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James Owen: Lessons from India’s most flamboyant defaulter

Indian businessman and politician Vijay MallyaIt was not long ago that Vijay Mallya, a flashy Indian businessman and a former member of parliament, was celebrating his 60th birthday in style in Goa where Latin pop star Enrique Iglesias had been flown in especially for the occasion.

And yet, just a few weeks later, Mallya, who had been declared a willful defaulter on $1.3 billion in loans, hurriedly left India days before a warrant was issued for his arrest.

Mallya has now been expelled from the upper house of parliament, and his passport revoked. The Indian government is seeking to extradite him from his not-so-discreet hideaway mansion on the outskirts of London.

What changed in such a short space of time? The answer lies mostly in a change in the political will to address wrongdoing.

While there have been efforts in the past to combat corruption in India, it was only after the victory of Narendra Modi’s Bharatiya Janata Party (BJP) in May 2014 that change in the political and regulatory environment became more apparent. The party was elected on an anti-corruption and pro-investment promise, and immediately initiated a campaign to reclaim “black money” hidden overseas.

Within a year of taking charge, the government introduced a law penalizing concealment of foreign income. From next year, it will tax capital gains on investments from Mauritius, the preferred route to avoid taxes in India, and a similar law is being discussed with Singapore, the second most preferred route.

The changing political dynamics at play in India may also explain why the Enforcement Directorate, India’s anti-money laundering agency, froze assets worth more than $1 billion in the first year of the new BJP government. Then in 2015, for the first time in its 60-year history, the same body froze foreign properties in the U.S. and Singapore.

The Competition Commission of India, the country’s anti-trust watchdog, has likewise been flexing its muscles, fining 14 auto parts makers $422 million in 2014, and using its search-and-seize powers for the first time.

Such proactive law enforcement is being matched by new, tighter regulation. While the legislative agenda has been waylaid by bitter battles between the government and the main opposition parties, there has been generally cross-party unity on laws that tackle fraud and corruption. The government’s April 2015 approval of amendments to the Prevention of Corruption Act which, among other things, increases prison terms for both the briber-giver and the bribe-taker, aligns India’s anti-corruption approach more closely with international laws such as the UK Bribery Act.

Enforcement of extraterritorial legislation such as the FCPA only serves to increase the pressure. In recent years, the U.S. Department of Justice and the Securities and Exchange Commission have targeted a number of high-profile U.S. and international companies for their activities in India, including Louis Berger, Oracle Corporation, and Diageo.

In a UK case that will come to trial in June involving an Alstom company, the Serious Fraud Office has charged a company and two UK nationals with corruption in India, Poland and Tunisia.

In 2014, a court in Ottawa sentenced a Canadian national, Nazir Karigar, to three years in prison for offences in India under the country’s Corruption of Foreign Public Officials Act, and in the same year a court in Oslo entenced a Norwegian company, Yara International, to a $48.3 million fine for bribes paid in India and Libya.

Now, with Indian laws and their enforcement becoming just as biting, foreign and domestic companies need to deal with an increasingly complex regulatory context. Add to this a rapidly changing federal structure that requires companies to understand the risk-reward equation of operating in one state over another, and you have an investment environment that requires robust risk management programs.

The message on the horizon is clear. If you want to develop or expand your business in the world’s fastest growing large economy, you will need to understand the new operating, regulatory and political dynamics.

The rules of the game are changing. If you are not yet convinced, ask Vijay Mallya — he would know.


James Owen is Senior Managing Director of Control Risks India and South Asia. Based in New Delhi, he oversees Control Risks’ operations throughout the subcontinent, supporting a wide range of private and public sector clients through comprehensive risk mitigation strategies. He previously led the firm’s Compliance, Forensics and Intelligence business in the region.

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