Cognizant Technology Solutions Corporation said in an SEC filing Friday it is conducting an internal investigation whether certain payments relating to facilities in India were made improperly and in possible violation of the FCPA and other applicable laws.
The IT giant said it self disclosed the investigation to the DOJ and SEC “and is cooperating fully with both agencies.”
On September 27, Gordon Coburn resigned as president of Cognizant. The board appointed Rajeev Mehta, the current chief executive of IT Services, as president.
Coburn had been president at the Teaneck, New Jersey-headquartered firm since 2012 and previously served as its chief financial office.
The company hasn’t linked the executive shuffle with the FCPA disclosure.
Cognizant provides custom information technology, consulting, and business process outsourcing services.
It had 244,300 employees as of June 30 and is one of the fastest growing companies in the world.
It trades on Nasdaq under the symbol CTSH.
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Cognizant isn’t the first information technology company to face FCPA issues in India.
In 2012, Oracle paid a $2 million civil penalty to the SEC to settle FCPA charges arising from a slush fund in India used to pay bribes.
India ranks 76 on the Corruption Perceptions Index. The usual source of corruption risks in India is the discretionary power of public officials and elected representatives — regardless of whether stipulated procedures have been followed or not.
Information technology services firms such as Cognizant also face particular corruption risks in India.
Here are some of them:
Government projects: Gartner estimates that the government of India will spend $7 billion on IT products and services in 2016. This excludes public sector entities like banks and other quasi governmental agencies.
Government contracts aren’t always profitable and most suffer from long delays. Yet IT companies pursue government contracts for the scale of opportunity (considering the wider user base) and for being a great branding tool in the Indian market.
Although the Indian government is making efforts to bring more transparency to public procurement, the risks of graft exist in the tendering process and in connection with scope extensions and payment issues. With customer-representative confirmation being a critical part of invoicing and payment processing for milestones, the risk of gifts, facilitation or other forms of corrupt payments is high.
The risk of graft increases further because IT service providers are expected to act as systems integrators for government organizations, thereby increasing contacts with public officials who have approval authority.
Land acquisition or allocation: IT services typically involve large workforces. (Cognizant has nearly a quarter million employees worldwide.) In India, IT personnel work from land parcels allocated to their firms in select geographies by the respective state government.
These state land allocations involve multiple points of contact with government officials, raising the potential risk of graft. In addition, the land allocation process sometimes involves compensatory payments to local communities. While these payments are normally voluntary, there can also be circumstances when regional leaders and political party representatives try to influence the transactions.
Import-export, taxation, and inspections: Many IT firms operate in India from special economic zones or export processing zones, where they benefit from tax exemptions. Operating in the special zones involves a complex process for tracking materials and for moving assets in and out of the special zones.
Complying with the regulations usually involves obtaining multiple levels of bureaucratic approvals. Further, multiple inspections associated with safety and other regulations also increase the risk of corruption.
Employment regulations and immigration: Large information technology service providers can employ tens of thousands of workers across multiple states in India, triggering multi-jurisdictional employment law compliance issues. The corruption risks associated with the issuance and handling of passports, visas, and other immigration issues are significant.