantially similar statement appeared in Suntory's Form 10-K submitted to the SEC on 26 February 2013.
Apparently, from 2006 - 2012, the company -- with senior management's knowledge and authorization -- made improper payments both directly and via third-party agents to various Indian government officials to acquire and maintain business throughout India. For example, Beam India is said to have paid one excise official USD 18,000 (yearly salary equivalent) to approve a label registration for Beam India.
Suntory India deployed various artifices to conceal the bribery schemes. It funded the bribes via forging and inflating invoices and overpaying third-party promoters, tracked bribery payments via off-the-book accounts and a second set of financial records, mischaracterized the bribes as legitimate expenses, and submitted false certifications alleging financial statement accuracy. For example, over the period, Suntory India paid more than $1.5 million to its promoter in the CSD channel and over $550 thousand to its promoter in the state of Delhi to make improper payments to government officials at government-controlled retail stores and depots in those markets. The illicit practices started before Suntory India’s acquisition in 2006 and continued thereafter, causing the falsified books and records merged with Suntory.
Suntory overlooked the flagrant red flags of its Indian subsidiary’s involvement in bribery, continued the employment of relevant executives and ignored an external accounting firm’s warning about high-risk third parties and the lack of anti-corruption policy and training. Two law firms it subsequently employed raised the same concerns and Suntory concluded compliance interview without implementing adequate internal control to discipline relevant executives, address the red flags, or remedy the misconducts until 2012.
Approximate Alleged Payments to Foreign Officials: Millions in improper payments
Business Advantage Allegedly Obtained: approvals of licenses and registrations, better positioning on shelves, enhanced distribution rights.
Agencies: United States: Department of Justice
Results: Deferred Prosecution Agreement
Year Resolved: 2020
On 27 October 2020, Beam Suntory Inc. (“Suntory”) reached a resolution with the U.S. Department of Justice over charges of conspiracy to violate the FCPA anti-bribery, internal controls, and books and records provisions stemming from bribery schemes in India.
Suntory’s deferred prosecution agreement (“DPA”) with the DOJ imposes a total criminal fine of US$ 19,572,885, reflecting ten percent off the Sentencing Guideline based on partial credits for its cooperation during the investigation.
Agencies: United States: Securities and Exchange Commission
Results: Administrative Order, Cease-and-Desist Order, Civil Penalty, Disgorgement
Year Resolved: 2018
02 July 2018 - the SEC issued an administrative order with the consent of Beam to conclude its investigation into alleged FCPA violations stemming from Beam’s subsidiary, Beam Global Spirits & Wine (India) Private Limited (“Beam India”).
The SEC found that from 2006 to 2012, Beam India made improper payments to various Indian government officials directly and via third party agents in order to acquire and retain business in India; that Beam India did not accurately reflect these payments in its books and records (which were consolidated into Beam’s); and that Beam failed to (1) maintain sufficient internal accounting controls to detect and prevent such improper payments, and (2) failed to timely remediate deficiencies. Beam didn't admit or deny the SEC's findings.
The SEC ordered Beam to cease and desist from committing any future violations of Sections 13(b)(2)(A) & (B) of the Exchange Act and to pay a total of approximately US$ 8 million (disgorgement of US$ 5.26 million; prejudgment interest of US$ 917,498; and a civil penalty of USD 2 million).
Discovery Method: Voluntary Disclosure