India's corporate espionage wake-up call

A fast developing espionage scandal in India has exposed a shocking nexus between corrupt government officials, middlemen and some of the most powerful local corporations. The organised racket of espionage shows how domestic companies owned by influential business families may have gained competitive advantage through illegal means.
The growing list of companies allegedly involved in the scandal now includes India’s top energy companies Reliance Industries, Essar Group, ADAG Reliance and Jubilant Energy, Cairn India - the oil exploration division of billionaire Anil Agarwal’s London-listed Vedanta Resources, infrastructure developer GMR Group and accounting and consulting giant PricewaterhouseCoopers and a bunch of local consulting firms.  At least twelve people have been arrested that include senior executives from the suspect companies. More arrests are expected, investigators have indicated.
Investigators have revealed chilling details of the modus operandi. Local consulting firms would pay bribes to government employees in various ministries to get commercially sensitive secret information about government decisions and proposals. The final recipients of the information were some of the largest domestic companies. The information could be used for lobbying, playing stock markets, gain competitive advantage and even defraud the government by manipulating bids for infrastructure projects.
Government employees involved had fake identity cards and duplicate keys to the offices of ministers and senior bureaucrats. They would re-enter the ministry premises after office hours, make copies of the documents and leave, all this while security cameras would be turned off. They will then pass on the documents to consultants, lobbyists and companies for money.
The investigations started in October last year after the new central government’s newly appointed national security advisor noticed frequent reporting of highly classified details of government meetings by media. He then asked the Research & Analysis Wing (RAW), India’s little known elite intelligence agency, to investigate. A highly secret investigation that involved taping phones of the suspects and monitoring their movements resulted in several arrests in February this year.
Investigators say they have more than 100 hours of taped phone conversations that indicate senior executives of some of the top energy companies in India were actively involved in the espionage. The CEO of Metis Business Solutions, a top energy consultancy in India with an office in Melbourne, is among those arrested. The company’s website, no more accessible, claimed more than 250 clients worldwide in the oil, gas, power and coal industries.
Examples of documents stolen include sensitive information about the national gas grid, national budget input, market sensitive data, confidential plans and minutes of high-level government meetings, government plans for foreign collaborations, planned projects with other countries, foreign investment proposals by multinational companies and disinvestment decisions relating to public sector companies.
Started with the petroleum ministry, the investigations have so far discovered stealing of commercially sensitive classified information from the ministries of finance, commerce, coal, power, defence.

Action promised

The federal government, headed by prime minister Narendra Modi who came to power last year with unprecedented majority by promising that he will fight corruption,  has promised a strict action saying that no guilty will be spared. Reacting to the arrests, Reliance Industries and the Essar Group have said that they have launched internal probes and have promised action.
Prosecutors are, however, going to face likely difficulty in effectively charging the culprits as India does not have a proper corporate espionage law. The Official Secrets Act, India’s anti-spying law dating back to 1923, can be applied only if “obtained or attempted to obtain information which is calculated to be or might be, or is intended to be, directly or indirectly, useful to an enemy.” Prosecutors are therefore charging those arrested under other laws covering “house trespass or house-breaking by night” and “forgery”.
“India Inc is not surprised with the corporate espionage scandal now rocking the petroleum ministry, with many chief executive officers (CEOs) saying documents are regularly leaked from the ministries, tax authorities, banks, and regulators – thus giving competitive advantage to corporates with deep pockets,” Business Standard, a leading local newspaper published from Mumbai, said in a report based on interviews with unnamed CEOs in February.
The government estimates that $1 trillion of investment would be needed to develop India’s infrastructure in the next five years, much of this will have to come from private investors, mostly from foreign investors. There are more than 600 mega infrastructure projects presenting huge business opportunity for local and multinational companies. Ports, oil & gas, telecom, power, railways and airports together account for 69% of the required investment, according to the Planning Commission, India’s central planning body.
The current scandal may unsettle foreign investors already frustrated with India’s antiquated laws, rampant corruption and spectacularly slow and inefficient bureaucracy. India ranks at number 85 in Transparency International’s Corruption Perception Index 2014, and is at number 142 on the World Bank’s Ease of Doing Business 2015 list.
Multinational companies eying investment opportunities often find themselves at a disadvantage compared with domestic companies when it comes to bribery. Multinational companies, particularly the ones from the UK and USA, are often bound by tough anti-bribery and corporate espionage laws at home. In India, they have to compete with large domestic companies helmed by influential families who may find bribery and espionage a fair game. The scandal has only reaffirmed their suspicion that India does not offer a fair level playing field.
It’s time to act tough by the government to win foreign investors’ confidence. For Indian companies, it’s time for introspection. Illegal means to gain competitive advantage may dent their reputation, increase regulatory risks and make them a target for international stakeholder action.

Contributed by Rajesh Chhabara, founder of CSRWorks International (www.csrworks.com)

(This article first appeared in Ethical Corporation, April 2015 issue)