Photo courtesy of NYU
Gautam Adani is the founder of one of India’s largest conglomerates and ranks among the country’s prominent business people. He and his nephew Sagar Adani are learning the hard way that, in the U.S. legal system, the coverup can be treated just about as severely as the crime.
The Department of Justice and the Securities and Exchange Commission have accused the Adani defendants of collaborating with executives of a U.S.-listed Mauritian company called Azure Power Global Ltd. in a massive bribery scheme. The conspirators allegedly paid over USD 250 million in bribes to officials in the governments of several Indian states. The bribes were to induce the officials to purchase power that would be supplied by Adani Green Energy Ltd., an Indian company controlled by the Adani defendants, as well Azure.
According to the U.S. authorities, the Adanis were directly involved in consummating the corrupt transactions, making the scheme a paradigmatic example of what Mariana Pargendler and I call “controlling shareholder-led bribery”. The DOJ and the SEC allege that Gautam Adani met personally with some of the government officials and Sagar Adani took notes on his cellphone of the transactions with each official. The risks of being directly implicated in these kinds of dealings must have been obvious to businessmen as prominent as the Adanis. We can only speculate that those risks were outweighed by the benefits of applying the personal touch to close lucrative corrupt deals.
Remarkably, neither of the Adanis has been charged with bribery. The defendants associated with Azure were charged with conspiring to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). To date, however, the defendants affiliated with Adani Green have only been charged with fraud offences, specifically, securities fraud and conspiracy to commit securities fraud and wire fraud.
The fraud charges stem from the fact that while the bribery scheme was underway, Adani Green raised money through syndicated loans and bond offerings that involved U.S. institutions. The U.S. government’s theory is that Adani Green defrauded lenders, investors and underwriters by representing to them that it had not offered or paid bribes to any government officials and had robust anti-bribery practices. Some of the alleged misrepresentations were made in response to direct questions prompted by news reports that the Adanis were being investigated for bribery.
In many respects the case being brought against the Adanis and their co-defendants exemplifies the modern DOJ’s approach to corporate enforcement. First, it is consistent with the Department’s stated commitment to prosecuting culpable individuals for crimes committed in corporate settings. Second, the case appears to be based at least in part on whistleblower complaints received by Azure which led it to report potential misconduct to the DOJ and the SEC. In recent years the DOJ has made bold moves to 1) promise leniency to corporations that self-report misconduct and cooperate in the ensuing investigation 2) offer financial rewards to whistleblowers who provide information that leads to successful enforcement actions. The Adani case shows the potential for these enforcement strategies to enhance prosecutors’ ability to detect and prosecute individuals.
The shape of the case against the Adani defendants may also reflect the jurisdictional constraints that now limit U.S. authorities’ efforts to prosecute transnational bribery, at least in the Second Circuit. In U.S. v. Hoskins the Second Circuit held that foreign nationals who fall outside the scope of the Foreign Corrupt Practices Act (FCPA) cannot be held liable for FCPA violations under the general conspiracy or complicity statutes. The effect of this ruling is to rule out FCPA-based conspiracy or complicity charges against foreign nationals who are not affiliated with or agents of a U.S. issuer and who have not acted in U.S. territory. In his concurring judgment in Hoskins, Judge Lynch pointed out that this would make it difficult to bring charges against foreigners who direct rather than act as agents in a corrupt scheme involving parties subject to the FCPA. He could easily have been describing the Adani’s alleged role in the scheme described by the government.
Charging the Adani defendants with fraud rather than bribery allows the government to sidestep the jurisdictional obstacle posted by Hoskins. It also allows them to avoid the complaints about U.S. legal imperialism that are sometimes leveled at FCPA enforcement – assertion of U.S. jurisdiction over foreign defendants seems less imperialistic when they are charged with defrauding U.S. investors.
The government’s enforcement strategy also sends a message that there is something independently wrongful about lying about anti-bribery policies. The SEC went out of its way to point out that Adani Green’s public disclosures regularly portrayed both the company and the individual Adani defendants as leaders in their commitment to ESG principles. This comes against the backdrop of recent enforcement actions against companies for ‘greenwashing’, that is to say, lying about their environmental practices. Pursuing the Adanis for lying about their anti-bribery policies can be seen as an effort to condemn the analogous practice of integrity washing.
Charging the Adanis with fraud rather than bribery may allow the government to overcome jurisdictional obstacles and denounce integrity washing, but many of the other challenges inherent in prosecuting a high-stakes foreign bribery case remain.
First, the defendants are foreign nationals and are by all accounts wealthy and well-connected. It may be difficult to secure the assistance of the Indian government in bringing them to the United States to face trial. They also may wield enough influence to cause political actors in the U.S. to intervene and halt the enforcement proceedings.
Second, the Adanis can only be guilty of fraud if the government shows that the alleged misstatements were actually false. For most of the statements this will entail showing that there was a bribery scheme and that the Adanis were part of it. This means the government effectively will have to prove the bribery case on the merits.
Charging individuals with fraud rather than bribery creates at least one additional burden for the government: showing that the misstatements were attributable to the defendants. In this case the alleged false statements were all made by Adani Green. The individual Adani defendants might argue that the statements made by the corporation cannot be attributed to them.
What if the government manages to overcome these hurdles?
The value of having U.S. authorities charge individuals with lying about rather than participating in bribery depends on how easy it is for foreign bribe payers to avoid these kinds of misrepresentations. The value could be great if foreign firms continue to deal with investors with ties to the U.S. and those investors continue to require firms and individuals who are not subject to U.S. jurisdiction to represent that they comply with anti-bribery norms. The value will be more limited if foreign firms can easily refrain from either dealing with U.S. investors or making representations about bribery or anti-bribery practices.
In the best case scenario, targeting integrity washing leverages the value of access to U.S. capital markets to deter bribery. In the worst case this enforcement strategy drives foreign firms out of U.S. capital markets without affecting their propensity to engage in bribery. So a great deal may turn on the outcome of these enforcement actions.
Kevin E. Davis is the Beller Family Professor of Business Law at NYU School of Law and the Faculty Director of NYU’s Hauser Global Law School Program.
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