Indonesia anti-graft agency snares its first minister

Indonesia’s first minister to be named a suspect in a bribery scandal resigned on Friday, becoming the highest profile victim of an increasingly aggressive push by the country’s anti-graft body to take on rampant institutional corruption. Youth and Sports Minister Andi Alfian Mallarangeng, a former close aide to the president and a senior member of the Democrat Party, is the first minister to be named a corruption suspect.

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The Walmart Story – Exposing lacunae in retail policies

In my last article, Read: Flipkart being investigated for FDI Violation I covered the way Flipkart could be flouting the FDI norms. This piece of information would be helpful in the wake of Foreign Direct Investment policy in organised retail sector that has been inconsistent as far as online retail is concerned.

FDI Policy in favour of E-tailers
The current FDI Policy, allows e-commerce companies to exploit the loopholes by setting up two closely related companies. This allows them to use foreign funds meant for B2B companies for B2C operations.
For instance, Company A and Company B are launched simultaneously with different set of founders, who are not directly coupled. Foreign investors buy equity stake in Company A, which owns the technology, brand and intellectual property of Company B. Thus, foreign investors are able to invest in Company B through Company A.
“Such loopholes need to be closed so that foreign funds allowed in B2B (where 100% FDI is allowed) are not diverted to the B2C operations (where FDI is not permitted).

Government Announcement

The Reserve Bank of India has informed that matters related to Bharti Wal-Mart/Cedar Support Services Ltd and M/s Flipkart Online Services Pvt. Ltd, respectively, have been referred to the Directorate of Enforcement for further investigation,” the government said in a statement.

This Cedar investment is now the focus of an investigation by India’s financial crimes watchdog into whether Wal-Mart broke foreign direct investment rules by putting money into a retailer before the government threw open the sector to global players.

History of Cedar Investments

In December 2009, Bharti Retail Holdings changed its business description to consulting services from retail, the documents filed with India’s Registrar show. A month later, the company changed its name to Cedar.

There is a web of companies set up under the Bharti umbrella, which runs India’s largest telecom operator, Bharti Airtel. The group, which also has retail interests, signed a joint venture with Wal-Mart to run wholesale stores in 2007, shortly after India allowed full foreign ownership of wholesale retail operations.

That same year, the Bharti group formed Bharti Retail Holdings Ltd, which in turn owned a subsidiary called Bharti Retail Ltd which operated supermarkets and hypermarkets.

Further Developments

On 12.12.12 the Banking regulator – Reserve Bank of India, clarified its stand stating that, the form FC-GPR filed for issuance of the Compulsorily Convertible Debentures (CCD) has not been taken on record by the RBI to ensure that the CCD are FDI compliant instruments and for the purpose certain information has been called for from the company.

Department of Industrial Policy & Promotion (DIPP) clarified that there was no time frame set for Enforcement Directorate (ED) probe on Walmart investment in cedar support services.


Share broker’s employee charged in US with $1 bn Apple scheme

David Miller, a trader for Rochdale Securities orchestrated the unauthorized purchase of approximately $1 billion of Apple stock in a fraudulent get-rich-quick scheme that backfired. Miller cooked up a quick way to make money by purchasing 1.625 million Apple shares Apple with the brokerage’s money on October 25 this year, the same day that the iPad and iPhone maker was due to release their quarterly earnings, expecting stocks to rise. However, the purchase backfired, as Apple stocks fell, leaving Rochdale Securities with a serious problem.

Flipkart being investigated for FDI Violations

FCPA investigations by Walmart was a major news for most of the media companies and also for the opposition party of India. Walmart being the first of the fortune five hundred companies gained all the media attenstion. However, there was another important development in the retail space related to FCPA. This was ignored by many of the media-pundits.

Indian government started its probe in the venture capital-backed Flipkart Online Services Pvt Ltd for possible violations of FDI norms. These regulations are covered by the penal provision of the Foreign Exchange Management Act, 1999. Flipkart is under the scanner for allegedly flouting FDI rules which allow e-commerce companies with foreign investment to carry out only B2B transactions not B2C.

Who are the investors ?

Flipkart is backed by Naspers, Tiger Global, Accel Partners and Iconiq Capital and is a privately held retail firm which powers the country’s largest e-commerce platform,

How do the firms bi-pass laws ?

The front end e-commerce website is owned by locals, while the venture capital money flows into a firm which is essentially into wholesale cash and carry business. This separate firm then supplies to the front end retail site.

While foreign direct investment in multi-brand retailing was not allowed even for offline retailers, the government has recently announced plans to open up the sector with certain restrictions.

Large global retailers like Wal-Mart have also entered into similar corporate structures where they partner with local groups that own the front end while a joint venture involving the foreign partner runs the backend as a wholesale supplier. There were reports earlier that the government has been probing the existing structures used by the world’s largest retailer, Wal-Mart, in its Indian venture with Bharti Group.

KPMG & Deloitte in trouble over HP-Autonomy Deal

KPMG HP AutonomyA new shareholder lawsuit over Hewlett-Packard’s acquisition of British software firm Autonomy has named Big Four audit firms KPMG & Deloitte as defendants, alleging they missed numerous red flags about Autonomy’s accounting.

The lawsuit, filed on Tuesday in federal court in San Jose, California, also named HP’s board of directors, officers, and former executives, alleging breach of duty and negligence for their role in HP’s acquisition Autonomy.

HP has contacted the SEC’s enforcement division and the UK’s Serious Fraud Office.HP has requested that both agencies open criminal and civil investigations into this matter. In addition, HP intends to seek redress against various parties in the appropriate civil courts to recoup what we can for our shareholders”.

The company spent about $10.2 billion to acquire Autonomy, with the write-down putting the investment — or burden on shareholders, if you will — at $16 billion.

But who should be held accountable? During today’s conference call, Benjamin Reitzes, Barclays Capital analyst, asks: “Who are you holding accountable internally?”

“The CEO at the time and the head of strategy who led this deal are both gone, Léo and Shane Robison”, Whitman answers. “Most of the board was here and voted for this deal, and we feel terribly about that. What I will say is the board relied on audited financials, audited by Deloitte, not brand x accounting firm but Deloitte. And by the way, during our very extensive due diligence process, we hired KPMG to audit Deloitte, and neither of them saw what we now see after someone came forward to point us in the right direction