US fines Dow Chemicals for bribery by Indian subsidiary

By SUNITA DUBEY, Kushal Pal Singh Yadav
Published: Thursday 15 March 2007

on february 13, 2007, Dow Chemical Co was fined us $325,000 by the United States Securities and Exchange Commission (sec) on bribery charges against one of its Indian subsidiaries, De-Nocil. Dow wholly owns De-Nocil, which was rechristened Dow AgroSciences India Pvt Ltd on January 13, 2005. According to sec, De-Nocil was found guilty of making improper payments of us $200,000 to officials in India in 1996-2001 through contractors and unrelated companies.

Dow, the top us chemical maker, with annual sales of us $49 billion, paid the fine for violating the Foreign Corrupt Practices Act, without admitting or denying wrongdoing, sec said. Dow also denied knowledge or approval for these payments.

De-Nocil was tying to circumvent the registration process for three pesticides Pride (NI-25), Nurelle-D, and Dursban. First, nearly $32,000 was paid in two instalments to a senior official of the Central Insecticides Board (cib), the agency responsible for registering and monitoring pesticides. The official was part of the registration committee and influenced its decision in favour of the company. In 1996, a fund was created by accumulating and siphoning off money to pay the cib official through contractors, by adding fictitious "incidental charges" on its bills.

Dow claimed the demand for bribes came from the official and once he left cib in 2000, the demand for bribes stopped. According to Dow, the official in question had the power to determine whether and when agricultural chemical products would be registered and would refuse or delay registrations unless he received payments. A commercial vice-president of De-Nocil drew up a plan for bribing officials to facilitate the registration of De-Nocil's products which then became part of De-Nocil's management practices.
Cloaked in secrecy The name of the official has not been made public either by Dow or the Indian government, but sec files indicate that he left the committee in 2000. Garry Hamlin, a spokesperson for Dow AgroSciences, refused to divulge the official's name even though he had the information. Hamlin said "the name of the official and other information regarding this case has been given to the Indian government and Dow has also agreed to fully participate in any investigation led by the Indian government".

Down To Earth (DTE) asked the present member secretary of the registration committee, Sandhya Kulshrestha, about its composition from 1996 to 2000 and who left in 2000. "It is very difficult to say. I will have the check the records of that time which I am currently unwilling to do as I am very busy," she said, adding that she had no idea who the impugned official was. dte has been given to understand that it may be possible to identify the officer who was bribed. If that is indeed the case, it is imperative in the public interest that the government makes the disclosure so that action can be taken publicly to prevent a recurrence of such malpractice, says a senior advocate.

"The person who handles the secretariat and all the administrative functions in the registration committee is the member secretary," says R L Rajak, former plant protection advisor (ppa) to the government of India. He held the post till 1999, regularly attending committee meetings between 1996 and 1999."If the member secretary and the sectoral experts in the committee get hand-in-glove with industry then that particular industry can get favours," Rajak adds.

The current ppa, P S Chandurkar, knows of the case but he doesn't have all the details. He read it in the news. The staff of N B Singh, agriculture commissioner and current head of the committee refused access to him. "All agenda and other details are finalised by the member secretary. Even if he knows anything he will not answer your questions," an aide said.

cib and the registration committee have been notorious for their corruption. dte had reported in July 2002 that "corruption in cib is rampant". It had revealed the modus operandi. The Dow indictment confirms their existence. "Companies are wary of directly approaching cib officials, so they use the services of a broker. Bribing of junior and senior officials at cib takes place through these designated agents," says the dte report (see 'Endosulfan conspiracy', July 15, 2002). "Industry pays this agent for all the dirty work that they want to get done--registration of a new molecule or stealing data for already registered molecules or even bribing the registration committee members to influence decision-making at the top level. But the bribe is not always money. Many top cib officials, including the registration committee members, regularly receive junket invitations sponsored by the pesticide industry." Some of this is recorded in the proceedings of a committee meeting. Minutes of the 239th meeting of the committee held on October 16, 2003, show the pesticide industry spent money "under the table to get agenda and minutes" of meetings.

Problems with registration are not restricted to bribery. Industry often hires private labs to generate data for registration. They manipulate, fudge and manufacture data to suit industry's needs (See box Fudging data).

cib and the committee are cagey about revealing any information pertaining to pesticides. We had filed an application under the Right to Information (rti) Act, 2005, on November 16, 2006, to get information pertaining to registration of certain insecticides. Kulshrestha replied saying "the secretariat of cib and the registration committee may not provide the information sought by you" reasoning that pesticide industry associations had objected. A subsequent application was filed clarifying that no patented, confidential or commercial information was sought. Rather "data that cannot be termed to be confidential or patented and, on the contrary, concern the health and well-being of the public and therefore, as it concerns public heath, must be provided under the rti Act, 2005" was sought. This included information like residues, toxicity and carcinogenicity. Kulshreshtha declined again saying "(data submitted for registration purposes) cannot be disclosed without the written consent of the registrant".

Though Dow denied knowledge of improper payments to officials, De-Nocil's managing director was authorising it. None of the payments made were properly recorded. As a result of expedited registrations, Dow's investigation estimated that De-Nocil generated sales of about us $435,000 due to accelerated placement in the market. About 76 per cent (us $329,295) of sales went to Dow.

When questioned about why Dow took five years to report improper payments to sec, Hamlin blamed De-Nocil for keeping the parent company in the dark.According to him, employees in India fudged the books knowing Dow wouldn't have accepted malpractices.

Not only were payments made to the cib official, De-Nocil also made payments at the state level. The sec petition revealed that De-Nocil routinely used money from the petty cash register to pay state officials to promote, distribute and sell its products. These payments were made through De-Nocil's distributors. Although the amounts were small (under us$100 per shot), a large number of payments (between 30,000 and 40,000) were made, including those for "licensing officers", who had to approve production, warehousing and selling of products. It was estimated that from 1996 to 2001 us$87,400 was doled out.

The apparent reason (as noted in the sec petition) for such a huge bribing network was the fact that officials even at the state level had significant power to prevent the sale of a De-Nocil product by falsely claiming that samples were misbranded or mislabelled. Although there is a provision that companies could challenge such charges in court, bribing was a preemptive action.

An independent auditor hired by Dow estimated that approximately us $39,700 was used by De-Nocil to register its products and an estimated $87,400 was paid to state-level inspectors. Other payments consisted of an estimated us$37,600 for gifts, travel, entertainment and other items; $19,000 to government officials; $11,800 to sales tax officials; $3,700 to excise tax officials; and $1,500 to customs officials.

Though Dow suggested in their petition that corruption was so prevalent that De-Nocil was forced to pay bribes, a close look at the system devised by De-Nocil tells the story of a pre-meditated payoff strategy to register and promote their products. Dow's record doesn't inspire confidence. In 1995, Dow was fined us$732,000 for not sending the us Environment Protection Agency reports it had received on 249 Dursban poisoning incidents. Dursban's chemical agent, chloropyrifos is carcinogenic, neurotoxic, cause reproductive and developmental disorders and is especially toxic for children. Though it was banned for domestic use in 2000 in the us, Dow still markets it in the developing world, including India.

According to Hamlin, the company has taken disciplinary action against De-Nocil executives who were involved in bribing Indian officials. To ensure this is not repeated, the company has strengthened financial controls, enhanced global ethics and compliance programmes and improved its due diligence review of distributors and other intermediaries.

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