Companies named in bribery case filed by DVAC over construction of Cognizant’s Chennai campus

Cognizant

A case of bribery has come back to bite Cognizant and Larsen & Toubro (L&T) group yet again, two years after the former settled the same in the United States.

Tamil Nadu’s Directorate of Vigilance and Anti-Corruption has filed a case alleging that a bribe was paid to officials of the Chennai Metropolitan and Development Authority (CMDA) to build Cognizant’s campus in Chennai. The allegations pertain to the period between 2011 and 2016.

In a bribery case in the same matter in the US, Cognizant had informed the US Securities and Exchange Commission (SEC) in September 2021 that it had entered into a settlement agreement in the class action complaint filed against the company, which provided for a payment of $95 million.

Cognizant’s COO at the time of the alleged offence also paid a civil penalty of $50,000 as the SEC found that he had violated the US Foreign Corrupt Practices Act’s internal accounting controls and recordkeeping provisions. The COO in question was, according to reports, placed on administrative leave in late 2016 and left the company in 2018. While certain officials were charged, Cognizant did not face criminal charges as it disclosed the issue promptly.

The allegations

The TN DVAC’s FIR filed last week alleges that Cognizant’s then vice-president for administration, real estate officer and COO conspired with L&T’s construction head to get the planning permits for the building. L&T had won the contract to build Cognizant’s campus in Chennai on Old Mahabalipuram Road, situated in the Special Economic Zone in Sholinganallur.

According to the DVAC FIR, Cognizant obtained a planning permit through L&T and in the process, officials of the CMDA as well as the Housing and Urban Development Department got kickbacks. Unknown officials of both departments are named in the FIR as the first accused.

As per the FIR, the planning permit, which is required before construction starts, was applied for by Cognizant only in February 2013, 14 months after construction began. This file was then sent for approval to the government by the CMDA in November 2013. It was further sent to the minister for housing and urban development just a few days later. However, it was only approved by the minister in June 2014, by which time 40 percent of the construction of the campus was already done. The FIR also mentions that the minister deliberately delayed the approval to facilitate the bribe payment.

During the time the approval for the planning permit was pending, one of the Cognizant officials allegedly informed the then company president that as per information given by one of L&T’s executives, a bribe of Rs 12 crore had to be paid to CMDA officials to expedite the approval of the planning permit.

During this time, email communications between officials of Cognizant and L&T “show the active connivance” of L&T’s former business unit head, then head of building and factories, and the head of construction, says the FIR. Their involvement was “in the demand and engagement of third-party liaison consultant to hand over the demanded bribe amount to the officials of CMDA or the officials of Housing and Urban Development Department to get the Planning Permit”, according to the FIR.

It added that top officials at L&T were involved in the “conspiracy theory” of the bribery demand and in engaging the liaison consultant.

After this, the accused former Cognizant officials in India took this to Cognizant’s then-president, who approved that the bribe be paid by L&T, which would be then be reimbursed by Cognizant through bills and invoices at a later date.

An L&T executive emailed one of the Cognizant executives saying that they are going ahead with the matter, and asked that the same not be mentioned to anyone except Cognizant’s top executives.

It was after this that the approval was obtained in June. However, the planning permit was only formally communicated to Cognizant by CMDA in November 2014.

How the money was allegedly covered up

L&T, the FIR states, submitted variation documents—or documents that are required for authorising extra work—which covered the bribe of Rs 12 crore as well as an amount of Rs 3.2 crore paid to the third-party liaison, along with work that was actually carried out at the site. As per claims authorised by Cognizant, it included Rs 47.3 crore for work that was actually done on site, and an additional Rs 12 crore in the name of “architectural enrichment”.

The FIR alleged that in order to justify the amount, Cognizant and L&T rearranged the items of work and introduced 44 items “in the name of variation works of roughly the same amount”. This is despite the fact that Cognizant rejected 29 out of 54 items that were mentioned in the variation documents.

These bills and invoices, some of which the FIR says are concocted, were created between March and September 2015.

It was after this—in April 2016—that Cognizant’s board conducted an internal audit of the Chennai office and found a “series of material misstatements and omissions” that were made by senior executives to conceal the alleged bribery.

The FIR also refers to the investigations of the US department of justice and SEC to state that the executives in question falsified SEC filings and sustainability reports to achieve this.

As per the US authorities, the payments were made from Cognizant India’s bank accounts and were not “accurately reflected” in the company’s consolidated numbers.

“During the relevant period Cognizant also failed to devise and maintain a sufficient system of internal accounting controls at its corporate headquarters and at Cognizant India. Cognizant voluntarily disclosed this misconduct to the Commission staff and timely shared the facts developed during the course of an internal investigation by the audit committee of its board. Cognizant paid disgorgement of $16,394,351, prejudgement interest of $2,773,017, and a civil monetary penalty of $6,000,000 to the Securities and Exchange Commission, USA,” the FIR states.

The DVAC also found discrepancies in payments made by L&T to vendors and the amounts it claimed on bills.

The charges are under Section 120B of the Indian Penal Code (punishment of criminal conspiracy) and relevant sections of the Prevention of Corruption Act, 1988.

“Cognizant is committed to complying with the law in all its jurisdictions of operations. We will cooperate with the authorities, monitor the situation and respond appropriately,” Cognizant said in a statement to Moneycontrol. L&T did not respond to requests for comment till the time of publishing.