NEW DELHI, Nov 16 (Reuters) - Indian authorities are
investigating claims that Wal-Mart Stores Inc. violated
foreign exchange rules when it invested $100 million in a
domestic unit owned by its wholesale joint-venture partner, a
law enforcement official said.
An Indian lawmaker first raised the allegations in a letter
to the prime minister in early September, and the complaint was
subsequently passed from one government department to another
without action being taken.
Wal-Mart, the world's largest retailer, has denied any
wrongdoing. The allegations relate to the company's complex
investment through debentures -- which could later be converted
to an equity stake -- at a time when direct ownership by foreign
firms was prohibited.
"Yes, the Enforcement Directorate has initiated an
investigation into the allegations against Wal-Mart," a senior
official, who declined to be named, told Reuters on Friday.
The Enforcement Directorate, an elite agency that falls
under the finance ministry, investigates financial crimes.
"The probe is at an early stage and therefore (it is)
difficult to say what the outcome will be," the official said.
News of the investigation comes at a bad time for the
Congress Party-led minority government, which is preparing to do
battle with opponents in parliament next week over its decision
to allow foreign companies into India's retail sector. The
furore could derail parliamentary proceedings.
Parties opposed to the new retail policy, which include some
government allies, may use the investigation to fan suspicion
among supporters against foreign retailers including Wal-Mart
whose entry is seen threatening the livelihoods of local
mom-and-pop store owners.
Arkansas-based Wal-Mart has repeatedly denied the
"The central government has sought certain information and
clarification, which has been provided by us. We are not in a
position to offer further comments as the matter is before the
courts," a Wal-Mart spokesman said on Friday.
India liberalised its retail sector in mid-September to
allow global superstores to buy stakes in Indian companies - one
of a number of big-ticket reforms passed in September by Prime
Minister Manmohan Singh to revive a sluggish economy.
Previously, foreign retailers were only allowed to invest in
HEADACHE FOR WORLD'S LARGEST RETAILER
Wal-Mart was the most vocal advocate for the change and has
said it expects to open its first retail store within 18 months.
M.P. Achuthan, a member of the Communist Party of India that
opposes foreign direct investment in retail, accused Wal-Mart of
investing $100 million as early as early 2010 in a multibrand
In September, Achuthan raised the issue in parliament,
questioning Wal-Mart's role in Easyday stores, which are
controlled by Bharti Enterprises, its partner in a wholesale
India's commerce minister answered that Wal-Mart, via its
Mauritius arm, held debentures that are convertible into a 49
percent equity stake in Cedar Support Services, the company
previously known as Bharti Retail Holdings that holds Easyday.
The law enforcement official confirmed that the Enforcement
Directorate was looking at Cedar.
"The main part of this investigation will be whether they
(Wal-Mart) offered a credit line. They have not made an equity
investment directly, but even if they offered a credit line, you
cannot do that," said Harminder Sahani, managing director at
Wazir Advisors, a retail consultancy.
Wal-Mart's Indian partner, Bharti Enterprises, has also
denied the allegation.
"We are in complete compliance of all regulations. All
details have been shared with the relevant authorities," a
Bharti Enterprises spokesman said.
The news came a day after Wal-Mart reported disappointing
quarterly sales and as it announced internal inquiries or
investigations into bribery allegations in Brazil, China and
India - additions to its original probe in Mexico.
The Indian law enforcement official said the probe was being
carried out under the Foreign Exchange Management Act (FEMA),
which regulates domestic currency markets, including foreign
direct investments and capital transactions.
The official said the agency had asked for documents on
Wal-Mart's operations in India from the RBI and the Foreign
Investment Promotion Board (FIPB), which clears foreign
"The way company affairs work in India, very little is seen
as a criminal offense. So even if there are some violations,
companies are usually asked to pay a penalty and they are
allowed to carry on with their business," said
Sahani of Wazir Advisors.