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US regulator begins probe into Kraft takeover of Cadbury

By Jane Byrne , 02-Mar-2011

Kraft Foods is facing another potential grilling about its takeover of Cadbury in early 2010 with the US Securities and Exchange Commission (SEC) examining its actions in relation to India under the US Foreign Corrupt Practices Act (FCPA).

In its recent regulatory filings, the food giant disclosed that it had been hit with a subpoena on 1 February from the SEC for possible violations of foreign bribery law.

The US regulator is requesting information about a facility in India that Kraft acquired when it took over UK confectionery group Cadbury last year.

“The subpoena, issued in connection with an investigation under the FCPA, primarily relates to a Cadbury facility in India that we acquired in the Cadbury acquisition and primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility,” explained Kraft in the filing.

The Foreign Corrupt Practices Act prohibits the payment of bribes to foreign officials to keep or obtain businesses.

“A complaint and ethical corporate culture, which includes adhering to laws and industry regulations in the United States and abroad, is integral to our success,’ said the food group in the same document, which added that it is cooperating with the US government in relation to the investigation.

A comment from Kraft was not forthcoming in time for publication.

Kraft stressed, in the SEC filing, that any adverse publicity about regulatory or legal action against it could damage its reputation and brand image “even if the regulatory or legal action is unfounded or not material to our operations.”

It also pointed out that although it has implemented policies and procedures designed to ensure compliance with existing laws and regulations, “there can be no assurance that our employees, contractors or agents will not violate our policies and procedures.”

This latest probe into the confectionery acquisition comes after reports in January this year that the Indian Ministry of Finance was investigating Kraft for any tax evasion by it in relation to the takeover of Cadbury India after a public interest petition was filed in the High Court of Delhi.

But David Jervis, Eversheds global head of tax, speaking to ConfectioneryNews.com at the time said: “Given the publicity surrounding the Vodafone case it is unlikely that Kraft would not have sought advice on India tax rulings and whether withholding would apply in relation to Cadbury India subsidiary,” he said.

The lawsuit filed against Kraft follows similar disputes about tax liabilities in India and international takeovers. Last year, UK mobile phone company Vodafone was landed with a $2.5bn Indian tax bill, for its takeover of Hong Kong's Hutchison Whampoa, which included a large stake in Hutchison's Indian unit.

Analysts noted at the time of the controversial acquistion that one of Kraft’s principal motivating factors for the takeover of the UK confectioner was its strong growth in emerging markets, including India where it dominates the market.
The SEC filing from Kraft can be read here .

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