Adani Group denies FCPA violation: Understanding the US law, other US firms under the scanner, and the implications for them in India

The FCPA applies to companies and individuals worldwide, including both publicly traded and privately held US companies. Its goal is to combat corruption and bribery globally. In the past, paying foreign officials to speed up legal processes or secure contracts was a common business practice. Some countries even allowed companies to write off bribes as business expenses on their tax returns.

When the FCPA was passed in 1977, it received significant support from American businesses. They couldn't compete fairly in overseas markets where bribery was accepted. The FCPA's anti-bribery rules, along with international treaties like the Organisation for Economic Co-operation and Development's (OECD), have helped level the playing field for US businesses abroad.

Gautam Adani, chairperson of the Ahmedabad-based Adani Group, is facing a $250 million bribery indictment in the US. The charges allege that Adani conspired to bribe Indian officials to secure solar energy contracts, potentially sparking a long and complex legal battle.

The US FCPA is being applied to Adani due to allegations that the company misled US investors by falsely presenting robust anti-bribery measures while engaging in corrupt practices. Specifically, Adani and seven others, including his nephew Sagar Adani, are charged with conspiring to commit securities and wire fraud, as well as substantive securities fraud, for their roles in a multi-billion-dollar scheme to obtain funds from US investors and global financial institutions based on false and misleading statements.

The US has jurisdiction over Adani's actions because the company raised capital from US investors, including $175 million during a September 2021 bond offering by Adani Green Energy. The US Securities and Exchange Commission alleges that Adani's actions violated the FCPA's anti-bribery provisions, which prohibit paying foreign officials to influence actions or secure improper advantages.

In essence, the US government is concerned that Adani's alleged bribery scheme involved misleading US investors and violating US securities laws, which gives the US jurisdiction to investigate and prosecute the case. The charges against Adani have significant implications, including potential fines, penalties, and reputational damage.

American companies in India facing FCPA charges

Several US companies, including Diageo, Dow Chemical Company, Pride International, and Textron, have faced FCPA charges in India in the past.

On October 11, the US Securities and Exchange Commission (SEC) announced a settlement with Moog, Inc., a New York-based manufacturer of motion control systems for aerospace, defence, industrial, and medical markets. Moog agreed to pay $1.7 million to settle charges that it violated the FCPA’s internal accounting and control provisions.

The charges stem from misconduct by Moog's wholly owned Indian subsidiary Moog Motion Controls Private Limited (MMC), whose employees allegedly bribed Indian officials to secure public tenders between 2020 and 2022. They also offered cash bribes to influence public tenders in India, favouring Moog's products and excluding competitors. The bribes were funnelled through third-party agents and distributors.

In another instance, the SEC announced a settlement with Texas-based Oracle Corporation, requiring the company to pay over $23 million in September 2022. The charges alleged that Oracle's subsidiaries in Turkey, the UAE, and India violated the FCPA by creating and using slush funds to bribe foreign officials between 2016 and 2019. This is not Oracle's first encounter with FCPA-related charges. In 2012, the SEC sanctioned Oracle in connection with the creation of slush funds by Oracle India. The company resolved charges related to the creation of millions of dollars in side funds, which posed a risk of being used for illicit purposes.

What next for Adani?

In the latest development, India's capital markets regulator, the Securities and Exchange Board of India (SEBI), is investigating whether the Adani group violated rules requiring the disclosure of market-moving information, Bloomberg reported. SEBI is looking into whether Adani Green Energy Ltd. properly disclosed the US Justice Department's investigation into bribery allegations.

The regulator has reached out to officials at the stock exchanges to gather more information. The fact-finding process is expected to take around two weeks, after which SEBI will decide whether to launch a formal investigation.

The US legal process will begin with an arraignment, followed by discovery and pretrial motions. If no plea deal is reached, the case will proceed to trial. Legal experts believe Adani's defence may rely on jurisdictional arguments, claiming the alleged acts should fall under Indian law.

The Adani Group has dismissed the charges as "baseless" and pledged to fight back. Arrest warrants have reportedly been issued for Gautam Adani and his nephew Sagar Adani.

Adani may explore resolving the case through settlement options under US law, such as deferred prosecution agreements (DPAs) or non-prosecution agreements (NPAs). These agreements typically involve paying fines, acknowledging partial wrongdoing, and committing to enhanced compliance practices.

A potential settlement could alleviate investor concerns to some extent. However, the Adani Group would likely still face lasting financial and reputational consequences. Securing international capital may become more challenging as global investors scrutinise the group's governance and compliance standards.