RBI notification to affect ED's Walmart probe

The latest notification by the Reserve Bank of India on FDI guidelines would have a bearing on the Enforcement Directorate probe into $100 million investments made by American retail chain Walmart in a group company of Bharti in 2010, according to an inter-ministerial communication.

The $447-billion retailer’s India plan hinges on a large extent to the ED investigation as well as on an internal scrutiny of alleged violation of Foreign Corrupt Practices Act, 1977, in the US. This Act makes it illegal for American companies to pay bribes anywhere in the world. Recently, the company was in the news for its India head Raj Jain’s exit under mysterious circumstances.

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In the context of the Walmart Inquiry Committee report that was submitted in May, Department of Industrial Policy & Promotion secretary Saurabh Chandra in a letter to corporate affairs secretary Naved Masood, has pointed out that the FDI policy issues were still being investigated by the ED.

He’s learnt to have added that RBI notification of press notes 2 and 3 under the FDI policy would have a bearing on the ED probe. “The same is being communicated to the ED for them to factor in the provisions of the notes,” the letter stated.

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While the press note 2 defines group companies and control in the context of FDI, press note 3 is about the multi-brand retail policy allowing up to 51 per cent foreign investment. The $100-million Walmart investment of 2010 into Cedar Support Services, a group company of Bharti, is being investigated by ED for violation of Foreign Exchange Management Act rules.

At that time, FDI was not permitted in multi-brand retail, but subsequently in September 2012, the government opened up the sector to foreign investors.

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While saying that the Walmart Inquiry Committee report, prepared by former chief justice of Punjab and Haryana High Court Mukul Mudgal, had been examined by DIPP, Chandra is believed to have told his counterpart in the corporate affairs ministry that no action was being planned by the department on the matter at this point.

The terms of reference for Mudgal committee included probe into Walmart disclosures before the US Senate on lobbying activities and any activity by the retailer in India in contravention of Indian law.

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The DIPP observation is significant as it comes ahead of commerce and industry minister Anand Sharma’s meeting with Walmart top management in the US later this week. The one-man committee is learnt to have observed that “none of the responses to the public notice” issued by the panel gave any information on alleged bribery by Walmart to Indian officials.

Even members of Parliament, who had spoken on the issue earlier, remained quiet, Mudgal committee report has said, according to sources.

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Even as Walmart has maintained that the company made all its lobbying disclosures to the US Senate, the Mudgal Committee report is learnt to have stated that a letter of the US Congress dated January 10, 2013 “makes its discontent apparent on Walmart’s non-cooperative approach to the investigation by the US Senate Committee.”

Elaborating on the investigation, Mudgal panel report, which will be tabled in Parliament in the Monsoon session, has said that Walmart Asia CEO Scott Price and India head (now resigned) Raj Jain were asked questions orally as well as in writing.

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The oral testimony of Price lacked sufficient detail, the panel is believed to have said. When asked to give breakup of the money spent on lobbying, Price refused, pointing out that disclosures had been filed as per Lobbying Disclosures Act of USA, sources said citing the Mudgal committee report.

From the Walmart replies, nothing could be concluded on whether lobbyists engaged by Walmart lobbied in India, they added. Also, as the committee does not have any investigative or summoning power, “it is not possible for it to conclude (in the absence of any material evidence available on record) that Walmart indulged in any lobbying/bribery to Indian officials,” sources said.

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The investigation into lobbying by Walmart, an issue that had rocked the winter session of Parliament last year, was closed due to lack of any conclusive evidence of bribery in the India market. Walmart and Bharti, in a 50-50 joint venture, operate 20 stores in the cash-and-carry segment, a sector where 100 per cent FDI is permitted.

Walmart also provides backend support to Bharti’s retail chain Easyday. Although it has been waiting to open retail outlets in the country, it has not applied yet for the same.

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Walmart’s rough ride started with reports alleging bribery in its Mexican operation, followed by the company suspending five of its India employees for suspected corruption.

In November 2012, Walmart extended an internal investigation into bribery charges in Mexico to India, China and Brazil. Soon came the disclosures on Walmart lobbying with US senators on multiple issues, including gaining wider access to the Indian market.

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Bharti Walmart had said in a statement last year, “all organisations which expend more than $11,500 annually on lobbying activities and employ at least one lobbyist must register and file the quarterly reports.”

The company argued, “The allegation that a routine US lobbying disclosure form reflects improper conduct on our part in India is false. This disclosure has nothing to do with political or governmental contacts with India government officials.”