GREY PRACTICES...of operating across India’s vast, varied and still largely-untapped landscape. This applies not only to uncertain first-time investors, but also to experienced foreign

Managing Risk | Maximising Opportunity

GREY PRACTICES:FUELLING FRAUD AND CORRUPTION IN THE INDIAN BUSINESS ENVIRONMENT

TABLE OF CONTENTSFOREWORD 1

INTRODUCTION 2

GREY PRACTICES 3

Shell companies 3Opaque ownership and management structures 4Benami (no-name) transactions 4Offshore entities 5Cash generation schemes 7

WHAT DOES THIS ALL MEAN? 9

Going from grey to black 9A changing regulatory context 10

PREVENTION STRATEGIES 11

Prevention is the best cure 11Time to get proactive 13

CONCLUSION 14

THE TERMINOLOGY OF CORRUPTION IN INDIA 15

AUTHORS 17

1GREY PRACTICES

FUELLING FRAUD AND CORRUPTION IN THE INDIAN BUSINESS ENVIRONMENT

GREY PRACTICES: FUELLING FRAUD AND CORRUPTION IN THE INDIAN BUSINESS ENVIRONMENT

FOREWORD

It is widely acknowledged that India is an extremely complex market in which to operate – a commercial landscape littered with legal, regulatory and reputational obstacles that is not for the faint-hearted. Navigating this environment and the risks involved can be a Sisyphean task, but for those with the courage and integrity to persevere, the rewards can be impressive.

Control Risks has been assisting our clients to manage such risks in India for upwards of two decades, and our experience and understanding of the local operating environment is second to none. In an effort to share some of the insight we have gained over this time, our experts have developed this white paper to address the thorny issue of so-called ‘grey practices’ in India, which are increasingly causing problems for both domestic and international companies, as well as attracting the scrutiny of foreign regulators.

As our paper outlines, there are two distinct forms of corporate malpractice in India: those that are clearly illegal (the black practices) and those that are less clear-cut and fall into a grey area where legality is ill-defined (though integrity and morality are often not). These grey practices are the schemes – often highly innovative in themselves – that in turn tend to fuel fraud and corruption on a far grander scale that can pose serious legal, commercial and reputational risks to companies that are not alert to the dangers.

With the enforcement of both domestic and extra-territorial legislation against corruption and financial crime only expected to increase, few companies can afford to overlook this issue any longer. This paper will help organisations to understand the threat from grey practices in India, and also how to go about developing resistance strategies to mitigate those threats and ensure the success of their commercial operations. It is essential reading for legal counsels, compliance officers and risk managers, but also recommended reading for almost everybody else who is looking to operate successfully and ethically in India.

James McAlpine, Managing Director Control Risks India & South Asia

2 GREY PRACTICES


INTRODUCTION

Ten years ago, discussion of regulatory compliance was largely confined

to the board rooms of US law firms and a handful of international

companies, but the landscape of the modern business world has

changed. Today, companies from all corners of the world need to

respond to tighter regulations and more proactive law enforcement if

they are to attract international investment, engage in joint ventures or

invest in an overseas market.

India is an exciting but challenging place to do business. Big rewards

can await those who have the patience, dexterity and tenacity to

navigate one of the world’s most vibrant and aspirational markets. But

equally, big pitfalls exist for those who underestimate the complexities

of operating across India’s vast, varied and still largely-untapped

landscape. This applies not only to uncertain first-time investors, but

also to experienced foreign and domestic companies that are well-

used to doing business in the country.

Many foreign and Indian companies make the mistake of thinking that

they can adopt a uniform strategy for their operations across the

country. This tends not to work in India, a vast and varied country of

1.2 billion people where if Uttar Pradesh, a northern Indian state the

size of Michigan, declared independence it would be the fifth-most

populous nation on earth, with more people than Brazil. Social,

cultural, linguistic and family bonds vary from state to state, making

India no more a single investment destination than the European

Union might be to a Japanese or US executive. Add religious, caste

and tribal differences to the mix and it starts to become apparent why

India can stimulate but perplex in equal measure.

Setting up a business in the pro-investment, low red-tape state of

Gujarat is poles apart from doing the same in India’s “red corridor”, a

swathe of territory in mineral-rich central and eastern India, where

Maoist militant groups (locally known as “Naxalites”) regularly demand

extortion payments from companies. That said, the states of Bihar,

Chhattisgarh, Odisha and Madhya Pradesh may exist well beyond the

commercial hinterland of south and west India, but for those CEOs

with a healthy risk appetite they present new market opportunities

where many of their peers are yet to venture.

Unlike in many other emerging economies, there is no power vertical

running from top to bottom in India, where many states are run by

regional parties. India’s pluralistic political system only looks set to

evolve as the landscape becomes increasingly fragmented, with

more parties creating a political culture often driven by state or

local-based issues. India’s decentralised and often chaotic politics

also allows, if not encourages, a close nexus between big business

and the political elite.

The decentralised and regional basis of Indian politics means that

local personalities and political dynasties very often tend to dominate

at a state level, making it harder for foreign and Indian companies to

unpick the informal networks of politicians and bureaucrats who

ultimately call the shots, many of whom have business interests in

the region themselves. This can result, for example, in state-level

politicians mounting spurious complaints (often based on trumped

up environmental or tax violations) against an “outside” company if

it is competing with his or her often barely-concealed interest. Highly

coordinated, behind-the-scenes lobbying also enables big business

groups to manipulate, shape and influence laws to suit their

interests. This helps – across many sectors – to create an

uncompetitive commercial landscape that advantages those

companies with the biggest muscles to flex and, in turn, encourages

those with less clout to bend the rules in order to try to compete.

This begins to make the risk-reward equation look more troubling.

The underlying strengths of the Indian economy – growth,

innovation and huge human capital potential – transcend state

borders and, despite its apparent plurality, India’s boisterous

political system does hold together one of the most diverse

democracies in the world.

Above all, there is a common culture in India that believes that anything

is possible and, by hook or by crook, can be achieved. The improvisation

at the heart of this reveals itself in India’s seemingly endless capacity to

make healthcare, education and consumer products affordable to

millions of people. Jugaad, a Hindi-Urdu word with no literal translation,

captures this concept of creative innovation for a quick and affordable

solution. Similarly, chalta hai, another Hindi phrase frequently heard on

the streets of India, denotes the belief that “anything goes”. Jugaad has

in many ways been India’s enabler, but for all its positive repercussions

there are also negative implications. It is jugaad that also justifies

circumventing the rules for a quick or profitable outcome, and ultimately

fuels and supports opaque business practices.

