Arun Kumar
Unfortunately, politics, law and economics are likely to converge to ensure that the brunt of the Adani bribery case befalls the Indian economy and consumers. To avoid that, public consciousness about corruption and cronyism needs to be raised.
Charges of manipulation by Gautam Adani refuse to die down. After the two Hindenburg reports of manipulations, now the various agencies of the US government have levelled charges of corruption, lying to investors, obstruction of justice by deletion of material evidence, etc. against his companies.
These agencies have collected evidence for each of these charges over a year and a half and presented it before a grand jury which then issued the indictment. The district court for the Eastern District of New York’s indictment, running over 54 pages, mentions electronic evidence of the meetings amongst the various actors, of bribe payments, of actions to initiate enquiry to divert attention, manipulation of data presented to investors and deletion of incriminating data. It has sent the case for prosecution in a court.
On November 20, 2024, the Securities and Exchange Commission also charged Gautam Adani and others “for conduct arising out of a massive bribery scheme”. The bribes were offered to “Indian government officials to secure their commitment to purchase energy at above-market rates”.
Eight people connected with the Adani group are named in the case, with Gautam Adani’s name as the first one.
During September 2021, there was a “note offering by Adani Green that raised US $750 million, including approximately US $175 million from US investors”. The note “included statements about its anti-corruption and anti-bribery efforts that were materially false or misleading”. A Securities and Exchange Commission (SEC) complaint has also been filed in the same US district court so it is not discussed separately here.
Indictment
Eight people connected with the Adani group are named in the case, with Gautam Adani’s name as the first one. There is a five-count criminal indictment. At every step, according to the evidence collected, Gautam Adani was the central figure and it was under his orders and guidance that the others acted. Date-wise evidence is presented of his meetings with the other accused. It shows that he knew of the entire goings-on. Evidence is presented of his meetings with government officials to influence them and of others named being kept in the loop about the meetings.
However, Gautam Adani is not accused of deleting evidence of emails or of directly lying to the investors by concealing evidence of bribe giving. As such, his name may not appear in all the charges. But he caused it all to happen. So he is complicit, according to the indictment.
It is always possible that he may escape the more stringent charges under the Foreign Corrupt Practices Act (FCPA) since his legal team will make a case that he is not a US citizen who bribed Indian officials to get business. However, he will not be able to escape the charge that entities under his control operating in the US markets indulged in fraud and financing of the bribes that helped his group obtain business in India.
The grand jury charges against the eight are structured under four broad heads:
First, the FCPA. Second, the criminal schemes consisting of a) the bribery and obstruction schemes and b) The securities fraud and wire fraud schemes. Third, the conspiracy to violate the FCPA and obstruct justice. Fourth, a) the fraud scheme pertaining to the 2021 fraudulent financial Transactions, b) the 2023–24 fraudulent transactions, c) the false statements in the Indian energy company annual reports, d) the false statements relating to the United State government’s investigation and finally, f) Gautam S. Adani and Sagar R. Adani nexus regarding the United States government’s investigations.
Gautam Adani is not accused of deleting evidence of emails or of directly lying to the investors by concealing evidence of bribe giving.
Based on the evidence presented in these sections, the charges in the five counts are:
- Conspiracy to violate the FCPA
- Securities fraud conspiracy
- Wire fraud conspiracy
- Securities fraud— the 2021 114A bonds
- Conspiracy to obstruct justice
Why bribery?
Why did the Adanis get into this mess of bribery?
India has been driving to produce renewable energy to reduce its carbon footprint. Solar Energy Corporation of India (SECI), a Union ministry of new and renewable energy (MNRE) company, was tasked with providing solar energy to the power grid. The SECI was to procure solar energy from producers and supply it to the state’s electricity distribution companies (DISCOMS).
Adani decided to produce solar energy in a big way and set up Adani Green Energy (AGEL) for this purpose. Azure Power India, earlier incorporated in Mauritius in 2015, is another solar power producer that is now headquartered in Delhi. Its shares were traded on the New York Stock Exchange (NYSE) till 2022. Between 2019 and 2020, these two companies secured letters of award from the SECI for the supply of solar electricity at a fixed rate.
