German sporting goods giant Adidas is putting a fresh foot forward in re-launching its troubled Reebok operations in India.
The company has appointed new management and made significant changes to its operations in India to address a complex corporate fraud that resulted in an estimated loss of approximately $160 million.
Adidas is familiar with the challenges in India. In 2004 they dismissed their top Indian leadership and replaced them with an experienced expat manager after discovering alleged accounting irregularities. Within a year of promoting domestic Reebok leadership to run the combined Adidas/ Reebok operations in India the company discovered long-term fraud that included false invoices, fake customers and a parallel warehousing operation.
While Adidas is attempting to put the scandal behind it by appointing new leadership, dismissing hundreds of employees and renegotiating its franchise agreements, the former Reebok executives are preparing for their trial. In addition to criminal proceedings, the Serious Fraud Investigation Office of the Ministry of Corporate Affairs is investigating the matter.
According to reports, counsel for one of the defendants says the fraud was committed to artificially inflate sales volumes and was known to or encouraged by Adidas executives. According to the counsel, Adidas executives pressured the Indian administration to increase sales to compensate for the hammering the company was taking in the Eurozone.
Whatever the truth of the accusation, “The Foreigner Made Me Do It” can be an effective argument in a domestic court. Adidas has denied the claims that it had knowledge of the scheme.
Russell A. Stamets is a contibuting editor of the FCPA Blog.