Corporate malpractice exists in two distinct forms in India: the

easily recognisable and clearly illegal practices and the more

ambiguous, hard to identify grey practices, which sometimes exist

simply to help a company or individual “get the job done” or indeed

survive in a tough economic environment. However, over time many

of these practices have increasingly turned from grey to black,

concealing serious and illegal acts that can pose significant

reputational and regulatory risks for companies operating in India’s

opaque business environment.

Grey practices are the schemes that thrive on this opacity, fuelling

much of the fraud and embezzlement that exists in the Indian business

environment. Grey practices are common to many markets, but their

ubiquity in India is testament to an opaque business and political

environment, and a culture of creative improvisation that can actually

make life more not less difficult for companies.

3GREY PRACTICES


GREY PRACTICES

Ironically, it was India’s culture of excessive red tape and

bureaucratic hurdles, colloquially known as the “licence Raj”, that

helped to create the conditions in which grey practices have

flourished. The robust and time-consuming system of approvals

originally designed to keep malpractice in check have, in many

ways, only encouraged businesses to circumvent the rules and

exploit loopholes. As with any system that does not work as

intended, people look for ways to get round it. Couple this with

weak implementation of law and a complex and often inadequate

regulatory context, and you have a challenging business

environment.

A challenging legal context

India’s legal system is generally seen as fair, particularly in the

higher courts; however court cases can still be lengthy,

dragging on for years, partly due to the sheer volume of

litigation and partly a result of corruptible individuals willing to

be incentivised to find in favour of a particular party, or indeed

delay the proceedings in the hope that the case will never be

heard. It is often only the wealthy and well-connected who are

able to fast-track the proceedings and, as such, it has been

argued, the threat of legal repercussions does not serve as

much of a deterrent to those engaging in low or mid-level grey

practices as it might.

Grey practices are particularly prevalent in companies interfacing

with government officials, whether they are collecting stock from

customs, moving goods over state borders, or applying for a

licence or a permit. The use of brokers or “local fixers” to navigate

onerous red tape and expedite the often lengthy delays experienced

at India’s ports is particularly troublesome for companies, especially

for those who turn a blind eye to the grey practices that these

brokers are often engaged in on their behalf. Not least because the

US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act

(UKBA) make no distinction between a company paying a bribe

directly or via an intermediary.

Getting to know your partners

In recent years several high-profile companies have come

under scrutiny from both domestic and international regulatory

bodies for misuse of local intermediaries or “middlemen” in

India. This includes Rolls Royce, which in early 2014 became

the subject of Central Bureau of Investigation (CBI) enquiries

into its use of middlemen to secure lucrative deals with a state-

owned aviation company, Hindustan Aeronautics Ltd., an illegal

practice in the defence sector. This underlines the need for

companies to obtain a comprehensive, sector-specific

understanding of local and international guidelines when

conducting business in India, not least because the use of such

intermediaries can be the default setting for simply “getting

things done” in the country.

Ultimately grey practices are adopted by an individual to gain

advantage by deceiving a regulator, commercial partner, or even his

or her own company. While they may not always be illegal in their

own right, many are designed to conceal or enable illegal activities

that ultimately grease the wheels of corruption, perhaps the single

biggest topic dominating India’s national agenda. The following

sections will now examine some of these specific grey practices in

closer detail.

Shell companies

Shell companies can be manipulated to hide commercial wrongdoing,

obscuring the link between the beneficiary and the actual fraud. They

come in many guises and flourish in markets such as India where it

is not mandatory for some categories of company to register with the

authorities. Many simply exist as money-routing vehicles, with no

physical address or employees to their name; their official existence

amounts to a single signature – often fake – on a legal document

somewhere but can enable the beneficiary to evade tax, commit

fraud or manipulate a tender.

The ability to detect a shell company is therefore crucial for

compliance and legal officers and business development heads

seeking to win new deals. Warning signs can be straightforward to

identify – basic media research, examination of corporate filings,

site visits and discreet enquiries for example can help answer the

following types of questions:

• Is the company using a legitimate address?

• Is the company registered at a residential rather than business address?

• Have stolen identities been used to register the company?

• Does the company lack contact details and a website?

• Does the company have any employees?

• Is it a partnership or proprietorship company?

Ultimately grey practices are adopted by an individual

to gain advantage by deceiving a regulator, commercial

partner, or even his or her own company.

4 GREY PRACTICES


Answering in the affirmative to some of these questions is not

necessarily proof of wrongdoing, but it can indicate wider

malpractice. For example, registering a company as a partnership

or proprietorship in India does not necessarily denote unethical

practice – unlike private and publicly limited companies, partnership

or proprietorship firms do not have to register with the Ministry of

Corporate Affairs (MCA), India’s ministry responsible for regulating

enterprises. Instead, they are only required to register with the

Registrar of Firms which holds limited, incomplete and often

unreliable information. Unlike other categories of company, they are

also not required to submit annual returns, balance sheets or

shareholding information. However, the innate opacity associated

with such a category of company can be easily manipulated to

conceal political or criminal ownership, or be used to mask activities

that would otherwise be brought to light if it were formally registered

with the MCA.

Asking the above kinds of questions as part of an overall risk

assessment (as outlined in ‘Prevention strategies’) therefore is a first

step in helping a company to spot a potential grey practice scheme

that could have much more serious implications.

Manipulating tenders

One common use of shell companies is to manipulate tender

bids. In this scenario, several shell companies are set up to

participate in a tender, in which only one company is real.

Colluding with an employee, the management or promoters of

the tendering company, the individual will ensure the bids of the

shell companies are deliberately higher, guaranteeing the real

company wins the contract.

Opaque ownership and management structures

Indian companies are often family owned and managed, with the first-

and second-generation owners still active in the company; these are

locally known as “promoter-driven companies” in which the beneficial

owner is also the ultimate decision maker. Some have professional

management teams in place; others openly retain operational control;

and some – including many of India’s largest conglomerates –

maintain the pretence of professional management but are in reality

still controlled by family members (these are colloquially known as

“lala companies”).

Another legally accepted concept in India is that of the Hindu

Undivided Family (HUF), a legal entity formed under the leadership of

the family patriarch to manage jointly-owned family assets. Originally

intended to facilitate inheritance and provide financial security to

family members, HUFs are now often used by promoters or individuals

or businesses to hide assets and money. The HUF records are not

disclosed and thus it is relatively easy to hide money in the accounts

of an HUF and transfer them outside India. We have come across

multiple cases where this method has been used to siphon money

from international investors and joint venture partners.

