WHITE COLLAR JOURNAL

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1 Special points of interest: Government announces radical policy changes to curb unaccounted wealth and counterfeit currency Rolls-Royce to pay US $ 817 million as fines to settle bribery charges Mondelēz to pay US $ 13 million to SEC for violating FCPA CBI registers case against Air India, IBM and SAP AG Update on Kingfisher cases India improves its Corruption Perception Index Two accused in Rose Valley Collective Investment Scheme CBI conducts raids in Seashore Chit Fund case Unit No 5B, Fifth Floor, Hotel J W Marriott, Aerocity, New Delhi , India. Tel: Fax: CONTACT: For additional information, please contact: Srijoy Das, Partner at sdas@archerangel.com and Anup Kumar, Associate at akumar@archerangel.com Government announces radical policy changes to curb unaccounted wealth and counterfeit currency On November 8, 2016, the Indian Government announced the demonetization of high denomination currency notes of INR 500 and INR 1000 ( Specified Bank Notes ). The move indicated a resolve to combat the hoarding of black money (and unaccounted money) as well as counterfeit currency, but its implementation was affected by the illegal exchange of the Specified Bank Notes by hoarders. The Enforcement Directorate ( ED ) was given responsibility of taking action against illegal exchanges of the Specified Bank Notes. The ED has arrested various persons on charges of money-laundering and registered various cases of alleged illegal exchange of the withdrawn notes. Some of the incidents which were under the scrutiny of ED are as follows WHITE COLLAR JOURNAL The ED, through its investigations found that deposits of more than INR 16 billion (approx. US $ million) had been made by over a dozen cooperative banks in the vaults of some prominent private and nationalised banks. During the audit of the branch of a certain private bank, investigating agencies found that 13 cooperative banks had deposited huge amounts post demonetization. The ED also went through details of the new accounts at banks that were allegedly opened to deposit unaccounted cash, held in the Specified Bank Notes. At an Allahabad branch of a nationalised bank, over 200 newly opened accounts were operated for such a purpose. Dormant accounts in which huge sums were deposited are also under scrutiny. The ED has also undertaken searches with respect to numerous instances of third-party deposits, made without authorisation by the respective accountholders. The ED also probed the role of 80 jewellers at 16 locations nationwide and has cracked down on a network which was allegedly converting the withdrawn notes into gold in connivance with bank officials. The ED has also arrested the managers of a private sector bank who were alleged to have been assisting hoarders of the Specified Bank Notes in depositing close to INR 400 million (approx. US $ 6.1 million) in several bank accounts and facilitating online transfers of funds. To follow the announcement of demonetization of the Specified Bank Notes, the President of India has approved the promulgation of the Specified Bank Notes (Cessation of Liabilities) Ordinance, The main objectives of the Ordinance are:

2 FEBRUARY 2017 To provide clarity and finality to the liability of the Reserve Bank of India and Government of India in respect of the Specified Bank Notes; To provide an opportunity to those persons who were unable to deposit the Specified Bank Notes within the time provided i.e. December 31, 2017; and To declare holding, transferring or receiving Specified Bank Notes as illegal, with provisions for penalty for contravention of any of the provisions of the Ordinance. A press release by the Ministry of Finance in this regard also describes various steps to be taken by the government in order to eliminate the menace of unaccounted money in the economy including setting up of a Special Investigation Team (SIT); enacting a law regarding undisclosed foreign income and assets; amending the Double Taxation Avoidance Agreements between India and Mauritius and India and Cyprus respectively; encouraging the use of non -cash and digital payments; amendments to the Benami Transactions Act, 1988; and implementation of the Income Declaration Scheme The Income Declaration Scheme, 2016 ( the Scheme ) was announced by the Government of India with the objective of providing an opportunity to persons who have not filed tax returns in respect of taxable in- come for the purpose of computation and payment of taxes with (penalty prescribed in the Scheme) and escape harsher punishment normally attracted for such defaults. As per the Scheme, an assessee who has not filed tax returns in respect of their taxable income, may pay tax, surcharge and penalty to the extent of approximately forty-five per cent of such undisclosed income. All individuals, firms, companies and other associations of persons who have not paid taxes in respect of income prior to financial year are eligible to declare their income subject to the conditions prescribed under the Scheme. Declarations made under the Scheme shall not be regarded as evidence for prosecutions or for initiation of any prosecution under the Income Tax Act, the Benami Transactions (Prohibition) Act or the erstwhile Wealth Tax Act. Further, in order to curb and investigate suspected money laundering by politicians, bureaucrats and businessmen, media reports indicate that the Income Tax ( IT ) department has roped in forensic experts from three of the Big Four accounting firms. Experts from EY, KPMG and PricewaterhouseCoopers are reportedly working with tax officials to examine the evidence collected by the IT department during raids conducted, post demonetization of Specified Bank Notes. Rolls-Royce to pay US $ 817 million as fines to settle bribery charges The UK-based maker of jet and marine engines, Rolls-Royce Holdings, has agreed to pay a sum of US $ 817 million in penalties to authorities in the United States, United Kingdom and Brazil in order to settle bribery allegations. The company is alleged to have hired commercial agents to secure highvalue contracts in several countries including China, India, Thailand, Malaysia, Russia, Nigeria etc. Rolls-Royce stated in its regulatory filing with the London Stock Exchange that it has reached a deferred prosecution agreement ( DPA ) with the UK Serious Fraud Office ( SFO ). The DPA between the company and the SFO has been approved by a British court. The agreement enables the company to avoid potential criminal prosecution, thereby saving it from getting blacklisted from bidding processes conducted in various countries. The SFO s investigation spanned over three decades and covered 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery. In India, Rolls-Royce had secured defence and other government contracts. The company was also under the lens of the Central Bureau of Investigation ( CBI ) and other Indian investigation agencies. The first instance of corruption is alleged to have occurred between 2005 and 2009 and relates to false accounting as well as engaging intermediaries to procure Indian Government defence contracts. Engaging agents to secure defence contracts in India is prohibited and Rolls-Royce disguised its middlemen as providing general consulting services. The second instance is alleged to have occurred between 2006 and 2007 and related to collusion with tax authorities.

