CTS bribery charges: Tech majors need to overhaul processes to stem skulduggery

Cognizant's net profit declined 29 percent to $361 million in the June quarter due to COVID-19 pandemic (Image Courtesy: Wikimedia Commons)

The recent bribery settlement case involving IT major Cognizant (CTS) has brought to light instances of bribery and corruption in the least regulated technology market.

These instances are more common than it would seem. Going through the filings under the US Foreign Corrupt Practices Act, besides CTS, the investigations involved high-tech companies such as Microsoft and Hewlett Packard for corruption and bribery charges.

Let us take the Cognizant case for instance. The company on February 15 agreed to pay $25 million to settle 2016 bribery charges case. The bribe was approved by two of company's former executives, Gordon Coburn and Steven E Schwartz.

The Securities and Exchange Commission report revealed that Cognizant used a construction company to facilitate the payment of a bribe totalling $3.6 million to a senior government official from Tamil Nadu for building CTS' 2.7 million square foot campus in Chennai. According to media reports, CTS reimbursed the bribe paid by the construction company by disguising it as cost overruns.

The particular case along with preceding cases reveals the darker side of doing technology business. A year ago, Microsoft was under the scanner for a bribery probe over deals in Hungary. The case, which came to the US regulators' notice in 2013, revealed that the company sold its some of its products at steep discounts to Hungarian government to capture the market. The discounts were meant to dissuade the government from using its cheap competitions.

In another case involving HP, where the company paid a penalty of $108 million in 2014, to settle the charges of bribing government officials to win contracts in Poland and Russia to win contracts. IBM settled a bribery charge for $10 million with regards to the claims that it gave cash and gifts to Chinese and South Korean officials in connection with about $54 million in government contracts in 2011.

While bribery by tech companies is hardly an isolated incident, it highlights the need for better internal audits the companies need to follow, say experts.

A Deloitte report states that companies should set up robust policies and procedures, including conducting diligence on consultants and third parties used in the value chain. Though it is first for an Indian IT major to get caught in a bribery charge, the report said that with several Indian-based IT companies being listed on American stock exchanges, a renewed focus on mitigating such corruption risks is of paramount importance.