Family ownership can make getting to know these companies a

long drawn-out process. It can also lead to personality-driven

decisions, where key family interests are involved in crucial questions

relating to strategy, as well as the utilisation and tapping of company

funds. When disputes arise, it can also result in large amounts of

intractable law suits that only serve to complicate decision-making

for concerned investors, especially when the litigation has actually

been initiated deliberately to conceal other wrongdoing or to drive

off a rival investor.

Many family-owned companies in India are extremely well-run;

however the blurring of ownership and management makes it

difficult, especially for a foreign investor, to determine whether a

hidden agenda is influencing the way in which a company is

managing the relationship, defining its strategy or conducting a

transaction. It can also manifest itself in non-transparent accounting

practices and parallel book-keeping, where manipulation of

accounts or financial window-dressing is carried out in order to

protect or benefit one or more family members. These kinds of

practices are not always easy to detect, masked by a complex and

opaque ownership structure designed to obscure the malpractice.

The question of succession planning in a promoter-driven company

can also often be disruptive, divisive and emotionally charged,

encouraging ad hoc and short term decision-making. It is for this

reason that, as we set out in more detail in ‘Prevention strategies’,

investors should really do their homework on who they are

partnering with.

Unpicking ownership structures

Among numerous other similar examples, a client of Control Risks

suspected a conflict of interest in its JV between its Indian partner

and a local vendor company in Maharashtra. A review of the JV

and vendor company’s corporate filings revealed that a number of

the JV’s current employees were former shareholders and

directors in the vendor company, and that the owner of the vendor

was the brother-in-law of the JV’s managing director. Mapping all

the interlinked directorships and shareholdings of the family

revealed the extent of the familial cross-ownership that existed

between the partner, the JV and a range of other vendor

companies; it also revealed that at least one state-level politician

was, alongside our client, a shareholder in the JV.

Further intelligence gathering revealed that the credentials

provided by the vendor were false and that it was essentially being

used as a mechanism to channel the profits generated by the

contracts it was servicing for the JV back into the pockets of the

promoter family. Evidence for this was obtained through computer

forensic work carried out on the laptops of JV employees.

Benami (no-name) transactions

Put simply, Benami, a Persian word meaning “no name”, is the term

given to transactions in which the real beneficiary is not the one

whose name features on the contract. Benami transactions are

widespread in India, as in other emerging markets, and are used for a

variety of reasons, such as to obscure political investment, mask

illegally-acquired money, evade tax or channel black money.

We have come across multiple cases where

HUFs have been used to siphon money from

international investors and joint venture partners.

5GREY PRACTICES


Benami originated as a means to hold more property than was legally

permissible, as outlined in the conditions set by the Land Ceiling Act

of 1976. Today, they are used in transactions relating to more than

just land and property, revealing themselves frequently in the

acquisition of shares, companies and almost any movable or

immovable asset. The Benami Transactions (Prohibition) Act of 1988,

as well the updated bill of 2011, still focus on prohibiting their use in

property transactions, ignoring their widespread use in a range of

other transactions.

In a typical benami scheme, the real beneficiary will make the

transaction in the name of a dead relative, non-earning family member,

child, trusted personnel or a shell company, in other words anyone or

anything that will conceal their true identity. In India, the system of

registering births and deaths is not yet electronically managed, and

not linked to any other system such as banking or a national identity

records. This means that, if a person dies and his death certificate is

issued, it is not uploaded to a central registry; as such, his identity

could continue to be used to conduct business transactions or to

hold equity for family members in such a way that they avoid paying

the requisite taxes. However, with the advent of internet banking,

these practices are becoming more complicated. Moreover, there are

valiant attempts being made to remedy this situation such as the

Unique Identity Card project – an initiative to scan every Indian

citizen’s retinas and issue a 12-digit identification number – will deter

identity theft in the future.

After a benami transaction, despite not being named in formal company

registration documents, the real beneficial owner will exercise

considerable control, while remaining “off the radar” to domestic and

international regulators. There is also no formal record of the money trail

in a benami transaction, meaning that it is very hard for businesses,

regulators and law enforcement to identify the malpractice. It is

imperative, therefore, that an investor conducts robust due diligence in

order to obtain clarity on the ultimate beneficial ownership.

Technology as an enabler

Technology is being employed in imaginative and often

game-changing ways. The Unique Identity Card project has

the power to transform the way public services are delivered.

This project, among other advantages, will mean for example

that a woman living in rural India will be able to receive her

state benefit straight into her own bank account without the

involvement of an invariably corrupt middleman. Other

initiatives such as India’s 2005 Right to Information Act,

which decrees that any citizen has the right to request

information from any public authority and to receive a

response within a maximum of 30-45 days, is slowly making

the public sector more transparent. This, in turn, is supporting

the wider trends of holding both government officials and big

business to account.

Offshore entities

Offshore entities are used by some of the biggest companies in the

world, often for legitimate tax advantages. Others, however, use offshore

entities to evade tax, conceal ownership (such as the stake of a

government official) and to channel funds abroad, distancing the funds

from their criminal origins. They are another way in which a company

deceives a partner or a regulator for unentitled commercial gain.

Tax treaties between India and other countries allow for easy flow of

investment funds into India. However loopholes within them are often

exploited to route money in an illegal way. The illicit money transferred

outside India may come back to India through various methods such as

hawala (see page 7), mispricing, foreign direct investment (FDI) through

beneficial tax jurisdictions, raising of capital by Indian companies

through global depository receipts, and investment in Indian stock

markets through participatory notes.

In a typical benami scheme, the real beneficiary will

make the transaction in the name of a dead relative,

non-earning family member, child, trusted personnel or

a shell company

6 GREY PRACTICES


Shareholder

7%

Shareholder

7%

Wife of Promoter 1

Company registered in India

Company X registeredin the Cayman Islands

Company Y registeredin the Cayman Islands

Company A registered in Mauritius

Company Cregistered in Mauritius

Company B registeredin Mauritius

Publicly listed entity in India

Promoter 1

Promoter 2

Wife of Promoter 2

Shareholder

74.2%

Shareholder

77.59%

Shareholder

40%Shareholder

46%

Shareholder

100%

Shareholder

10.54%

Shareholder

51.32%

Shareholder

100%

Shareholder

15.29%

Shareholder

100%

It is not unusual for the ownership of a company to be hidden behind multiple layers of companies registered in offshore jurisdictions. In one case, a Singa-pore-based investment bank asked Control Risks to establish the ownership of a publicly listed Indian power company in which it was seeking to make an invest-ment. It turned out that offshore companies located in jurisdictions as diverse as the Cayman Islands, the Seychelles and Mauritius owned stakes in the Indian company. It also emerged that the Indian company, as well as the offshore entities owning stakes in it, were themselves subsidiaries of a private Indian company promoted by the directors of the publicly listed entity. The ownership scheme was designed, in this particular case, for re-routing funds back to India without incurring taxes and obfuscating the beneficial ownership.

