Global supply risks

Cognizant Discloses Internal Corruption Probe to Investigate Payments in India Division

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On September 30, 2016, Cognizant Technology Solutions Corporation took to headlines as it announced that it is investigating for possible violation of a federal anti-foreign-corruption act regarding payment made to its Indian division. In another development announced on the same day, the company informed that its president had resigned giving no supporting reason.

Cognizant notified the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC) that it was conducting an internal review to determine if the payments made to facilities in India were made inappropriately and did not abide by the US Foreign Corrupt Practices Act (FCPA). In its record, the company informed that the investigation is being driven by the audit committee and is being aided by an external counsel.

The company stated that it has voluntarily informed the DoJ and the SEC about the inquiry and is cooperating with both agencies. This incident comes after the new program introduced by the DoJ in April 2016, which offers profound discounts to companies that cooperate with government agencies to tackle corruption including those on foreign lands and help restrict individuals and expose bribery violations.

The Ongoing Investigation

The company is currently investigating certain divisions of the company-owned facilities in India, which had emerged during in-house inspections. As of December 2015, the company had 45 facilities in India; of them, 12 are owned, where 75% of its employees work.

A Cognizant spokesperson stated that laptops of senior level management employees, including members’ part of the board, have been detained for the investigation. The company’s representative also stated that the investigation was in its initial stage so any further details cannot be revealed.

Cognizant provided no reason for Gordon Coburn the company’s president’s resignation at a time when major corruption concerns have been raised against the company. Rajeev Mehta, the Head of IT services, will now serve as the new president of the company. Gordon Coburn had been with Cognizant since its inception and held various positions in the company including Chief Financial Officer before he took charge as president in 2012.

Previous Corruption Charges against Companies

The corruption charges against Cognizant come at a time when the company is facing headwinds in its financial services and healthcare segments. However, this is not the first time that corruption and bribery charges have been imposed against any company. At present, US government agencies are investigating potential foreign bribery charges against Wal-Mart; however, any fine or settlement has not yet been levied.

Siemens was accountable in worldwide bribery charges and was asked to pay US$350 M to settle SEC’s charges, and a US$450 M fine to the DoJ. Furthermore in 2014, Alstom SA pleaded guilty in foreign bribery charges and was order to pay US$772 M as fine to the DoJ to resolve criminal charges.

Other companies which have paid fines for similar FCPA violations this year include SAP, Akamai Technologies, and Qualcomm, which has led to the DoJ taking more active roles in monitoring the FCPA to send a clear message that it will not tolerate bribery in business dealings.

Steps to Take to Mitigate Potential Negative Effects

Conduct an IT services risk assessment – Although customers are unlikely to feel any service delivery impact unless the issue turns out to be more far reaching, it is always good to determine what their exposure is. If the issues become serious, it could lead to loss of talent, focus, or financial instability resulting in poor delivery and additional service risk.

Obtaining written assurances – FCPA violations get the attention of business executives, boards, and stakeholders. IT leaders should obtain the “adequate assurances” from Cognizant that this is not a systemic issue.

Insist on better communication – Cognizant customers should ask that account and company leader provide greater transparency into the scope and scale of the probe.

Provision for warranties – A well-constructed outsourcing agreement should provide for representations and warranties to comply with laws or have specific requirements to be and remain in compliance with the FCPA.

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