What is Cognizant bribery case and settlement about? Here is what we know so far

In February 2020, public interest litigation was filed in the Madras High Court seeking an investigation into the alleged bribe by Cognizant and L&T.

NASDAQ-listed Cognizant has reached a $95 million settlement, subject to the judge’s approval, on September 7 in a lawsuit filed by the company shareholders accusing the firm of concealing bribes to officials in India.

This is the latest development in the alleged bribery case involving Cognizant executives, which first came to light in 2016. Apart from this, the company has also made a settlement with the US Securities and Exchanges Commission for $25 million in February 2019 regarding the case.

Cognizant, in an SEC filing on September 7, said it had entered into a settlement agreement for $95 million, subject to the approval of the United States District Court for the District of New Jersey, that resolves the class action complaint against the firm and certain executives by shareholders.

Five class action suits were filed between October and November 2016 and were consolidated into one single class action in the US district court for New Jersey. These were filed by shareholders who purchased the company stock between February 27, 2015, and September 29, 2016.

The settlement will be covered by the company’s insurers, Cognizant said in a statement. “The Company and the other defendants are entering into the settlement agreement to eliminate the uncertainty, burden, and expense of further protracted litigation. The Company and the other defendants expressly deny that the plaintiffs in the securities class action have asserted any valid claims as to any of them,” the company said in the filing.

According to multiple reports, two former Cognizant executives allegedly approved bribes to senior government officials to the tune of $3.6 million via a third-party construction company (L&T, reports suggest). The bribe was for getting clearances to construct the IT major’s 2.7 million square foot new campus KITS in Chennai in 2014. This issue dates back to 2016 when Cognizant first revealed it was conducting an internal investigation into what it termed as “improper payments.” Executives named in the alleged include include Gordon Coburn and Steven E Schwartz.

Cognizant, in an SEC filing in September 2016, disclosed that the company was conducting an internal investigation into “whether certain payments relating to facilities in India were made improperly and in possible violation of the US Foreign Corrupt Practices Act (FCPA) and other applicable laws.” It further added it was cooperating with the US Department of Justice (DOJ) and the United States Securities and Exchange Commission (SEC). Francisco D’Souza was the CEO of the firm then.

Coburn, President and was also named in the alleged case, resigned in September 2016.

In 2017, the company reported that close to $6 million of potential improper payments have been made between 2009 and 2016.

The SEC order in February 2019 revealed that the company through its employees authorised payments of $2 million to government officials in India through a third party company “in exchange for assistance in securing and obtaining a planning permit related to the construction of the facility.”

It added that in order to conceal the bribery, the company would reimburse the third-party construction company through invoices and change orders. In addition, the executives have also falsified the internal books and records of the company, the order said.

Cognizant paid $25 million to the SEC on this charge.

In February 2020, public interest litigation was filed in the Madras High Court seeking an investigation into the alleged bribe by Cognizant and L&T. In June 2021, L&T washed its hands off the $2 million bribery charge to the Indian authorities telling a US court that it cannot be made a party to the case, according to an ET report.

The company is now seeking the judge's approval to settle the bribery charge with the putative shareholders for $95 million.