Complex offshore ownership structures

7GREY PRACTICES


It is possible, for example, for both individuals and corporates to

launder mostly untaxed income by channelling it through tax havens,

only for it then to be “round-tripped” back to India in the form of

legitimate investments. The lack of regulation and low disclosure

requirements of well-known tax havens such as Mauritius, Cyprus

and the British Virgin Islands facilitate this round-tripping. It is

estimated that between 2001 and 2011, over 40% of foreign direct

investment (FDI) into India came from Mauritius, a significant

proportion of which had exited the country as “black cash” and re-

entered as “legitimate” FDI. This not only presents challenges to those

doing business in India, but has much more significant and

longstanding repercussions for India’s national economy.

Cash generation schemes

Cash generation techniques are often used by companies in India to

minimise their tax exposure and to facilitate fraudulent and corrupt

schemes. They help companies to generate additional revenue

streams which, during a downturn, can be especially tempting for

those driven by tougher economic conditions to focus on cash

collection and protect their bottom lines. Typical cash generation

schemes include:

One rationale behind cash generation schemes is to generate black

cash, which is used to pay salaries and other company expenses off

the books, fuelling a parallel “cash economy” which deprives the

government of huge undeclared revenues. This is particularly the

case in a downturn, when cash constraints and bottlenecks in

supply chains result in many local companies relying even more

heavily on these practices to maximise their revenue and minimise

their financial reporting.

Pitfalls in real estate

The Indian real estate sector has long been known for the

propensity of cash - or part cash - payments for the

purchase of property, which has the potential to criminalise

a large group of otherwise honest members of society in a

way that only benefits the developers or owners, by

reducing their tax burden, and leads to further grey

practices. With proportions of the transaction being paid in

cash, property valuations are distorted and do not reflect

the true market rate. As a result, the sector is increasingly

cash-heavy and this can sometimes be associated with

hawala money. Hawala is money that has been transferred

in a way that exists outside the formal, institutionalised

banking system. Hawala has a long history in India and

forms a large part of the country’s informal or ‘underground’

economy. However, the hawala system is illegal and

associated with money-laundering and tax avoidance.

Black cash is generated through undeclared transactions, such as

where a third party is paid in excess of the service they have

provided, or where disbursements are made to vendors to which

they are not entitled, creating a cash fund for the third party and its

in-house employee “contact”. An investigation will often find

warning signs that at first may seem innocuous but in reality

present significant potential financial and reputation costs to a

company. One indicator that a compliance officer should never

accept at face value is a “special” or “long-standing partner”

discount assigned to a particular vendor or distributor in its

business; the discount might be legitimate but it can also be used

to pass on excess cash to the vendor. Such practices do not

always hold up to closer scrutiny.

Reviews of process and controls very often find warning signs hidden

in the detail, such as the difference that sometimes exists in the

number of retail stores documented in a company’s accounting

system vis-à-vis its actual sales data. Some compliance officers

would, perhaps understandably, put this down to “incorrect data

entry” and not take it further. In doing so they could be opening

themselves up to one of many different scenarios, such as where an

employee charges expenses against these fictitious stores and then

siphons off the resulting funds. It is almost impossible to catch every

internal fraud, but being aware of the potential schemes and regular

monitoring of processes will give a company a pre-emptive advantage.

• Over-invoicing, creating a fund at “select” vendors, dealers and distributors

• Recording fictitious expenses and adjusting the amount in bank reconciliations

• Paying a salary to fake employees and non-existent third parties

• Paying a bribe and recording it under multiple legitimate accounting categories

8 GREY PRACTICES


Bank 3 Associated partyin Hong Kong

Associated partyin Thailand

Polished diamonds

Bank 1

Bank 2

Associated party uses the value of the diamonds to access credit from another financial institution

Party uses the value of the diamonds to access new credit from different financial institution

Polished diamonds

Used to acquire polished diamonds

Associated partyin UAE

Black money

Same diamonds re-sold to another associated party

Sells in retail market

Group of People 1

Re-sells polished diamonds to another foreign associated party

Associated party uses the value of the diamonds reflected in turnover to access credit

Company Aregistered in India

Circular trading" is particularly prevalent in India's diamonds sector, where diamonds are often exported around the world multiple times in order to register an inflated turnover. The access of diamond companies to credit is turnover-based, and so based on this increased turnover, the companies can obtain additional financing. However, because they are often only re-exporting the same product, and thus obtaining multiple strands of finance, they run the risk of becoming over leveraged and defaulting further down the line.

Circular trading in the diamonds sector

9GREY PRACTICES


WHAT DOES THIS ALL MEAN?

Going from grey to black

Jugaad might appear a reasonable, socially acceptable, way of

circumventing rules for a quick or profitable outcome, a symptom of

necessity as opposed to criminal intent. However, the grey practice

schemes that are born out of this culture exist not simply as a reaction

to an opaque, complex and over regulated business environment, but

rather a means to facilitate or conceal serious malpractice. And it is in

this way that the deception involved in these schemes can very

quickly turn from grey to black – such as when opaque ownership

structures are used to conceal conflicts of interest, political

beneficiaries or to mask corrupt payments.

Local practices with global implications

In recent years there have been numerous high-profile

cases of serious corporate fraud in India which have

attracted the attention of the international media. They were

ultimately enabled by a culture that tolerates, to an extent,

the existence of grey business practices and have involved

both large domestic and foreign companies. Not only did

they cause big losses to shareholders, but they drew the

attention of regulatory agencies in India and abroad.

One such instance of when grey practices have been used

for ‘black’ or criminal intent to defraud a company can be

seen in a case involving Reebok’s management in India.

The scheme included setting up fake warehouses to

siphon goods and then, in order to boost cash, the

executives ran a “franchisee referral programme”, through

which they collected INR 88.11 crores (USD 14.6m) from

60 high net-worth individuals, promising interest of 16-

20%. The total loss is estimated to be USD 144m by

overstating profits and falsifying assets over years. With

local and international regulatory and law enforcement

investigations ongoing, the company has now put in place

effective measures to ensure that this kind of malpractice

does not occur again.

Pharmaceuticals: a harder sector than most

Some sectors are also more prone to malpractice than

others, with much of India’s laundered money channelled

through banks and financial instruments and invested in real

estate. Despite being highly regulated, India’s pharmaceutical

sector is particularly susceptible to black practices.

