The Anatomy of a Bribery Scandal: Digging into the Cognizant Bribery Scheme (Part II of IV)

Michael Volkov
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The Cognizant bribery scheme is another in the line of illegal conspiracies orchestrated by senior management – but this one is even more disturbing for a number of reasons. 

Cognizant’s former president and general counsel directed the scheme in full consultation and with full knowledge and intent with the chief operating officer and the vice president of administration.  Add Cognizant to the list of companies (e.g. Panasonic Avionics) falling under prosecution for C-Suite misconduct.

Cognizant’s misconduct was not created nor engineered by the usual suspect – a risky, third-party.  In fact, the Cognizant executives had to pressure and convince the third-party to carry out the bribery scheme for Cognizant.

According to the indictment, Coburn (president) and Schwartz (general counsel) authorized the unlawful payment of approximately $2 million to a government official at the state of Tamil in India to secure a required planning permit that had been delayed.  The planning permit was needed for Cognizant to finish construction of its new campus facility for 17,000 employees in Chennai, India.

The third-party construction company ultimately agreed to pay the bribe and seek reimbursement from Cognizant by submitting invoices and change orders at the end of the project in accordance with a procedure set forth in the construction contract.  Under the financial authorizations policy, Coburn was required to approve any expenditure over $500,000.

Fourteen months after beginning construction, the third-party construction company submitted a request for a planning permit.  Eight months later, the local development authority conditionally approved the application and sent the application to a local agency for review.  By January 2014, the agency had not issued the permit. 

In April 2014, in two separate video conference calls, Coburn, Schwartz, the COO and the VP of Administration discussed and ultimately agreed to pay a $2 million bribe to the foreign government official who demanded a $2 million bribe in order to approve the permit application.  The four officers agreed that the third-party construction company would pay the bribe and Cognizant would reimburse the construction company through false and inflated invoice payments at the end of the contract.  The general counsel advised the participants that any reimbursement amount (or change order fee) should not stand out in the invoice.

To pressure the third-party construction company to pay the bribe and agree to the scheme, the president ordered the chief operating officer to withhold all payments to the construction company under the contract until it obtained the planning permit.  The third-party construction company agreed to do so, and hired a consultant to pay the $2 million bribe.

As the matter progressed, the president sought an update on the status of the planning permit.  He specifically advised the other co-conspirators not to discuss the matter in emails.

In June 2014, Cognizant received the government order, and in November 2014, Cognizant received the actual planning permit. 

Starting in late 2014, Cognizant began to reimburse the construction company for the bribery payment as part of an overall reimbursement for change orders during the construction process.  The construction company submitted a total request for $25 million based on 45 separate claims.

The list included a $3.7 million claim for “approvals/campus regularization,” which included $2.5 million for “statutory approvals – planning permit.”  To disguise the reimbursement, the chief operating officer directed an employee to create a fake list that replaced the $3.7 million claims with eleven separate previously-rejected claims that totaled approximately $3.7 million.  The president and general counsel were aware of this plan to create a fake list to disguise the bribery payment.  The president eventually approved various change order requests including the fake claims.

While not specifically mentioned in the criminal indictment, the SEC settlement specifically notes that in 2013 and 2014, Cognizant’s Indian subsidiary authorized the same third-party construction company to pay a bribe of approximately $770k to a government official for an environmental clearance for a project in Pune, India.  Further, in 2015, the same Indian subsidiary retroactively authorized and reimbursed the third-party contractor for approximately $870k in bribes for construction-related permits in Siruseri, India.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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