Jim Beam owner Beam Suntory has agreed to pay a US$19.6 million fine to resolve an investigation into the firm’s Indian subsidiary, which paid bribes to government officials from 2006 to 2012.
Chicago-headquartered Beam Suntory entered into the agreement with the US Department of Justice (DOJ) to conclude the government’s inquiry into conduct by the drinks group and its Indian subsidiary, which was disclosed in 2012.
The company will pay a criminal monetary penalty of US$19,572,885 for violations of the Foreign Corrupt Practices Act (FCPA). Beam Suntory received a 10% reduction on the fine in recognition for its cooperation with the DOJ’s investigation.
In July 2018, Maker’s Mark owner Beam Suntory agreed to pay a fine of US$2m and interest that totalled around US$6m in a related matter with the US Securities and Exchange Commission (SEC). Beam said the deal also recognised the company’s self-disclosure, cooperation and remedial efforts.
The legal matter predates Suntory Holdings’ purchase of US producer Beam Inc for US$16 billion in 2014 to create the world’s third-largest alcoholic drinks company: Beam Suntory. The Indian business was purchased by Beam in 2006.
From 2006 until the end of Q3 in 2012, Beam’s Indian arm paid bribes and made other inappropriate payments to various Indian government executives, including corrupt payments to obtain or retain business in India, the court document said.
During the period, the company’s Indian subsidiary paid a bribe of one million Indian rupees (around US$18,000 at the time) to a senior Indian government official in exchange for a license to bottle ready-to-drink products for the firm to sell and market in India.
Furthermore, the bribe was said to be authorised by a high-ranking executive at Beam’s Asia Pacific/South America business unit, who ordered the payment be made through Beam India’s third-party bottler in order to hide it.
The majority of the corrupt payments were made through third-party sales promoters and distributors to secure orders of Beam products at government-controlled depots and retail stores.
The payments were also used to gain prominent placement of Beam products in government retail stores, buy and renew label registrations and licenses, and enable the distribution of spirits from Beam India’s Behror bottling facility to warehouses in other states throughout India.
The DOJ also said that Beam had purposely failed to maintain a satisfactory system of internal accounting controls, which “would have helped to detect and halt Beam India’s long-standing practice of making corrupt payments to Indian government officials, and to falsify its books and records”.
Beam was warned frequently by external advisors of the need to apply satisfactory internal accounting controls in association with improper activities by third parties in India, however the firm failed to implement this sufficiently, the DOJ said. The company had also falsely recorded the bribes as commission expenses and fabricated certifications.
The prosecution agreement was deferred by three years and was unsealed yesterday (27 October) in the US District Court for the Northern District of Illinois.
As part of the delayed agreement, Beam Suntory will continue to cooperate with the department in any ongoing or future criminal investigations related to the firm.
Furthermore, the agreement stipulates that Beam will enhance its compliance programme and report to the government on its execution.
The DOJ said the resolution was reached based on a number of factors including the failure to timely disclose the conduct that triggered the investigation, and “significant delays caused by Beam in reaching a timely resolution and its refusal to accept responsibility for several years”.
Beam Suntory response
“We are pleased to move past this matter,” said Todd Bloomquist, general counsel of Beam Suntory. “Our company is committed to doing business the right way, and we take pride in our approach to resolving these issues, with integrity and transparency at every step of the process.
“Our company in 2012 initiated and publicly disclosed a thorough and independent investigation in cooperation with the US government and took decisive corrective action. We’re confident in our ambitious growth plans in India, which are built on a business that has become a model example of success through sustainable and compliant business practices.”
As a result of the investigation, Beam Suntory said it had dismissed employees who violated the firm’s business conduct code and ethics, and suspended all commercial activity in India until it was satisfied the business could be operated compliantly.
The firm also said it had applied “stringent controls” and strengthened its global compliance function to identify issues quickly.
Beam Suntory has around 300 employees in India, with offices in Gurgaon, New Delhi, Mumbai, Bangalore, Hyderabad, Kolkata and a primary bottling facility in Rajasthan.
The company has set a “billion-dollar goal” for India by 2030, according to the firm’s CEO. Last year, the company appointed Praveen K Kadle as independent director and chairman of the board for the firm’s Indian arm.
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Author: Nicola Carruthers