Common examples include: intellectual property theft

leading to the production of counterfeit and generic

medicines; local agents, sales officers and distributors

setting up non-existent medical centres to receive

subsidised medicine, which is then sold on the open market

for personal profit; financially incentivising doctors and

pharmacists to prescribe certain drugs; and paying retailers

to manipulate their sales targets. Often the payments

involved in these schemes are disguised as business

development expenses, which are often very difficult –

particularly for the unwary foreign investor – to identify.

In short, every stage of the supply chain is vulnerable to

corrupt practices. Receiving government permission in this

highly regulated sector can be time consuming and

expensive; as such, it can give rise to corruption in order to

speed up the procedure and obtain the necessary licences.

During a drug’s development, conducting bona fide clinical

trials in India can also be challenging. The most common

difficulties faced by a foreign sponsor who has commissioned

a clinical trial operator is to ensure that they are not bribing

or coercing enrolees or engaging in improper patient

recruitment techniques and data falsification. Local sales

agents and distributors often engage in fraudulent practices,

further complicating an already complex procurement

process. This is compounded by India’s inherent gift culture,

where physicians’ and pharmacists’ expectations for

prescribing certain drugs can be predicated on a financial

incentive. India’s demographic realities and public health

needs make the country’s pharmaceutical sector an

extremely lucrative market. However, it is also one fraught

with challenges, not least given increasingly regulatory

scrutiny in both India and abroad.

Grey practices lie at the heart of some of India’s most serious economic

crime, a key ingredient in multi-million dollar embezzlement and frauds, as

well as in money-laundering, organised crime and even terrorist financing.

It is for this reason that companies doing business in India – and elsewhere

– should be asking searching questions of their own business, including

those of their partners. Grey practices are not necessarily themselves

illegal. But the same mechanisms used to legitimately reduce a company’s

tax burden can also be employed by criminals to launder the profits of

their illegal activities, making it difficult for a company to determine

whether the origin of funds of a business partner are genuine or illegal.

And there are likewise different shades of grey turning to black

practice. For example, there is a difference between the partner of a

foreign investor who sends money to a one-day company to generate

off-the-books cash to pay employee salaries, and one who obtains

this cash through criminal means and is now seeking to muddy the

trail linking this cash to his or her criminal activities. Both are illegal,

but arguably one more so than the other.

India is a member of the Financial Action Task Force (FATF), an

intergovernmental body set up to combat money-laundering and terrorist

financing, and has at its disposal enforcement bodies such as the

Directorate of Enforcement and the Economic Offences Wing of the

Central Bureau of Investigation. These are, in turn, supported by the

Financial Intelligence Unit, the Central Economic Intelligence Bureau, the

Economic Intelligence Council, and the Serious Fraud Investigation Office.

It is quite an array of sometimes overlapping, occasionally competing and

contradictory agencies. And, despite taking the issue of money-laundering

seriously, Indian legislation in this area is still fairly embryonic.

10 GREY PRACTICES


A changing regulatory context

Change is very much part of the zeitgeist in India. It will not come about

quickly or particularly easily, but the rules of the game are slowly starting

to change. Whether the catalyst is popular indignation against bad

governance, a tightening in domestic anti-corruption legislation, or the

example being set by some of India’s multinational brands, the

overarching goal seems to be one of greater accountability. India’s

leading corporate brands are fast becoming more and more active on

the world stage, with “blue chips” such as Tata, Bharti and Birla investing

heavily in Europe and the US. Promoting higher levels of corporate

governance has raised the bar for their domestic competitors, many of

whom are similarly looking to compete for contracts in these tighter

regulatory markets. The question is whether the same high standards

will be applied by Indian companies looking to invest in resource-rich

Sub-Saharan Africa, the former Soviet Union and in rapidly “emerging”

South-East Asian economies such as Vietnam, Indonesia and Myanmar.

At home, Indian businesses are also facing a tougher regulatory

environment, which is supported by a greater sense of

accountability that is permeating the corporate world. Although

Indian companies still tend not to fear prosecution under the

domestic Prevention of Corruption Act (1988), a busy legislative

agenda is changing attitudes. The enactment of the Companies

Act (2013), for example, defined ‘fraud’ for the first time and gives

specific penalties, requires higher standards of corporate

governance, and is empowering India’s Serious Fraud Investigation

Office (SFIO) to take a more active role in detecting and prosecuting

white-collar crime.

And so there is a reputational and financial imperative to uncover

the practices outlined in this paper. Failing to root out a one-day

entity concealing illicit transactions or criminal ownership can

undermine shareholder and market trust, and can prove financially

damaging. Tighter domestic and international regulation in the

form of extraterritorial anti-corruption legislation, such as the FCPA

and UKBA, is also increasing the regulatory risk, with the US

authorities in particular focusing more and more on high-risk

sectors in India, such as pharmaceuticals, construction,

engineering, infrastructure and liquor.

Shaken and stirred: the challenges of India’s liquor sector

With the growth of a progressively brand-conscious middle

class, India’s retail sector is becoming an increasingly

competitive arena for international brands. The liquor sector

is no different, but is particularly prone to criminal practice.

With more “Black Label” consumed in India than is produced

in Scotland, the problem of counterfeit is a sizeable one. In

the world’s largest whisky market, a large proportion of

alcohol produced is illicit and effectively exists outside of

governmental control. Transporting alcohol between states

and the levying of ‘import taxes’ means the supply chain is

especially vulnerable to forced bribes, while local unions

have also been known to demand that contracts be awarded

to them under the threat of violence. The sector is also highly

politicised, in our experience more so than most others. The

challenges facing companies operating in this sector are

thus manifold, and have already led to several international

brands being investigated under the FCPA.

This is relevant for Indian companies working with foreign partners

in domestic and cross-border investments and when raising

capital on foreign exchanges. It is also relevant because domestic

Indian legislation is getting tougher.

Indian law gets tougher

The Companies Act of 2013 is changing the “rules of the game”,

bringing Indian company law closer to global standards and

regulating areas ranging from incorporation to corporate social

responsibility, mergers, corporate governance, auditor rotation

and investor protection. The Act is increasing the reporting

framework and requires more auditor accountability, strengthening

the system of internal controls to prevent and investigate fraud. It

also requires the annual directors’ report to include a risk

management policy, which in principle should include measures to

address the risk of fraud and corruption, and requires companies

to establish a ‘vigilance mechanism’, whereby employees can

report legal and ethical concerns without fear of reprisal. Of note,

the Companies Act also includes a provision to prevent ‘layering’, a

common way to obscure beneficial ownership and evade tax.

Starting to mirror trends elsewhere, there is more emphasis being

placed on prosecuting those who pay rather than those who receive

bribes in India, even if for now this is stronger on rhetoric than

substance. The challenge, as ever, will be whether India’s law

enforcement agencies can implement and then enforce stricter anti-

corruption and governance legislation. This is a big question but – at

least for now – there is a real sense among Indian company compliance

and legal officers that these laws are starting to change attitudes.

