India investigating Philip Morris, Godfrey Phillips - source

Godfrey Phillips India

08/03/2019 11:39

* Philip Morris, Godfrey probed for alleged law
violations-source
    * Philip Morris paid Godfrey for manufacturing-documents
    * Philip Morris, Godfrey Phillips deny any wrongdoing

 (Updates to add company views, context)
    By Aditya Kalra
    NEW DELHI, March 8 (Reuters) - India's main financial
crime-fighting agency is investigating Philip Morris
International Inc  PM.N  and its Indian partner Godfrey Phillips
 GDFR.NS  for alleged violation of the country's laws, a senior
directorate source told Reuters on Thursday.
    The Enforcement Directorate has been looking into both the
companies and the scope of the investigation is much broader
than the alleged foreign investment law violations highlighted
in a Reuters story published on Wednesday, the source said.
 urn:newsml:reuters.com:*:nL3N20T2CL
    Philip Morris has for years paid manufacturing costs to
Godfrey Phillips to make its Marlboro cigarettes, circumventing
a nine-year-old government ban on foreign direct investment in
the industry, Reuters reported based on a review of dozens of
internal company documents, which were dated between May 2009
and January 2018. (https://reut.rs/2NIlHD8)
    Three former officials and one former head of the
Enforcement Directorate had reviewed the Philip Morris documents
for Reuters and said the dealings should be investigated for
circumventing India's foreign direct investment rules.
    On Friday, the Enforcement Directorate source declined to
comment on whether the ongoing investigation included Reuters
reporting findings, but said "this is already under
investigation."
    "Both companies are being looked into," said the source, who
declined to be named citing sensitivity of the investigation.
    The source declined to share further details of the probe.  
 
    A spokesman for the Enforcement Directorate did not respond
to an e-mail seeking comment. Philip Morris and Godfrey did not
immediately respond to requests for comment.
    Philip Morris has previously told Reuters its business
arrangements with Godfrey comply with India's foreign direct
investment rules. Godfrey has said all the commercial
arrangements "are in complete compliance with the extant
regulations governing" India's foreign direct investment and
other laws.
    Shares in Godfrey briefly pared gains on Friday following
the Reuters report about the investigation. They closed 2
percent higher. 
        
    MANUFACTURING CHARGES   
    India in 2010 prohibited foreign direct investment in
cigarette manufacturing, saying this would enhance efforts to
curb smoking.
    Ahead of the ban, Philip Morris formed a new wholesale
trading company with Godfrey. Since then, Godfrey has acted as a
contract manufacturer of Marlboro cigarettes in India, while
Philip Morris's local unit acts as a wholesale trading company
and promotes the brand.
    Dozens of internal company documents showed Philip Morris
has been indirectly paying costs related to Marlboro cigarette
manufacturing in India in a phased manner.  urn:newsml:reuters.com:*:nL3N20T2CL
    If the Enforcement Directorate finds a company in violation
of the rules, Indian law allows it to impose a penalty of up to
three times the amount contravened.

 (Reporting by Aditya Kalra
Editing by Martin Howell and Jane Merriman)
 ((aditya.kalra@thomsonreuters.com; +91-011-49548021; Reuters
Messaging: aditya.kalra.thomsonreuters.com@reuters.net (Twitter:
@adityakalra))