3 Mondelēz to pay US $ 13 million to SEC for violating FCPA Mondelēz International, Inc. ( Mondelēz ), has agreed to pay US $13 million to resolve Foreign Corrupt Practice Act ( FCPA ) offences relating to irregular payments by its Cadbury unit in India. An investigation by the Securities and Exchange Commission ( SEC ) revealed violations in the maintenance of books and records and internal control provisions of the FCPA by Mondelēz s Indian subsidiary, Cadbury India Limited ( Cadbury India ). Mondelēz, formerly known as Kraft Foods Inc., is a United States based food, beverage and snack manufacturer. Mondelēz had acquired Cadbury, a United Kingdom based confectionary, snack and beverage company in February, Cadbury India Limited ( Cadbury India ), is a subsidiary of Mondelēz having various manufacturing plants and sales offices in India. In 2008, Cadbury India decided to increase its production capacity at one of its manufacturing plants located in Baddi in the state of Himachal Pradesh, India and planned to obtain outside assistance in securing government licenses and approvals for the additional facilities. Further, in January 2010, Cadbury India retained an agent to interact with Indian government officials to obtain licenses and approvals for the chocolate factory in Baddi. The SEC noted that Cadbury India failed to conduct appropriate due diligence and monitor the activities of the agent as the funds paid to the agent were used for improper or unauthorized purposes. From February, 2010 to July, 2010, the agent allegedly submitted five invoices totaling US $110,446 to Cadbury India for providing consultation and preparing license applications, among others. However, the SEC noted that the employees at Cadbury India, based out of Baddi had prepared these license applications. Cadbury India made payments of US $ 90,666 (after deducting withholding tax) to the agent under the invoices. The SEC further noted that after each payment from Cadbury was received by the agent, the agent proceeded to withdrawn the funds in cash from his bank account. The SEC stated that Cadbury India s books and records did not reflect the nature of the services rendered by the agent in an accurate and transparent manner. The SEC also pointed out that Cadbury failed to implement adequate FCPA compliance controls at Cadbury India and thus violated the FCPA by failing to maintain accurate books and records and failing to devise and maintain adequate internal accounting controls. The SEC held Mondelēz responsible since Cadbury s accounts were consolidated into Mondelēz s books and records. Cadbury and Mondelēz have settled the SEC s allegations without admitting or denying the findings and have agreed to pay US $ 13 million in civil penalties. CBI registers case against Air India, IBM and SAP AG The Central Bureau of Investigation ( CBI ) has registered a case against undisclosed officials of Air India, a German software company, SAP AG and global technology company, IBM in connection with alleged irregularities in procurement of software worth approximately INR 2.25 billion (approx. US $ 34.6 million) by India s national carrier in The charges have been made under the Indian Penal Code, 1860 and the Prevention of Corruption Act, CBI has registered the case on the recommendation of the Central Vigilance Commission ( CVC ). The CVC had asked the CBI to probe the irregularities in the tendering process and award of contracts and undue benefit caused to SAP AG and IBM. The CVC is an autonomous Indian governmental body which was created in 1964 to address governmental corruption. This matter was earlier enquired into by the Central Vigilance Officer of Air India who, in his report to the CVC, flagged a number of irregularities in this procurement. In early 2011, Air India had decided to implement enterprise resource planning and signed a contract with SAP AG and IBM in this respect. However,

