BANGALORE (TIP): Wal-Mart Stores Inc.’s WMT +0.15% India unit said Thursday it has received a notice from a federal government agency as part of an investigation into allegations that the U.S. retailer violated the South Asian country’s foreign-investment rules. “We will be working to provide the authorities with relevant information,” a Wal-Mart spokeswoman said. She declined to give any details of what the notice says. The Wal-Mart probe comes at a time when the company is planning to set up retail stores in India after the government in September changed foreign-investment rules to allow foreign supermarkets to set up retail outlets through joint ventures.
Previously, foreign companies could operate only wholesale businesses in the multibrand segment. Bharti Walmart Pvt. Ltd., a joint venture between Wal-Mart and Bharti Enterprises Ltd. of India, operates 20 wholesale stores in India. The investigation follows a complaint by a politician, M.P. Achuthan, who wrote to Prime Minister Manmohan Singh in September to say that in 2010 a Wal-Mart unit bought $100 million of convertible debentures in a company through which Bharti Enterprises controls the Easyday supermarket chain. Mr. Achuthan alleged that this was illegal, because he said the money was used by Bharti to fund investments in its supermarkets. Until changes unveiled by India’s government in September, foreign retailers were barred from investing in Indian supermarket operations.
Mr. Achuthan offered no proof to back his allegation. The joint venture denied any violation of Indian laws. The prime minister’s office passed the letter to the Commerce Ministry, which in turn handed it to the Reserve Bank of India, the country’s central bank. Last week, junior Finance Minister S.S. Palanimanickam told lawmakers in the upper house of Parliament that the Directorate of Enforcement began to probe the issue after the RBI referred the complaint to it. The enforcement directorate is an agency under the finance ministry that investigates financial irregularities. Officials in the enforcement directorate couldn’t be reached for comment Thursday.
A violation of Indian foreign-investment rules carries a maximum penalty of four times the amount a company has invested. Word of the enforcement directorate’s notice follows the Indian government saying Wednesday that it will appoint a retired judge to conduct an inquiry into media reports regarding Wal-Mart’s lobbying activities in the U.S. Wal-Mart, in a recent disclosure report, said it has spent $25 million on lobbying over the past four years, including issues related to “enhanced market access for investment in India.” Lobbying of U.S. government representatives is permitted under U.S. law, and the disclosure was required by U.S. rules designed to promote transparent governance.
The Indian government is pursuing the inquiry amid pressure from opposition lawmakers, who allege that Wal-Mart’s lobbying of U.S. officials in Washington to advance its India interests is tantamount to bribery of Indian officials. Wal-Mart has denied the opposition party’s accusation. “The allegation that a routine U.S. lobbying disclosure form reflects improper conduct on our part in India, is false. This disclosure has nothing to do with political or governmental contacts with India government officials,” the Bharti Walmart joint venture said in a written statement Wednesday.