An internal investigation ordered by Pernod Ricard concluded that top executives at its India business violated the law by colluding with alcohol retailers in New Delhi, according to a document seen by Reuters, even as the French giant's representatives denied wrongdoing in court and publicly. India's financial crimes agency, the Enforcement Directorate, in Jan. 2023 accused Pernod Ricard India (PRI) of engaging in money laundering by unlawfully facilitating $24 million in corporate guarantees to help some retailers fund their license bids in exchange for stocking more Pernod brands. PRI lobbied New Delhi officials in favour of a 2021 law that allowed private retailers to run liquor shops, Reuters previously reported, in a major departure from the earlier system of the government operating such stores.

A May 2023 draft report produced by Indian law firm Shardul Amarchand Mangaldas, which PRI hired to conduct an internal probe, said three executives - including the then-chief operating officer of Pernod's Indian operations, Rajesh Mishra - "have acted in violation of DEP", referring to the Delhi Excise Policy, which prohibited manufacturers from investing in retail.

"There are conversations indicating that CG (corporate guarantee) was a means to have control over market share through retail control," said the report, which was based on a review of internal Pernod communications and WhatsApp messages.

"Their conduct is also suggestive of a larger conspiracy between (the employees) and other industry players," it said, adding it could "have implications" for Pernod in legal proceedings.

The 66-page document also stated that Mishra made a "factually inaccurate" statement to Indian federal agents during questioning. A person with direct knowledge of the matter said the conclusions in the draft were identical to those in the final report sent to Pernod's Paris headquarters a few weeks after the draft was written.

Shardul Amarchand Mangaldas did not respond to a request for comment.

PRI said in response to detailed Reuters' questions that it denies "any wrongdoing by PRI or any of its executives in relation to the allegations raised by you in your email."

"We have always collaborated with the respective authorities and have faith in the judicial process," PRI added, without answering questions concerning the steps the company took after the law firm submitted its report.

A Pernod spokesperson in Paris did not respond to questions. The Enforcement Directorate and Mishra did not return requests for comment.

While the 2021 law has since been reversed, and stores are again government-run, the enforcement action remains the biggest regulatory overhang in India for Pernod. India is the largest market by volume sales for the producer of Absolut Vodka and Beefeater Gin, according to Euromonitor. Due to the probe, PRI brands have been banned from sale in New Delhi, a key tastemaker market in India. The company is appealing the restrictions.

The report recommended that Mishra be sacked or asked to resign. It said he was "instrumental in the initiating and approval of the proposal for financial assistance to retailers" though it advised against "acrimonious cessation" of employment amid court proceedings. Mishra is now a top Pernod executive in Malaysia.

India's Prevention of Money Laundering Act stipulates penalties of a fine and between three and seven years imprisonment for defendants found guilty.

In response to the regulatory action, PRI's auditor, KPMG India affiliate BSR & Co, asked its client to estimate the impact on its business, according to an Aug. 2023 letter seen by Reuters. The firm replied its civil liability was an estimated $67 million.

PRI reported $189 million in profits for its latest financial year on revenue of $3.2 billion.

KPMG did not return a request for comment.

EARLIER DENIALS, INDIA CHALLENGES

PRI told Reuters in January and February 2023 that it "strongly" denies the Enforcement Directorate allegations, calling them "factually incorrect." As recently as Sept. 4, lawyers for Benoy Babu, a PRI executive named in Shardul Amarchand Mangaldas's report, asked the Delhi High Court to quash the case against him. They said allegations against Babu, who was briefly jailed pending trial last year, were "false and baseless", and authorities were relying on "hearsay evidence".

The court has yet to rule on Babu's non-public filing, which was seen by Reuters. He didn't respond to questions from the news agency.

India is a key market for Pernod. In 2023, it had a 16% share in the country's spirits market as measured by sales volume, according to Euromonitor. But challenges abound: Pernod is contesting a $250 million federal tax demand for allegedly undervaluing imports and is facing two antitrust cases, one related to its alleged collusion with retailers in New Delhi.

The loosening of liquor store ownership policies in 2021 was potentially transformative for Pernod, with one internal PRI presentation submitted by authorities to the court stating the company wanted to "take control of retail shops" in New Delhi.

PRI exploited the policy change by offering corporate guarantees to select retailers to help them obtain loans for store licenses, the Enforcement Directorate said.

The agency said that this constituted an indirect investment in liquor retailers.

Mishra wrote in an email to then-Pernod Asia chief executive Philippe Guettat on July 6, 2021 that he was hopeful Pernod's close trade associates would aggressively bid for licenses and "we would like to provide financial support to 4 of them ... Our support (~23M€)" in form of corporate guarantees.

Guettat, now a senior Pernod executive in France, responded to that he was "aligned and supportive of the recommendation" if due diligence was conducted. Guettat did not respond to Reuters' queries. Excerpts from their emails were included in the report. The Enforcement Directorate also interviewed executives including Mishra, who told law enforcement agents that he was not in possession of a draft of Delhi's liquor policy before it was released in 2021, according to the law firm's report.

But Shardul Amarchand Mangaldas found this "factually inaccurate" because Mishra was in possession of non-public government documents and "further circulated the same within Pernod India."

"Possession of the documents as stated is suggestive of a larger conspiracy ... to have a favourable policy formulated in conspiracy with public officials or their intermediaries."