SEC staff recommends FCPA enforcement action against Oreo maker Mondelēz International
Monday, February 22, 2016 at 8:02AM
Richard L. Cassin in Cadbury, India, Kraft, Mondelez International, Successor Liability, Taxes, Wells Notice, permits

Mondelēz International, Inc. said in a securities filing Friday that it received a Wells notice from the SEC in connection with operations in India and a factory there it bought from Cadbury.

A Wells notice advises targets of an investigation that the SEC staff has made a preliminary determination to recommend an enforcement action.

Deerfield, Illinois-based Mondelēz said it intends to make a submission to the staff of the SEC in response to the notice.

Kraft Foods Inc. acquired UK-based Cadbury plc in January 2010 for about $19 billion. Kraft changed its name to Mondelēz in 2012 after spinning off its North American grocery business.

Among Mondelēz's brands are Oreos, Triscuits, Wheat Thins, Toblerone, Ritz crackers, and Tang.

In February 2011, Mondelēz received a subpoena from the SEC focused on "a facility in India . . . acquired in the Cadbury acquisition." 

Earlier reports said the facility is a factory in Baddi, an industrial town in northern India.

The subpoena asked for information about "dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility."

Mondelēz said Friday it has met with U.S. authorities "to discuss [the] potential conclusion of the U.S. government investigation."

It said,

On February 11, 2016, we received a “Wells” notice from the SEC indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the books and records and internal controls provisions of the Exchange Act in connection with the investigation.

Mondelēz started a compliance review after it acquired Cadbury in 2010. 

It said Friday,

[T]hrough our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.

Mondelēz reportedly found that Cadbury paid bribes to Indian officials through intermediaries to win approvals and permits for factories. The approvals also allowed Cadbury to claim a tax exemption worth about $90 million.

On Friday, Mondelēz said it is appealing against notices from the Indian Central Excise Authority imposing taxes and penalties of at least $88 million that relate to Cadbury's India operations.

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Here's part of the FCPA and related disclosure from Mondelēz International, Inc.'s Form 10-K filed with the SEC on February 19, 2016:

We routinely are involved in legal proceedings, claims and governmental inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.

A compliant and ethical corporate culture, which includes adhering to laws and industry regulations in all jurisdictions in which we do business, is integral to our success. Accordingly, after we acquired Cadbury in February 2010, we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.

As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation. On February 11, 2016, we received a “Wells” notice from the SEC indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the books and records and internal controls provisions of the Exchange Act in connection with the investigation. We intend to make a submission to the staff of the SEC in response to the notice.

In February 2013 and March 2014, Cadbury India Limited (now known as Mondelez India Foods Private Limited), a subsidiary of Mondelēz International, and other parties received show cause notices from the Indian Central Excise Authority (the “Excise Authority”) calling upon the parties to demonstrate why the Excise Authority should not collect a total of 3.7 billion Indian rupees (approximately $57 million U.S. dollars as of December 31, 2015) of unpaid excise tax and an equivalent amount of penalties, as well as interest, related to production at the same Indian facility. We contested these demands for unpaid excise taxes, penalties and interest. On March 27, 2015, after several hearings, the Commissioner of the Excise Authority issued an order denying the excise exemption that we claimed for the Indian facility and confirming the Excise Authority’s demands for total taxes and penalties in the amount of 5.8 billion Indian rupees (approximately $88 million U.S. dollars as of December 31, 2015). We have appealed this order. . . .

While we cannot predict with certainty the results of any Legal Matters in which we are currently involved, we do not expect that the ultimate costs to resolve any of these Legal Matters, individually or in the aggregate, will have a material effect on our financial results.

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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