The price set out in the letters of award was high and the SECI could not find DISCOMS ready to buy at this price. So the Adani’s got into the act to get the decision makers to force their DISCOMS to agree to enter into a power sale agreement with the SECI at a high price.
In turn, this enabled the SECI to enter into a power purchase agreement (PPA) with Adani Green Energy and Azure Power India at the high agreed price. This ensured a high profit and for this consideration was given to the policy makers. The bribe payment was shared between Adani and Azure Power India.
The state governments now claim that their DISCOMS have signed an agreement with the SECI and they have nothing to do with Adani or any bribe that may have been paid.
Adanis got into the act to get decision makers to force their DISCOMS to agree to enter into a power sale agreement with the SECI at a high price.
Under normal circumstances, it is difficult to prove that a bribe is paid since no record of a bribe is kept. But in the present case, digital records were meticulously kept in electronic devices and these have been seized by the Federal Bureau of Investigation (FBI). Only some records were deleted and evidence of that was also found so a charge of obstruction of justice and fraud has been levelled in the court.
Implications for public
The detailed evidence presented in the indictment presents a picture of how cronyism works in India— politicians grant favours for consideration. It needs to be kept in mind that the bribe is personal to the politician and not to the State. So, the bribe is not reflected in the State’s revenue budget.
Out of the ₹2,029 crore of bribes paid to officials of state governments, the largest amount of ₹1,750 crore is listed against the then ‘Foreign official #1’ of Andhra Pradesh.
The bribes, enabling high-priced power to be sold, lead to losses for the states and the public. The price of power sold in the states rises and so does the subsidy bill of the States which supply cheap power to some industries, to agriculture and to the poor.
As the subsidy Bill rises, so does the deficit in the budget (ceteris paribus) and invariably that leads to cuts in social sector allocations. So, the gain in subsidy gain is undone by other welfare cuts. The average Indian citizen has to pay more. Further, since energy is an important input into all production, it propels inflation and reduces business’s global competitiveness.
Cronyism undermines competition in the market. Businessmen can profit by getting favours. Its spread has become a way of business functioning in India and even abroad. It reduces the risk-taking capacity of businesses while raising the risk for those who are unable to get political favours. This spoils the investment climate in India which sets back investment and impedes growth.
Indian agencies inaction
Indian agencies need to take note of charges of bribery and corruption in India, even if they are detected abroad. The Securities and Exchange Board of India (SEBI) should take note since an Indian company is caught lying and is being investigated abroad. This information should have been given to the SEBI.
Further, the Central Bureau of Investigation (CBI) should have looked into charges of bribery in India. These agencies could have obtained the evidence already gathered and presented to the US grand jury which has issued the indictment.
Reports had appeared in the press about the ongoing investigations against Adani in the USA. Why did the Indian agencies not take note? Because of Adani’s powerful political links. In contrast, even in cases of minor infringements, the agencies start prosecution if opposition leaders are involved.
The cases against the Aam Aadmi Party’s top leaders (released one by one) in the excise duty case and the case against the Jharkhand Mukti Morcha chief point to undue harassment.
Investigative agencies have been characterised as caged parrots by the Supreme Court.
The Hindenburg second report, released in July, accuses Indian agencies of not investigating Adani while the SEBI issued notices to Hindenburg on flimsy grounds.
Despite the report giving whistleblower evidence of wrongdoing by Adanis, the SEBI is not investigating the case seriously. That is why Hindenburg has accused SEBI chairperson, Madhabi Puri Buch, of conflict of interest. All this indicates a lack of seriousness on the part of the government and its agencies in investigating the Adanis because of their political clout in India.
Investigative agencies have been characterised as caged parrots by the Supreme Court. The implication is that they look for political signals before taking up a case or starting prosecution.
Further, even if they do take up this case, they will do so to exonerate the Adanis. The Adani case in the Supreme Court was dealt with in a perfunctory way to exonerate them. So, can more be expected from the judiciary now?
Perceptions abroad
There will also be implications abroad. Adani companies have been downgraded by credit rating agencies, Moody’s and Fitch. This will make it more difficult for Adanis to raise capital abroad. They can raise funds in India but the cost will be higher since interest rates abroad are lower than in India.
