Amazon’s Bribery Exposed
October 21, 2021
Foreign retailers operating ecommerce marketplaces in India keep finding new methods to flout India's retail FDI laws. Amazon India has been engaged in artificially cheapening goods (predatory pricing and discounting) through arrangement with companies such as Cloudtail, owned by Infosys’s Shri Narayana Murthy and family. — Dr. Ashwani Mahajan
From the financial statements of Amazon, it is revealed that Amazon made an expenditure of rupees 8456 crores on legal and professional fees during the last two financial years 2018-19 and 2019-20. This was 20.3 per cent of the total receipts of the company, that is, Rs.4,2085 crores. The highest legal and professional fees, Rs 3417 crore, was paid by Amazon Seller Services Pvt Ltd, Bangalore,. Similarly, other companies have also shown in their financial documents that they also paid huge amounts of legal fees.
If a company pays such a huge amount of legal and professional fees, then it is obvious that under the guise of this, they have bribed the officials to get the decisions in their favor. Traders' organization ‘Confederation of All India Traders’ (CAIT) has directly alleged that Amazon has distributed bribes under the guise of legal fees. CAIT has written a letter to Commerce Minister Piyush Goyal saying that since this issue is related to the country's pride, there should be an immediate CBI inquiry into the matter and action should be taken against the company under the Anti-Corruption Act. The Amazon company has said that they take this matter very seriously and they have also started an internal investigation in this case.
Need to tighten the screws on e commerce companies
For a long time there has been a demand that the e-commerce companies, who are illegally doing e-commerce business in India under the guise of the platform, giving huge discounts on the basis of deep pockets, filled by foreign funds, that is, on the basis of 'cash burning model' and therefore capturing the markets unethically, be compelled to audit their financial documents and make them public. But these companies have been avoiding to make their financial documents public.
In the month of December, Department of Industry Policy and promotions (DIPP), under the Ministry of Commerce, issued Press Note 2, in which a provision was made, disallowing these companies to finance deep discounts themselves and maintain inventories. A condition was also imposed on them that they cannot make more than 25 percent of their total sales through any one vendor. Along with this, a provision had also been made in Press Note-2 of December 2018, Government of India, that these companies will obtain a certificate from the auditor regarding compliance of laws in their financial activities, and make it public by placing it on their website, by the month of September every year.
Press Note-2, which was the government's policy document, was to become a law only after being notified by the Reserve Bank of India. The Reserve Bank of India had notified all the other provisions except the provision related to the compliance certificate from the auditors by these companies. It was unfortunate. Later, when the Reserve Bank of India was apprised of the seriousness of the matter, it notified the provision in an amended form, that these companies would keep ready a compliance certificate from the auditor.
How are bribes given through legal fees?
The method of paying bribes by way of legal and professional fees is very old. The only difference is that, in today's time its magnitude has increased manifold. Amazon Company has been hiring many law firms and ‘professionals’. Amazon company pays huge legal fees to these law companies, and after that these companies transfer that fee to other companies or individuals; and after that a link is formed and finally the legal company, lawyer or any professional, last in the chain would withdraw the amount in cash and hand it over to the concerned official(s). This work is done so cleverly that company cannot be caught for outright bribery.
It has to be understood that this is a very serious matter, which puts a question mark on our bureaucracy and the entire official machinery. This also proves that licenses and permissions obtained by this company and other companies adopting such tactics, were obtained fraudulently or illegally, giving dam to the law of the land. In such a situation, there is a demand for the cancellation of all the licenses given to these companies and that all their activities should be declared illegal. The entire matter should be investigated by the CBI, and as and when, a trace is found about involvement of any government officer(s), they should be sent on leave and there should be a fair investigation into the whole matter.
Case of cloudtail
Foreign retailers operating ecommerce marketplaces in India keep finding new methods to flout India's retail FDI laws. Amazon India has been engaged in artificially cheapening goods (predatory pricing and discounting) through arrangement with companies such as Cloudtail, owned by Infosys’s Shri Narayana Murthy and family. As a result of such operations of Amazon, the businesses of offline retailers has been collapsing. It is noteworthy that after the initiation of proceedings against Amazon in this regard and public criticism, Shri Narayana Murthy chose to disassociate with Amazon.
According to company’s (Cloudtail) documents, it has received show cause notices from the Directorate General of Goods and Services Tax for an amount of Rs 5,455 lakh as well as interest and penalty for matters related to GST in the current year. That is, it can be assumed that Cloudtail Company has been involved in wrong actions not only morally but also legally while dealing with Amazon.
Recently the Department of Consumer Affairs, Government of India had proposed Consumer Protection (E-Commerce) Rules, 2020 under Section 94 of the Consumer Protection Act, 2019. The proposed rules are in the context of consumers’ protection from e-commerce giants, who themselves are supposedly, only Tech platforms; however, are actually driving full-blown E-Commerce. These E-Commerce companies are obviously highly critical to tightening the grip on them.
These proposed rules framed by the consumer affairs ministry propose to regulate flash sales with deep discounts and also proposes to make it mandatory for E-Commerce entities to register with DPIIT. The rules also propose that, in case of default by the sellers, E-Commerce entities would be held liable for the same.
Naturally these companies are opposing these proposed rules, but it is a matter of surprise and regret that many bureaucrats of the Government of India have also started opposing it. This disclosure has recently been made by the international news agency Reuters. In this context, the connection between possible bribery that has come to light recently, and favoritism of E-Commerce companies should also be investigated.