Sonu Jain, Indian Express, February 24, 2007
NOCIL: SEC ruling details how Dow Chem senior management greased palms of top regulatory officials through petty contractors
NEW DELHI, FEBRUARY 23: Dow Chemical has admitted that to “expedite” registration of its pesticides in India between 1996 and 2001, its senior management in India approved and made “irregular payments” to government officials, at the Centre and in states, including an influential member of the registration committee of the Central Insecticide Board, the Agriculture Ministry’s apex regulatory authority responsible for approving pesticides.
This startling disclosure appears in a February 13 ruling by the US Security and Exchange Commission (SEC) which got Dow to pay $325,000 in penalty after the chemical giant detailed the steps it had taken to investigate and expose the corruption and take clean-up action. Dow conducted an internal investigation and voluntarily approached the commission.
“We have not received any official communication on this as yet,” P K Mishra, Secretary, Agriculture, told The Indian Express tonight. “This sounds very serious and we will make enquiries.”
Michigan-based Dow is the largest manufacturer of chemicals, pesticides and plastics. DE-Nocil was established in 1994 as a joint venture when a majority-owned Dow subsidiary, Dow Elanco, acquired 51% stake in the local National Organic Chemicals Industry (Nocil). In 1997, Dow Elanco, became a wholly-owned subsidiary of Dow and was renamed Dow Agro Sciences. In 2005, Dow attained 100 per cent ownership of DE-Nocil.
The SEC report details the way money was allegedly routed from the company to government officials. Before a pesticide is marketed, the company requires registration at the Central level by the Central Insecticide Board (CIB). Within CIB, is a six-member registration committee. “A key member” of this committee, the SEC says, “was able to determine if and when a company’s agricultural chemical would be registered. And, in effect, the CIB official would refuse or delay registrations unless he received financial payments. The individual left CIB in 2000.”
The others who received payments are “licensing officers” in each state. These are officials who could prevent the sale of the product by drawing samples and falsely claiming that the samples were misbranded or mislabeled. This would have meant the company challenging these accusations in court. “However, rather than face a suspension in sales of products caused by false accusations, companies would make petty cash payments to state inspectors,” says the report.
Most of these payments to state-level officials were petty amounts — well under $100, amounting to $87,400 in these five years.
“DE-Nocil’s commercial vice president, who later became a technical development leader, developed an improper payment practice to facilitate these registrations, they used consultants and unrelated companies to make these improper payments,” states the SEC report.
DE-Nocil personnel enlisted one of their contractors, an Indian product formulator. to accumulate funds on their behalf. The contractor, through an agreement with DE-Nocil, added fictitious charges called “incidental charges” on its bills to DE-Nocil. The contractor agreed to segregate the funds representing these incidental charges and to disburse these funds as directed by DE-Nocil. When needed, DE-Nocil contacted the contractor and asked it to disburse the funds to third party “consultants” who delivered the fund to CIB official.
DE-Nocil made approximately $20,000 in improper payments to the CIB official through this contractor.
The second contractor , also one of DE-Nocil’s product formulators, issued a false invoice for $12,000 in capital equipment. The payment authorised by DE-Nocil’s Managing Director was then delivered to the CIB official.
The payments resulted in the expedited registrations, Dow estimated that DE-Nocil generated $435,000 in direct opening margin from accelerated sales of these products, 76% of which went to Dow.
An independent auditor retained by Dow identified $75,600 of payments and by extrapolations estimated that $125,000 additional amount was paid.
THE BRIBE BREAK-UP
Money to register its products $39,700
State-level agriculture inspectors $87,400
Gifts, travel and entertainment $37,000
Government officials $19,000
Sales tax officials $11,800
Excise tax officials $3,700
Custom officials $1,500