An Indian bank consortium has announced that it is reviewing the Adani loan portfolio. This is likely to be a cosmetic exercise and nothing may come out of it given the clout of Adani. This will enable them to cover their backs with the excuse that they took note of the serious charges.
Adanis are in the infrastructure sector which requires heavy borrowing— more than other sectors. So their profits depend on the cost of raising funds. Higher the interest costs, lower the profits. To cover the extra costs, the price charged to the consumers would have to be raised and this would be inflationary.
The state governments now claim that their DISCOMS have signed an agreement with the SECI and they have nothing to do with Adani or any bribe that may have been paid.
Further, Adani’s foreign partners are reacting. For example, Total Energies of France has announced a pause in further investments and projects in Bangladesh and Sri Lanka have been under review. Kenya has cancelled the potential project they were to allot to Adani. In Israel, workers at the Haifa port have raised their objections. The voices of those opposed to Adani’s project in Australia will gain strength.
Businesses all over the world practice influence peddling and indulge in illegalities of various kinds. So, the present case will be seen as a part of the way businesses function all over the world and more so in India. Foreign investors are aware of what goes on in India and it will strengthen their perception of Indian business being corrupt. This may slightly dent the global perception of the investment climate in India.
Steps that can be taken
What can the public do in the present situation where corruption stands exposed with concrete proof but neither the government nor the ruling party is taking action due to cronyism?
After all, it is the public that loses due to such corruption. It makes leadership unaccountable and weakens democracy with all its consequential fallout.
Will the opposition political parties take up the issue and mobilise the public? The recent actions of the opposition parties in the Parliament and outside it are an indicator that they will not pursue this issue in a major way. Perhaps most of them are indebted to the Adani group for contributions in various ways, including investments in their states.
There is a demand to set up a Joint Parliamentary Committee (JPC) to investigate the matter. But the experience of the previous JPCs has been that they are dominated by the ruling party so in their final reports they have done what the ruling party has desired. The only gain is that a lot of information becomes public.
The only alternative is a people’s commission to investigate and prepare a thorough report for public education. The active involvement of civil society groups will be required. However, it may not be able to get cooperation from Indian or US agencies.
Foreign investors are aware of what goes on in India and it will strengthen their perception of Indian business being corrupt.
But as the trial starts in the US, more information will become available since the indictment seems to contain select information required to get the indictment. But what happens if the Adanis go for a plea bargain (as often happens in the US) and the trial is dropped? There is a strong likelihood of this and the surprising thing is that it has not happened already.
Conclusion
There is rampant cronyism in India but, usually, it is hard to get prosecutable evidence of bribery or quid pro quo. In the present case, proof of corruption has become available since the electronic devices containing proof were seized by the US authorities. Yet, it is unclear whether prosecution will occur in the US, where plea bargaining is possible, which allows charges to be dropped in lieu of payment of a fine.
It is also clear that Indian authorities have not been pro-actively pursuing the case against Adanis, in spite of reports appearing for more than a year and a half. The investigative agencies have also remained inactive, waiting for the political signals which will not come because of cronyism.
No wonder, Gautam Adani has not only confidently denied the charges but claimed that this is an attack on him and that he will emerge stronger. Such cronyism spoils the investment climate in the country since it increases the risk for the non-crony.
No wonder a large number of high-net-worth individuals are turning into non-resident Indians. The public loses due to cronyism, which leads to fiscal problems, poor quality of public services and higher inflation.
Public consciousness about the case, corruption and cronyism needs to be raised. That is the only way to pressurise the government to act.
Given the size of the Adani group, the case has global and national implications. Unfortunately, even the opposition political parties may not actively pursue the case, given their self-interests. The public also seems to have become immune to corruption since it seems to be all-pervading. So, public consciousness about the case, corruption and cronyism needs to be raised. That is the only way to pressurise the government to act.
Clearly, the case shows how even well-meaning policies (such as the generation of renewable energy) may be hijacked by the powerful and work against the public and national interest.
Arun Kumar is a retired professor of JNU. He authored Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead (2020).
This article was first published in The Leaflet as What are the likely implications of the US Adani bribery case? on December 6, 2024.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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Acknowledgment: This article was posted by Meenu Mohan, a research intern at IMPRI.
