Not many in India might have actually seen the field gun from Bofors AB,
either standing sentinel on the borders or in operation. The guns played a
key role in the skirmishes at Kargil in 1999. The same anonymity does not
hold good for Xerox, which has now entered the dictionary as a verb in its
own right for photocopying documents.
Since its name has become synonymous with the allegations of kickbacks, few
companies would like to be compared with Bofors. But since the deal was a
big commercial success for arms dealers, some companies would, perhaps, be
tempted to employ the same tactics as the Bofors middlemen.
The Swedish firm Bofors AB allegedly paid Rs.640 million ($13 million) in
bribes to middlemen to get the contracts for the deal signed in 1986. Nearly
a decade later, Enron India spent US$ 20 million in "educating" Indian
bureaucrats about the role of private companies in power generation, an
euphemism for bribes. Two telecom companies, Essar and Swisscom, were
alleged to have paid a former minister, Sukh Ram, a hefty amount during
early 1996 to help change the original license conditions, which it had
signed with the Department of Telecommunications. There was no case against Sukh Ram, simply because this deal was never investigated.
Significantly, none of the allegations made above have yet been proven in a
court of law.
Xerox India was treading on familiar path, something which its US
headquarters got to know later. According to the parent company's own
admission, which emerged during its audit, it paid over $600,000 as bribes
to various government employees to win contracts. In essence, the modus
operandi was just a 'photocopy' of the way some other companies operate.
Under the Foreign Corrupt Practices Act (FCPA), it is a serious criminal
offence for a US company to pay bribes in a foreign country to obtain
contracts. Being managed by the BK Modi group, one of Indias oldest family run business empires, at the time when the bribes were paid, it is now like
a sword hanging at the neck of Xerox. The BK Modi group has denied having
paid any bribes. Xerox Modicorp Limited (as the company is now called) completes 19 years in India this September. It changed its name from Modi Xerox Limited to Xerox Modicorp Limited in 2000.
The Indian government was quick to order an inquiry. A promise that
accompanied the order was that the inquiry would be completed in two weeks. Over a month later, the two weeks are not yet over. Now, the
million-dollar question - for a company that calls itself 'The Document
Company' - is there enough documentary evidence to prosecute the company?
The Department of Company Affairs (DCA), the arm of the government that
wields the stick to ensure that companies meet their stated objectives and
do not dupe the shareholders, is looking into the details. Xerox was not
duping shareholders, much the same way as the military hardware company AB
Bofors. Both were, in fact, trying to reward their shareholders by giving
the extra edge to their sales team by "taking care" of those taking a final
decision on the purchase of their products. DCA is still not sure whether
the bribes were actually paid or if the amount was pocketed by Modi or his
There is a stark difference between the two cases, though. Bofors is a
European company, Xerox an American. Their products are proverbially as
different as chalk and cheese - one sold military hardware, the other office
automation products. While the Bofors payoffs involved the government
official right at the top in the government, the Xerox payoffs appear to
have been made to the operations level people in government. Besides, the
nature of arms deals is such that the best deal has to be sewn in one shot.
Office automation products are regularly purchased by companies and
governments. So, if a few people can be identified, their palms can be
greased regularly to put the product. The agents who helped Bofors are still
trying to block investigations and any information into their money
laundering. The amount involved in the Xerox case is far smaller.
Xerox, however, does deserve a pat on the back for having the courage to
admit the payoffs in public.
There are some parallels between the two companies. Bofors money found its
way to exotic places that you would find difficult to locate on the world
map - Luxembourg, Bahamas, Liechtenstein, Channel Islands. The Xerox India
payoffs did not have such exotic addresses. Two of the companies to which
payments were made had slum areas of Delhi as their addresses while two
others were located in the western Indian state of Gujarat.
While the Bofors deal had strong political linkages, there is talk of the
involvement of a Samajwadi Party politician, who has interests in the paper
business, in the Xerox case. That allegation is yet to be probed, though.
AE Services, Svenska, Lotus, Tulip and Mont Blanc are some of the names of
bank accounts that are associated with the alleged Bofors payoffs. The money
has gone into a variety of accounts before disappearing various pockets.
Officials of the Central Bureau of Investigation (CBI), India's premier
investigating agency, suspect that these people include the late Win Chadha,
an Italian called Ottavio Quattrochchi and the Hinduja brothers. If the
Xerox India deal had been bigger, with international ramifications, it would
not have chosen names like Charu Paper Ltd., Chadha Paper Ltd., Pioneer
Enterprises and Elite Commercial Services.
At the time when these bribes were paid, the company was controlled by the
BK Modi group, which owned majority shares in the joint venture. When Xerox
acquired control of the company (it now owns 68 per cent while BK Modi
controls 28 per cent in the joint venture) in 2000, it ordered an inspection
of the books by the audit firm PriceWaterhouseCoopers, which raised
disturbing questions. The audit firm said that it was not sure the
organizations existed and, if they did, who owns or controls them. BK Modi Group has interests in telecom, entertainment and manufacturing.
Xerox has over 50 per cent market share in photocopiers in India. 1998 was a landmark year for the photocopier industry. Of the estimated 40,000 machines sold that year, an estimated 27,000 were Xerox machines. However, that was an aberration and nearly 30,000 machines are sold in the market each year at present. Nearly 60 per cent of the sales are made to government organisations.
Incidentally, the bribes are alleged to have been paid in 1998 and 1999. In 1998, the 15-year tie-up between Modis and Xerox ended. Xerox had entered India after a tie up with the BK Modi Group and Modi Xerox Limited was incorporated in 1983.
The Joint Parliamentary Committee (JPC), which had looked into the Bofors
deal before CBI started its investigations of bribery charges, had similarly
not given a clean chit to the Rajiv Gandhi government. The government
survived the day but since then, the Congress party has never won a majority
in the Indian Parliament. Bofors has also entered India's political lexicon
as a synonym for bribery.
DCA officials are tight-lipped about the direction in which their Xerox
investigation is meandering. These are just four names that have tumbled out
of the closet. Reports suggest that it is a web of 85 companies through
which payments have been made. The challenge before DCA is to verify whether
payments were made to individuals in the government or did some officials of
Modi Xerox (as the company was then called) pocket the money.
While it is still to be established where the money actually went, DCA
officials admit in private that siphoning money out of the company is a
routine affair. Just like every official worth his salt in the CBI knows
that big arms deals do have an element of an underhand deal.
Since payoffs are now a part of business, this is where the interest of the
average person comes in. Hapless investors have seen scores of cases where
the companies get sick and promoters healthier by the day.
For all the arms deal that have happened in India, whose defence spending is
over US$ 14 billion every year, only one case has been brought to light.
None have been prosecuted. Of nearly 7,000 publicly listed companies in
India, a little over 2,000 actively trade on the Bombay Stock Exchange. The
rest are companies which have turned sick, while some of their promoters get