Gautam Adani, others promised bribes worth ₹2,000 crore to Indian discoms: US govt indictment

The United States government’s document indicting Adani Group Chairperson Gautam Adani and seven others details the bribes allegedly promised by the defendants to obtain contracts with Indian Electricity Distribution Companies (DISCOMS) for a project. 

Adani and others have also been charged with conspiracy to commit securities and wire fraud, and have been indicted under the Foreign Corrupt Practices Act (FCPA) and the Foreign Extortion Prevention Act (FEPA).

If the charges are proven during the trial, the defendants would be required to pay hefty fines, and may even face jail time.

This article details how exactly the allegations came to the surface and what the future may hold for Adani and others.

Bribery allegations

The main bribery allegation pertains to Adani's 12 gigawatt solar power project. According to the indictment, with a view to ensure financial viability, the Solar Energy Corporation of India (SECI) needed state electricity distribution companies (DISCOMs) to commit to purchasing the generated solar power through Power Supply Agreements (PSAs). Without these agreements, the revenue potential of the project and its associated Power Purchase Agreements (PPAs) would not be financially workable. 

It has been alleged that Gautam Adani, Sagar Adani, Vineet Jaain, Ranjit Gupta and others devised a plan to bribe Indian state government officials to get the project going. According to the indictment, these bribes were intended to persuade officials to influence DISCOMs in various states to execute PSAs with SECI, ensuring Adani and the US-based issuer could finalise their PPAs.

According to the indictment, bribes worth  ₹2,029 crore (around $265 million) were promised to DISCOMS, with ₹1,750 crore (~$228 million) allocated to officials in Andhra Pradesh alone to secure the purchase of 7 gigawatts of solar power. The document alleged that these bribes were meticulously tracked by Sagar R Adani, who maintained detailed "bribe notes" on his phone, documenting the states involved, the total amounts offered, and the allocation of bribes per megawatt of power, as well as the roles of the officials receiving payments.

Further, it is the case of the United States Securities and Exchange Commission (US SEC) that Gautam Adani personally met certain high-ranking officials of DISCOMS, including those from Andhra Pradesh, multiple times in 2021 to ensure the success of the plan. Following this, DISCOMs in Andhra Pradesh, Tamil Nadu, Odisha, Jammu & Kashmir and Chhattisgarh agreed to PSAs, with Andhra Pradesh committing to the largest share. 

All these DISCOMS, save for the Odisha company, are operated by the respective State Governments.

It has been alleged that this ‘bribery scheme’ was carried out in collaboration with a US-based issuer. According to the indictment, the bribery scheme was intertwined with financial fraud, as Adani and its subsidiaries secured over $3 billion in loans and securities from US investors while concealing the existence of the scheme. It is alleged that the company falsely represented its anti-bribery practices and compliance measures, misleading investors and lenders.

It is the allegation of the US government that when investigations by its authorities began, the defendants planned ways to destroy evidence and mislead investigators. These plans included transferring project ownership and disguising bribe payments as development fees.

Furthermore, defendants such as Cyril Cabanes, Saurabh Agarwal, Deepak Malhotra, Rupesh Agarwal and an unknown ‘co-conspirator’ needed approval from the US issuer’s Board to transfer valuable PPAs to an Indian energy company. It is claimed that they falsely cited litigation and poor project economics to justify returning the PPAs to SECI, concealing bribes involved in securing other projects.

Bond Issuance

According to the indictment, on September 8, 2021, Adani issued $750 million in senior secured notes due 2024, marketed under Rule 144A of the Securities Act, to US qualified institutional buyers (QIBs).

An offering circular was shared with investors, describing the company, its projects and management. It also outlined "anti-bribery policies," which were later stated to be false. The bond proceeds were allocated for ongoing projects, including the one where bribery allegations have been made. 

It has been alleged that key executives Sagar Adani and Vineet Jaain approved misleading claims in the bond circular, including assurances of strict anti-corruption policies overseen by a risk management committee, of which they were members. The bond was allegedly facilitated by international financial institutions under a subscription agreement that included false anti-bribery representations.

It has been alleged that questions about compliance were deliberately misrepresented by executives to ensure the bond's issuance. US-based investors purchased about 25% of the bond. According to the indictment, a Federal Bureau of Investigation (FBI) probe into bribery and fraud allegations revealed the involvement of key executives, including Gautam Adani, Sagar Adani and Vineet Jaain. 

The indictment claimed that electronic evidence and a subpoena served on Sagar Adani confirmed that they had knowledge of the ongoing investigation. Despite this, Adani executives falsely denied any wrongdoing in public statements, reports and communications with financial institutions, the indictment states.

It is the US government’s contention that such misleading statements in annual reports, investor communications and public announcements caused stakeholders, including US investors, to unknowingly support a corrupt operation.

What is the way forward?

Since this is only an indictment, the matter will now proceed for a trial. The trial court and the jury will decide whether Gautam Adani and the other defendants are guilty of the violations alleged against them under FCPA. 

The FCPA prohibits US companies and their officers, directors, employees and agents from bribing foreign government officials to obtain or retain business. This prohibition extends to any business transaction conducted worldwide, regardless of the company's location.

The FCPA's scope is broad and includes a wide range of individuals and entities. This includes not only employees and officers of US companies, but also third-party agents such as consultants, distributors, joint-venture partners and others.

The Act provides for separate civil and criminal penalties for individuals and for corporates. The criminal penalty for individuals includes imprisonment of up to five years and a $100,000 fine per offence. For corporates, the penalties can extend till $2 million per violation. 

The civil penalties can run into millions, in addition to disgorgement of the alleged ill-gotten proceeds. 

The Adani Group has dismissed these charges as ‘baseless’ and stated that it will seek all legal recourse possible to ensure a fair trial.