4 an investigation conducted by the Central Vigilance Officer of Air India showed that no tenders were issued for engaging IBM in the project and the company was merely nominated without any bidding process being conducted. Air India contended that there were only two bidders, namely IBM and Oracle; and Air India was already engaged with the latter. This contention was rebuked by CVC, which asked the CBI to probe the irregularities in the tendering process and award of contract and undue befit caused to the SAP AG and IBM. Update on Kingfisher cases In January, 2017, the Debt Recovery Tribunal at Bengaluru passed an order in favour of the State Bank of India ( SBI ) led consortium of banks that had lent money to Kingfisher Airlines Limited ( Kingfisher Airlines ) to recover an amount of approximately INR 62 billion (approx. US $ 950 million) by attaching the personal property of its promoter, Mr. Vijay Mallya as well as the properties of its parent company, United Breweries Holdings Limited ( United Breweries ). It is estimated that the now defunct Kingfisher Airlines owes approximately INR 90 billion (approx. US $ 1.5 billion) to the SBI-led consortium of banks. The loss-making Kingfisher Airlines allegedly continued to be extended credit, despite recording heavy losses as a result of the influence of the promoter. Also, the funds received by Kingfisher Airlines are alleged to have been diverted to other group companies. In a related development, it has also come to light that the Central Bureau of Investigation ( CBI ) has arrested the former chairman of IDBI Bank and seven other bank officials on allegations of money laundering. This pertains to a loan sanctioned by IDBI Bank in favour of Kingfisher Airlines, which is said to be in violation of various credit rating norms. In August 2014, the CBI instituted a preliminary inquiry against IDBI Bank and Kingfisher Airlines. This investigation pertained to the bank having sanctioned a loan of around INR 9 billion (approx. US $ 138 million) against security in the nature of intellectual property and personal guarantee of Mr. Mallya, despite Kingfisher Airlines having a negative credit rating and being severely cash strapped. Kingfisher is still a defaulter in respect of this loan. It is alleged that Mr. Mallya colluded with high ranking bank officials to secure the loan. It has also been reported that the offices of the parent company, United Breweries and several other locations have been raided by the CBI as part of its investigation. Further details are awaited. India improves its Corruption Perception Index India marginally improved its score in the Corruption Perception Index, 2016 published by Transparency International. The annual report published by Transparency International on January 25, 2017 uses data from the World Bank, World Economic Forum and other economic institutions to rank 176 countries around the world according to the levels of corruption prevalent in the public sector. India scored 40 points this year which is a positive step, compared to its score of 38 in the last edition. The score is based on a number of parameters and it runs from a scale of zero, which is perceived to be highly corrupt, to 100, which is the least corrupt. India, China and Brazil with a score of 40 each, feature just below the global average score of 43. India s global rank, however, slipped from 76 to 79, due to the presence of eight more countries in 2016 (176 countries) as compared to last year. Denmark and New Zealand lead the list with a Corruption Perception Index of 90 points each, while Somalia comes in last with a score of 10. Transparency International s ranking is widely acknowledged as a benchmark of perceptions of corruption and used by analysts and investors in making strategic, business decisions.

5 Two accused in Rose Valley Collective Investment Scheme A leader of a popular political party in the State of West Bengal was remanded into custody by a Special Central Bureau of Investigation Court ( CBI ) in January 2017 based on his alleged involvement in the Rose Valley Collective Investment Scheme. The Central Bureau of Investigation s charge sheet against the accused includes accusations of fraudulently amassing wealth of close to INR 170 million (approx. US $ 2.6 million) from running schemes which duped several investors. It is estimated that the Rose Valley group of companies raised approximately INR 15 billion (approx. US $ 250 million) from investors through various ponzi schemes. Collective Investment Schemes ( CIS ) are mandatorily registerable with the Securities and Exchange Board of India ( SEBI ). A CIS is a scheme offered by a company wherein the contributions or payments made by the investors are pooled and utilized with a view to generate profits, income, produce, property or other returns for the investors. A CIS is managed by the company offering the CIS (i.e. Rose Valley) and the investors do not have day to day control over its management and operation. Earlier, in an interim order passed by SEBI, it was observed that Rose Valley was, prima facie, inviting contributions from the general public through various CIS without registration under the SEBI Act. SEBI found that collective schemes run by Rose Valley offered to allot land to the investors against their investment, or alternatively re-pay the principal amount with a high return on investment. This promise was not delivered upon. CBI conducts raids in Seashore Chit Fund case The Central Bureau of Investigation ( CBI ) has conducted close to 25 raids to probe the involvement of senior bureaucrats, Members of State Legislative Assemblies and Members of Parliament across the State of Orissa over their alleged involvement in a chit fund scheme. Since the CBI began its investigation, it has been probing the involvement of a number of high ranking officials in this scheme. Seashore Group is one of the 44 ponzi companies operating in the State of Odisha which has been under the lens of the CBI and the Enforcement Directorate since an order of the Supreme Court of India directed the authorities to probe its finances and transactions. Seashore is also alleged to have taken a loan amounting to INR 180 million (US $ 2.7 million) in the period between 2011 and It is said to have defaulted on a sizeable portion of this loan. Earlier, in 2015, the CBI had filed a charge sheet against two companies of the Seashore Group in connection with allegations of duping small investors, often illiterate of close to INR 17 billion (approx. US $ 0.28 billion) by making false promises of high returns on investment. Such investments were made in various illegal Collective Investment Schemes ( CIS ), offered by the Seashore Group. Charges have also been filed against the top executives of the Seashore Group. DISCLAIMER: This bulletin is intended as a general overview and discussion of the subjects dealt within it. It is not intended, and should not be used, as a substitute for taking legal advice in any specific situation. Information in this bulletin is reported as on the date of publication. Archer & Angel will not be responsible for any actions taken or omissions thereof on the basis of this publication.