CBI to send letter rogatory to US in case against Dow subsidiary

Aasha Khosa, Business Standard, May 2, 2008
The Central Bureau of Investigation (CBI) will shortly send a letter rogatory to the US authorities to question Dow Chemicals, which was fined by a US district court after its subsidiary DE-Nocil was accused of paying bribes worth Rs 80 lakh to Indian officials to register banned pesticides in the Indian market.
This comes six months after the CBI registered a case against six people including a retired senior bureaucrat in the Ministry of Agriculture.
The case was registered by the CBI following a US Securities and Exchange Commission (SEC) discovery last year that DE-Nocil had bribed Indian officials between 1996 and 2001 to approve and register three pesticides — sold under the brand names Pride (NI-2s), Nurelle-D and Dursban 10G — that were banned under Indian regulations.
A letter rogatory is a formal letter of request to a foreign court for judicial assistance. In this case, the letter rogatory, which was recently cleared by the home ministry, is intended to seek help for the CBI to question Dow officials on the SEC discovery without visiting the US and provide access to key documents and statements of key Dow officials.
In a “cease and desist” order to Dow dated February 13, 2007, SEC charged Dow with violations under the Foreign Corrupt Practices Act (FCPA) of the United States for letting a subsidiary use funds for illegal activities in a foreign country.
The order was passed after Dow voluntarily approached Commission staff with the results of an internal investigation of DE-Nocil.
The order describes DE-Nocil as a “fifth-tier subsidiary” of Dow Chemicals and said it paid an estimated $200,000 “in improper payments and gifts to Indian government officials at the state and federal levels” between 1996 and 2001 to register several “agro-chemical products slated for marketing in time for India’s growing season”.
The order said “none of these payments were accurately reflected in Dow’s books and records”. It added that “Dow’s system of internal accounting controls failed to prevent the payments” in violation of the internal control provisions of the FCPA.
The order said DE-Nocil’s commercial vice-president, who later became a consultant to the company, and DE-Nocil’s technical development leader, developed an improper payment practice to facilitate the registration of DE-Nocil’s products to the CIB (Central Insecticides Board).
The payments were directed to the CIB official through “the use of consultants and unrelated companies” none of which were properly recorded in DE-Nocil’s books.
According to the SEC order, RL Razak, former, advisor in the Directorate of Plant Protection Quarantine and storage in the Union Ministry of Agriculture, alone had allegedly received Rs 16 lakh for registering Dow’s products.
The rest of the money was allegedly paid to the state government regulatory authorities by the company for a licence to distribute and sell these pesticides.
As a result of the registrations, Dow estimated that DE-Nocil generated $435,000 in direct operating margin from the accelerated sales of these products, 75.7 per cent (or $329,295) of which, based on Dow’s ownership interest, went to Dow.
The order added that the payments were made without knowledge or approval of any Dow officials. Dow also undertook certain remedial actions, including employee disciplinary actions, the order said.
The SEC had simultaneously filed a complaint in the United States District Court for the District of Columbia against Dow alleging violations of the Securities Exchange Act of 1934 and Dow had agreed to pay a civil penalty of $325,000 which the SEC accepted.
The Commission took cognisance of remedial efforts by Dow and accepted its offer to make up for the violation.
The CBI had raided premises in six cities including factories that were making products for DE-Nocil (now renamed as Dow Agro Sciences India Private Ltd.), three consultants, homes of the bribe takers and facilitators.
Apart from Razak and the Managing director of the Mumbai-based De-Nocil who has been booked for “commission of offence of bribery, its abetment, criminal misconduct, falsification of accounts and criminal conspiracy” the CBI has also registered cases against Ramakrishnan, P Natarajan and Banerjee, consultants with the DE-Nocil, who had allegedly delivered the money.
CBI is also investigating the role of the Ghaziabad-based Ms Crop Health products Ltd and the Bharuch-based Agro Products Ltd, product formulators for the De-Nocil.
CBI sources said documents seized from the raided premises confirmed irregularities in the registration of the DE-Nocil products during 1996-2001.

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