The global wine and liquor producer has been charged for breaking alcohol laws
The Indian business unit of Pernod Ricard, the French wine and liquor giant, faces allegations of illegally making profits in India of $23 million by giving false price information and conspiring in an email campaign to alter New Delhi city’s alcohol policy, as per Reuters.
The alcohol industry giant is also accused of engaging in a scheme to derail New Delhi city’s liquor policy through an email campaign.
Pernod Ricard has denied all allegations, claiming they did nothing illegal.
The charges are brought forward by the Directorate of Enforcement (ED), a multi-disciplinary financial crime agency mandated with investigation of offences of money laundering and violations of foreign exchange laws in India. The latest accusations against Pernod Ricard are detailed in the agency’s 14,000-page filing of January. 6 in a New Delhi court.
According to the ED, Pernod Ricard was part of an alcohol industry drive to pressure authorities to privatize retail liquor outlets, with the long-term goal of enhancing its control of retail distribution in Delhi. As a result of the pressure campaign, a government panel developed a strategy to leave the retail industry and only allow private companies to compete for alcohol shop licenses.
Big Alcohol growth market hopes
New Delhi is a critical growth market for Big Alcohol companies.
Pernod Ricard India Private Limited had a market share of 2.7% in wine sales in India in 2020. This was a decrease as compared to previous year when the market share was about 3%. Pernord Ricard is struggling with declining maret shares in India over the past years, according to Statista.
At the same time, Asia is an important market for Pernod Ricard to sell their products, as Statista data shows. Europe was the worst performing region for Pernod Ricard in 2022. The company’s net sales from that region totaled €3.13 billion compared to €3.133 for the Americas and over €4.4 billion for Asia and the rest of the world.
These figures illustrate why Pernod Ricard is employing aggressive tactics and illegal business practices India: to protect and gain market shares in a key market of the Asian region, and to drive sales and profits in this market.
Pernod Ricard’s illegal business practices in India
The new allegations represent an escalation of problems for Pernod in India, according to Reuters reporting. Already in November 2022 Pernod Ricard was accused by the Indian agency of violating New Delhi city’s alcohol policy to boost market share.
Sabotaging New Delhi’s alcohol policy
In September 2022, Delhi reintroduced its old liquor policy. With this, nearly 250 private liquor shops were replaced by over 300 Delhi government alcohol outlets, beginning on September 1. The Excise department had already notified the private licensees that they would not be allowed to conduct retail liquor sales beyond August 31.
Nevertheless, Pernod Ricard utilized corporate assurances to invest in merchants who submitted store licensing bids.
In a court filing dated November 2022, referencing a Pernod Ricard PowerPoint presentation, the Directorate of Enforcement (ED) made a formal accusation that the company had an internal strategy to “take control of retail shops and create flagship stores” in an effort to control “retail businesses in Delhi,” with the intention of boosting their market share, as per Techstory.
According to the ED, an email from then Chief Financial Officer (CFO) of Pernod Ricard, Rajesh Mishra, to group CFO Helene de Tissot in mid-2021 confirmed that Pernod’s “support” of $24 million to the associates who were competing for licenses in Delhi had the ability to produce an additional $15 million “benefit over a three years period”.
Citing what it called “additional proof”, the ED also said Mr. Mishra consented to the issuance of corporate guarantees for the loans, and informed group CFO Helene de Tissot about the strategy.
The Enforcement Directorate said in a New Delhi court filing in November 2022 that the city’s policy prohibited manufacturers from participating in retail sales but Pernod Ricard effectively used corporate guarantees to invest in retailers who bid for store licenses.
The ED alleges that Pernod Ricard was part of an industry campaign to lobby authorities to privatize retail liquor stores. It alleged that Pernod Ricard executives were “fully involved in the conspiracy” to send 4,000 emails to “influence policy formulation to suit the interest of Pernod”.
The email campaign was targeted at a government panel which had proposed – and later formalised into policy in 2021 – that authorities should exit the retail business and let only private players bid for store licences, the documents showed.
Delhi last year revoked that policy, and liquor is now only sold via government-run shops.
Manipulating prices for profit maximization
In addition, the 2021 New Delhi alcohol policy required manufacturers to reveal their lowest factory prices within the entire nation, allowing the local government to set competitive prices and boost revenue. But, going against the established regulations, Pernod Ricard provided false, higher prices, earning excess profit of $23 million, which they are not entitled to, but rather, which should have been passed to the consumers, the ED alleged in the court filing seen by Reuters.
The city’s policy in 2021 required liquor manufacturers to disclose their lowest factory prices in the entire nation so that the local government could set competitive prices and boost revenue.
But Pernod gave “false”, higher prices, helping it earn “excess profit” of $23 million.
According to the ED, Pernod Ricard earned “a huge additional profit which was ineligible to them and should have been passed to the consumers,” as per the court filing reported by Reuters.
Pernod Ricard India’s net profit in 2021-22 stood at $176 million, its regulatory disclosures show, according to Reuters.
Decade-long tax avoidance scheme
Furthermore, as per Techstory reporting, on October 3, 2022, the Indian customs authority filed a court document in Mumbai, highlighting the continuous disagreement between Prime Minister Narendra Modi’s administration and Pernod Ricard, India. The argument was over the company’s fraudulent valuation of its imported liquor concentrates from their parent company’s UK-based subsidiary Chivas Brothers, which has been going on for more than a decade.
Pernod filed a legal challenge after India requested unpaid taxes from the liquor giant in June 2022, claiming the inquiry should be halted since it was based on false industry data and the procedure was “neither fair nor rational.”
India’s customs office said in a 43-page petition from October 2022 that the French alcohol conglomerate was using “delay tactics” by asking a court for relief rather than replying to the government’s notice of a tax demand.
Following these allegations on tax payments, Pernod Ricard, India is due to repay the Indian government revenue of US$244 million for allegedly undervaluing concentrate imports for more than ten years to avoid its full tax obligations.
The filing further noted that Pernod has a history of being “a frequent litigant and consistently attempts to abuse the due process of law,” reported Techstory.
Legal action taken against Pernod, for allegations made by ED
If found guilty, Pernod Ricard India Pvt Ltd, represented by its Chief Operating Officer Rajesh Mishra, and Benoy Babu, the head of its international brands business, could be fined and jailed for three to seven years, under Indian law, reports Reuters.
Benoy Babu is accused of a playing a role in perpetuating a liquor scam in Delhi.
Mr. Babu has been arrested and sent to custody for a week while awaiting further sentencing, over the allegations regarding the violation of Delhi’s alcohol policy. Reuters reported that Babu was arrested for being directly involved in keeping up a liquor scam and for being in possession of the government’s excise policy documents much before they were made public.
Mr. Babu was arrested along with Sarath Reddy, a director of multinational pharmaceutical company Aurobindo Pharma, for the liquor policy violation allegations.
According to retail.com, Pernod Ricard India has stated that the allegations made by ED were factually incorrect and that it was it is cooperating with the relevant authorities and relying on the judicial process to demonstrate its legal compliance.
If found guilty, Pernod Ricard India Pvt Ltd, represented by its COO, Rajesh Mishra and Benoy Babu, Head of international brands could be fined and jailed for 3 to 7 years.