And this is the reason why now – more than ever – companies need to

focus on their strategy and operations in India. This is not easy, given

that many of the grey practice schemes that lead on to wider fraud and

corruption lurk beneath the surface and are not always clearly or

explicitly illegal. However, companies can go a long way to meeting

this challenge if they put in place a system – and a culture – that

enables them to better detect and then act on the warning signs

associated with grey practices.

Grey practice schemes exist not simply as a reaction

to an opaque, complex and over regulated business

environment, but rather a means to facilitate or

conceal serious malpractice

11GREY PRACTICES


PREVENTION STRATEGIES

Prevention strategies start with risk assessment. Every company doing

business in India should assess the unique ways in which its sector,

footprint, projects and day-to-day transactions expose it to varying

levels of risk.

For long-term business success in India, not only is it critical to be

assessing the risks that you are exposed to – “what others may do to us”

– but also to ascertain the impact that your business has on others. An

impact assessment will help to answer questions such as “will our project

affect the environment and local communities?”; “what are the human

and social rights implications?”; “who are the winners and who are the

losers?”; and “will it connect or divide people?” Addressing these issues

from the outset – given the potential for land, labour and environmental

disputes to disrupt business operations (sometimes for decades) – is of

utmost importance, particularly for those operating in high-risk and

politically volatile areas. Those involved in the development of train lines

in Jharkhand, mines in Bihar and dams in Kashmir for example – all high-

impact projects – should be particularly aware of the need to conduct

this kind of assessment as part of their prevention strategy.

Prevention is the best cure

Putting in place a robust risk management programme requires a

company to understand both the risks to and the impact of its

operations. International anti-bribery and corruption best practice is

typically based on the guidance set out in the FCPA and the UKBA –

and in particular from two documents: “A Resource Guide to the US

Foreign Corrupt Practices Act”, jointly issued by the US Department

of Justice and the Securities and Exchange Commission in November

2012, and the “Bribery Act 2010 Guidance” published by the UK

Ministry of Justice in March 2011. The key tenets that form this best

practice are illustrated in the adjacent diagram.

Top-level commitment, often known as tone from the top, is crucial.

An engaged chief executive will make all the difference in articulating

the right values and behaviours, empowering managers at a

company’s HQ in Mumbai through to business developers in Tamil

Nadu to send the right message, including to those officials seeking

to extort a bribe.

Top-levelcommitment

Due diligence and screening

Proportionateprocedures

Monitoringand review

Riskassessment

Culture,communication

and training

Oversight, autonomyand resources

Confidential reportingand investigation

3rd partydue diligence

Risk assessmentTraining and

continuing advice

Code of conductand policies

Incentives anddisciplinary measures

Commitment fromsenior management

US GUIDING PRINCIPLES OF ENFORCEMENT

UK ADEQUATE PROCEDURES

BESTPRACTICE

Anti-corruption best practice

12 GREY PRACTICES


The next step is developing strong policies and codes of conduct that

are tailored to the business but also proportionate to the risks it faces.

Many companies have excellent policies. The challenge is how to

apply them to the realities of doing business in India, both at a strategic

level (choosing the right partners and acquisitions) and operational

level (navigating the complexities of dealing with government

approvals, numerous licences and government officials at each stage

of the business lifecycle). After all, a private equity company investing

in a Bangalore-based IT software company will experience a very

different set of challenges from an infrastructure company seeking to

clear land for a hydro-power plant in the north-east.

Company policies also need to be updated to reflect changes in

legislation, market and commercial focus. The principles and values

enshrined in these policies should be communicated through regular

training at all levels of the company to ensure the gap that often opens

up between best practice policies and actual practice is minimised. It

is no good having world-class policies if company employees

continue to engage in fraudulent practices through vendors or third

parties. Likewise, a policy is only effective to the degree that

employees adopt it, which is especially the case in the context of

fraud and corruption, where a business relies heavily on its staff to

spot and report suspicious or risky behaviour. This is why middle

management buy-in is also crucial – setting the right tone from the

middle should not be ignored.

Risk assessment is the foundation for designing effective compliance

measures, helping a company to assess the likelihood of a risk

occurring, as well as the potential impact the risk will have on its

business operations. This assessment can be conducted at a

country, sector, transaction, business opportunity or relationship

level, and will lay the groundwork for the due diligence that a company

should undertake on its joint venture partners, subsidiaries, agents

and suppliers. Due diligence will help identify, for example, if a supplier

with whom the company is working is supplying goods in return for

money obtained through criminal means. An effective whistle-blowing

line can also ensure that malpractice in a company’s downstream

operations can be brought to the attention of the company’s

management. There is no shortage of whistleblowers in India, and

thus no lack of potential intelligence on cultural, HR, operational or

unethical practices within a company. The question is more how a

company can effectively respond to sometimes multiple daily

allegations, prioritising between those that need to be taken seriously

and those that can be discarded.

Companies cannot eradicate the risks of doing business in India, but

they can do a lot to reduce them. And not just by putting in place the

right internal controls. Identifying, mapping and monitoring the

vulnerabilities in its business will help a company to better anticipate the

day-to-day challenges of navigating customs and excise, moving goods

over state borders, obtaining licences, acquiring land and interacting

with government officials in India.

Staying clean in the customs house

As in many other developing markets, companies importing

goods into India, or indeed exporting them, face daily

challenges that make it tempting to circumvent what can at

times feel like an insurmountable bureaucratic system. Most

companies therefore hire licensed Customs House Agents

rather than dealing with the customs service directly. Drawing

on specialist advice is a legitimate way to address bureaucratic

problems, as long as the advisors operate in a legal and ethical

manner. But is that realistic, or is employing local intermediaries

just a case of transferring the problem? Don’t the agents simply

pay bribes on their customers’ behalf?

Central to ensuring that your company avoids violating any

international corruption or bribery laws is, of course, selecting the

right agent to handle your account. In a series of interviews with

Control Risks, a group of Indian Customs House Agents

acknowledged that bribery was widespread in their industry, but

insisted that they could not afford to take the risk of paying bribes.

If they wanted to work for reputable international companies, they

had to maintain their own standards. For their part, they noted

some key strategies for “staying clean”, including selecting the

right customers, managing client expectations, encouraging the

client to accept a level of responsibility for their cargo, and

informing employees of the zero tolerance approach to corruption.

While the findings of this research paint a positive picture, the

reality of interacting with any customs agent in India necessitates

a degree of caution. A company should not take these types of

claims at face value; verifying them by assessing the agent’s

reputation and track record before engaging them is critical.

