Diageo fined US$16 million for foreign bribery

The world's largest spirits company, Diageo, has agreed to pay over US$16 million to US authorities to settle allegation that it paid bribes to officials in India, South Korea and Thailand.

The Securities and Exchange Commission (SEC) investigated Diageo under the Foreign and Corrupt Practices Act (FCPA) for actions between 2003 and 2009.

The SEC alleged that Diageo's subsidiaries paid more than US$2.7 million in bribes, which helped it generate more than US$11 million in profits.

“As a result of Diageo's lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices and other deceptive practices to disguise the true nature of the payments,” the SEC said.

Diageo's Indian subsidiary, DI, allegedly paid US$1.7 million to Indian officials and hundreds of employees of government liquor stores and the Indian military's Canteen Stores Department, according to the Wall Street Journal.

According to the SEC, the “cash services fees” were used to “increase government sales orders of its products and to secure favourable product placement and promotion within the stores.”

The SEC said that as a result of the cash payments, which were obscured in accounts, put under labels like “marketing promotion”, or “market scheme settlement”, DI received increased sales, allowing to “unjustly” earn over US$11 million.

In Thailand, it is alleged that Diageo, through DT, retained the services of a Thai government and foreign political party official to lobby other officials to adopt Diageo's position in a number of tax and customs disputes.

It is alleged that from April 2004 through July 2008, DT paid approximately US$12,000 per month, for a total of nearly US$600,000. The Thai official in question was paid through a political consulting firm, for which the official acted as a principal.

Some US$15,000 was also used to reimburse the official's entertainment expenses, including those incurred on behalf of government officials. The payments were improperly recorded under labels such as "Corporate Social Responsibility", "Stakeholder Engagement" and "External Affairs".

Diageo's unit in South Korea, DK, allegedly paid more than US$86,000 to a customs official who helped the company in transfer-pricing negotiations with the South Korean government in 2004. The company took numerous other officials on European trips, and made hundreds of small payments to South Korean military officers.

The SEC charged the company with disguising the payments as legitimate expenses in its books and records and failing to establish internal controls, in violation of the FCPA.

Without admitting or denying the charges, Diageo agreed to desist from further violations and pay US$11.3 million in disgorgement, US$2.1 million in prejudgement interest and a US$3 million penalty.

Diageo, who was praised for cooperating with investigators, said it had built systems and controls to prevent illicit payments.

Sources: ChiefOfficers.net The Telegraph, Wall Street Journal

For more information, please see the Menas ACCS website, here.