When an Ahmedabad-based developer began scouting for global investors in an industrial park, a Chinese conglomerate was interested. But first it needed to check out the Indian firm.
The information needed to be comprehensive–political connections, any pending investigations by local law enforcement agencies, instances of bribery or corruption and details about the how the land was acquired for the park.
Among the first ports of call was the Tokyo office of a US-based private investigation firm headed by a former US Federal Bureau of Investigation (FBI) agent. He in turn contacted a former operative at one of India’s intelligence agencies. He also called a friend who had previously worked at Israeli intelligence agency Mossad, and is now based in India, to run similar checks, so that he could corroborate the two accounts.
Given the increased scrutiny on overseas investments, the demand for such investigations has risen exponentially. That’s why more private investigation firms such as New York-headquartered Mintz Group and California-based Berkeley Research Group are setting up shop in India, joining well-established names like Pinkerton and Kroll. India has become a more attractive investment destination under the reform-oriented Narendra Modi government, which has also been trying to stamp out corruption and crony capitalism.
“The current government’s emphasis on business reforms and foreign direct investments has propelled foreign investors to accelerate their investments in India,” said Stuart Witchell, managing director, Asia Pacific, for global investigations at Berkeley Research Group (BRG). “We also believe the crackdown on corruption will eventually have a major impact on foreign companies’ operations here and they will need assistance to comply with both global and local governance norms.”
Keeping their nose clean is of vital importance, not just because of India’s campaign against corruption but also because authorities back home have become intolerant of bribery and other kinds of wrongdoing abroad.
The need to carry out such checks is twofold. Investors need to ensure their money is protected, but more importantly, they need to comply with stringent international anti-corruption laws that impose severe penalties on them for violations in any part of the world. Two US companies–Walmart and Mondelez–learnt this the hard way.
Both have been embroiled in bribery allegations under the US Foreign Corrupt Practices Act (USFCPA). They have had to contend with expensive and protracted litigation with the US Department of Justice and as per Bloomberg Walmart may pay a $300 million fine to settle cases involving the company in Mexico and China, apart from India.
Over the past two years, several Indian law enforcement agencies such as the Central Bureau of Investigation (CBI), Enforcement Directorate and Serious Fraud Investigation Office have been using the services of private investigation firms to probe financial crime as they intensify their scrutiny of offenders.
Regulators such as the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) have also sub-contracted sensitive investigations to third parties.
Though close to half a dozen international private investigation firms operate in India, in addition to the Big Four audit firms that also provide investigative services, new players are encouraged by unofficial estimates that anticipate demand for such services to double in the next two years, creating a potential fee pool of $200 million.
The new entrants are relying on more nuanced techniques, nimble-footed franchises and a modus operandi that relies heavily on connections within global official spy networks to differentiate themselves.
“The market is getting extremely fragmented. We’ll have to wait and watch to see if everyone can survive,” a partner at one of the Big Four firms said on condition of anonymity.