Establishcontext

Assessrisk

Mitigate

Monitor

Risk management process

13GREY PRACTICES


Time to get proactive

A proactive engagement strategy is also crucial. Companies should

clearly communicate their ethical position to key stakeholders, including

government officials (at a local, state or national level), anti-corruption

agencies, national embassies, public bodies (including NGOs) and

other private companies. It is easier to say “no” from the very beginning,

and such outreach – if conducted with the right people and institutions

– can pay dividends when assistance is required further down the line.

And rather than just anticipate, companies should put in place a plan of

how to respond to set scenarios. In extortion, this might be about

thinking through the root cause of the demand. This is never easy and

requires creativity, but – whether this is through capacity building or

traditional carrot or stick methods – it is possible to change the power

play and thus undermine the rationale behind the demand. Such steps

are not a panacea for companies doing business in India, but

brainstorming such scenarios can help a company to do what very often

seems the impossible in emerging markets: to adhere to zero tolerance

without incurring the seemingly inevitable resulting costs, delays and

setbacks to the business.

Developing effective resistance strategies

Control Risks was approached for assistance by an Indian

company experiencing localised opposition at a mining

concession it had been awarded in the central Indian state of

Chhattisgarh. Our initial business intelligence showed that the

opposition was being fuelled by a state-level union known for its

strong-arm tactics and opposition to private sector companies,

as well as a local competitor company seeking to gain access to

the concession.

To help our client develop a proactive engagement strategy, we

mapped all of the stakeholders with interest in and influence over

the mining concession, shedding clarity on their motives, the

nature of the links between them (known, informal and

concealed) and the coordination behind and sustainability of

their actions. Doing this enabled us to identify credible

stakeholders with whom the client could engage to reassure the

community and undermine the pressure being exerted by the

union and the local competitor, including those local officials

providing often barely concealed support to them.

We then worked with the client to map the scenarios to which

the company could be vulnerable as it started to scale up its

operations at the mine, helping it to work through a series of

strategies as to how it should respond to any further politically

and commercially motivated objections, and wider attempts on

the part of local officials to extort payments.Rather than just anticipate, companies should put in

place a plan of how to respond to set scenarios

14 GREY PRACTICES


CONCLUSION

India is a tough place to do business. The challenges of acquiring land,

navigating bureaucratic obstacles and unpicking often highly

interconnected business-political networks are all too familiar to local

and foreign companies alike. The pitfalls of getting caught up in a grey

practice scheme are, in contrast, often ignored or simply overlooked.

This is not surprising given grey practices tend to lie beneath the surface

of day-to-day business interactions in India, in many ways an accepted

part of getting things done in a working culture known for its high levels

of creativity and improvisation. However, this could prove costly. Their

existence – as the name itself suggests – might appear shady, but in

reality there is nothing unclear or indistinct about the ways in which they

facilitate deliberate attempts to defraud, launder money, pay bribes and

conceal conflicts of interest. Companies need to address their exposure

to grey practices, and to the fraud and corruption that they help to fuel.

Failure to do so can result in sizeable reputational and regulatory risks,

not to mention significant financial losses.

Yet all is far from lost. It may sound obvious that those companies that

get to grips with the nuances of doing business in India will stand a

better chance of making a success of their venture, but it is one that

rings true – not just in India, but in all complex markets. And this is

particularly the case for those companies that take the time to weigh

up the risk-reward equation, as well as look to the long term. India is a

land of great opportunity, but it is not the place to be if you want to

make a fast buck. Companies need to be smart about doing business

in the right way, to be part of the solution rather than the problem – and

now more so than ever. Change takes time in India – perhaps more

than in most markets. However, there is a real sense that developments

such as the introduction of tougher anti-corruption legislation, the

increasing use of technology to promote public and private sector

accountability, the growth of Indian business interests overseas and

popular indignation at bad governance – particularly from a vocal 300

million-strong middle class – is starting to have an impact, and not just

for the people of India but for domestic and foreign companies

operating there.

Achieving success in such a market takes time. This is why

conducting a risk assessment to understand the risks facing a

business is a crucial first step, whether those relate to a specific

sector or project, or to local or national-level political dynamics. The

implementation of a robust risk management system with policies

and codes of conduct proportionate to these risks is the logical next

step, especially one that articulates the values and behaviours that

can help bridge the gap between on-the-ground realities and

international best practice. And don’t forget the detail – companies

need to monitor their controls and get on top of the data that can tell

them so much about the potential financial, regulatory and

reputational risks to which they are exposed.

Last but not least, companies need to engage with their market. They

need to assess in a clear and dispassionate way the risks that face

them at a strategic and local level. Mapping all their stakeholders (and

opening up communication channels with allies in government, civic

society and the private sector is important. And so is the need to be

proactive, to plan ahead by developing solution-focused scenarios

that put the company on the front foot.

Patience, tenacity and commitment are all needed for a company to

succeed in India. Those companies that embrace these traits and

maintain a positive and confident outlook will give themselves a

much greater chance of success in one of the world’s most vibrant,

exciting and ultimately rewarding markets.

Companies need to address their exposure to grey

practices, and to the fraud and corruption that they

help to fuel. Failure to do so can result in sizeable

reputational and regulatory risks, not to mention

significant financial losses.

15GREY PRACTICES


Many colloquial terms in Hindi for bribes and corrupt payments are

particularly revealing of local attitudes to these practices. In English,

euphemisms such as “kickbacks” and “facilitation payments” barely

conceal the unethical nature of these payments. In Hindi, however,

such terms, especially those denoting the payment of smaller, informal

bribes, are often couched in the apparently innocuous language of the

aam aadmi (“common man”) and imply that the recipient is only taking

money to fulfil their basic needs, rather than for excessive gain.

For example, some phrases draw on the vocabulary of food and

drink, e.g. chai-pani (“tea and water”) and kharcha pani (“basic

expenses”), as well as invoking the innocence of children, such as

mithai (“sweets”) and the particularly casual bacchon ke liye (“for

the kids”). These phrases indicate the perception that such

payments are both harmless and necessary, and also imply that

they are of low value, although that may often be far from the case:

they might range from a box of chocolates on the one hand, to a

suitcase of cash on the other. Some other words, such as “sifarish”,

have an ostensibly ‘ethical’ primary meaning, in this case, to

recommend one party to another to provide a service. However, by

extension the word has come to connote the more suspect practice

of using one’s connections, for example to get a contract for a

related party, or conversely to avoid paying for a service, and is

more closely akin to nepotism.

In some contexts, many of these words can also be translated

more explicitly as “tip”, and this highlights another ambiguity in

peoples’ attitudes to, and expectation of, these payments. For

example, the common Persian word bakhshish literally means

“gift”, and it is often used in India, as well as in many Middle

Eastern countries, to refer to what many Western cultures would

recognise as a legitimate tip. It can also refer to alms given to fakirs

or sadhus (holy men). However, at the heart of its cultural use is an

assumption that no service should be rendered without some

degree of financial reward, even in contexts that the international

community would not consider acceptable, such as the awarding

of government contracts.

Other interesting phrases include mutthi garam karna (“to warm

one’s fist”), and muh bharna, (“to fill one’s mouth”, and by

extension, “to shut somebody up”). Like chai-pani, on the one

hand these suggest that the recipient is only expecting to be

allowed to meet their fundamental needs (receiving heat and food,

respectively). At the same time, however, both phrases clearly

contain a secondary meaning which explicitly refers to the

understanding that these are bribes. The image of money “heating”

the palm in the case of the former, and of it “filling” somebody’s

mouth to the point of silence in the latter, highlight the ways that

these phrases often simultaneously refer to socially accepted

practices at the same time as they acknowledge that they operate

in the “grey area” of Indian business culture.

THE TERMINOLOGY OF CORRUPTION IN INDIA

The apparently innocuous language used to describe

bribery indicates the perception that such payments

are both harmless and necessary

16 GREY PRACTICES


In contrast to the casual euphemisms described above that point to a

long history of acceptance, there are some recent examples of how

popular language is mirroring the wider shift in public attitudes

described throughout this paper. Inevitably, the tenor of this language

is explicit and confrontational, as it is consciously designed to

challenge the perceived status quo, and often takes the form of

rhyming slogans easily memorized and repeated by, especially,

supporters of a political party or charismatic figure.

For example, the Aam Aadmi Party (AAP), which was formed in

late 2012 and runs on an explicitly anti-corruption platform, chose

as its party symbol a broom, or jhadu. One of the party’s more

popular slogans is: Jhadu chalao, beiman bhagao (which loosely

translates as “use your broom to sweep away the corrupt”).

Another widely-heard phrase is sarkari lokpal dhoka hai, desh bachalo mauka hai (“the government ombudsman is a sham, now

is the time to save the country”).

Similarly, the supporters of Anna Hazare, the popular leader of the

earlier anti-corruption movement out of which the AAP emerged, also

chanted slogans with simple, direct messages. For example,

brashtachar jao jao, jan lokpal lao lao (“get rid of corruption, bring on

the public ombudsman”) and jo kala paisa rakhte hain, wo jan lokpal se darte hain (“those who keep ‘black’ money fear the public

ombudsman bill”).

Consequently, on the one hand popular language continues to reflect

widespread acceptance of corrupt practices, while on the other,

recent movements that are beginning to challenge the status quo are

harnessing new idioms that both express and drive the changing

attitudes towards endemic corruption.

17GREY PRACTICES


James Owen is the lead author of the white paper on Grey Practices in

India. He has lived and worked in India for several years, heading an

experienced team of Delhi and Mumbai-based consultants on risk

consulting assignments in India and the wider region. James delivers

business intelligence, investigative and anti-bribery and corruption

solutions to clients throughout their business cycles. He also acts as a

strategic advisor to leading Indian and international companies, often

on crisis-led problem solving tasks.

James joined Control Risks in 2006 and before moving to Delhi was

based in Moscow where he ran Control Risks’ corporate investigations

practice in the CIS, leading a wide range of integrity risk and investigative

assignments in Russia, Ukraine, Central Asia and the South Caucasus.

James came to Control Risks from the Foreign Policy Centre, a London-

based think tank, where he advised the British government, NGOs and

private sector clients on political and economic issues in Russia,

Central Asia and the Middle East. Prior to this, he worked for four years

at Accenture on a wide range of often cross-border strategy consulting

projects for multinational oil and gas, consumer goods, retail and

manufacturing companies based in China, Europe and the US.

He holds a Bachelor of Arts in Modern European History from York

University and a Master of Arts in Russian Politics from University

College London. James contributes to the media and writes for

publications on issues related to business and political risk in India

and Russia.

Kanupriya Jain is the co-author of the white paper on Grey Practices

in India. She is based in Mumbai and heads the company’s regional

litigation support and investigations team. The team undertakes a

wide variety of investigative and fraud risk management assignments,

including litigation support, anti-bribery and corruption (ABC)

investigations, asset tracing, computer forensics and general

problem-solving.

Kanupriya’s areas of expertise include both financial and non-financial

investigations. Examples of these include financial statement fraud,

inventory stuffing, kickbacks to employees, unauthorised transactions,

grey markets, compliance reviews, conflicts of interest, advertising and

marketing irregularities, abuse of position, revenue sharing, and

quantification of costs.

Prior to joining Control Risks, Kanupriya worked as a manager with

Ernst & Young in their core investigation team, and at KPMG India

providing specialist forensic accounting and investigation services. She

has led fraud investigations and litigation support engagements for both

Indian and international clients across a wide range of sectors in South

Asia, including oil & gas, information technology, consumer products,

agrochemicals, infrastructure & real estate, and financial services.

Kanupriya is a Chartered Accountant, and holds Bachelor of Law and

Bachelor of Commerce qualifications. She has also cleared the

Associate CIArb examination conducted by the Chartered Institute of

Arbitrators, UK.

AUTHORS

JAMES OWEN, DIRECTOR, CORPORATE INVESTIGATIONS, INDIA & SOUTH ASIA

KANUPRIYA JAIN, ASSOCIATE DIRECTOR,CORPORATE INVESTIGATIONS, INDIA & SOUTH ASIA

Written by James Owen – Director of Corporate Investigations, India and South Asia and Kanupriya Jain – Associate Director, Corporate Investigations, India and South Asia

Edited by Daisy Birch – Editor, Asia Pacific

Published by Control Risks, Cottons Centre, Cottons Lane, London SE 1 2QG. Control Risks Group Limited (‘the Company’) endeavours to ensure the accuracy of all information supplied. Advice and opinions given represent the best judgement of the Company, but subject to Section 2 (1) Unfair Contract Terms Act 1977, where applicable, the Company shall in no case be liable for any claims, or special, incidental or consequential damages, whether caused by the Company’s negligence (or that of any member of its staff) or in any other way.

Copyright: Control Risks Group Limited 2014. All rights reserved. Reproduction in whole or in part prohibited without the prior consent of the Company.

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GREY PRACTICES...of operating across India’s vast, varied and still largely-untapped landscape. This applies not only to uncertain first-time investors, but also to experienced foreign

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