Mumbai: Sony Corp.’s entertainment unit investigated its Indian operations for possible legal violations including bidding fraud and kickbacks, according to internal e-mails released by hackers, highlighting challenges the company has faced in the country. Sony enlisted Ernst and Young to look into its businesses in the country and uncovered potential evidence of wrongdoing, according to the emails. In one case, investigators found that a joint venture between Sony and Discovery Communications Inc. may have engaged in fraudulent bids, kickbacks and excessive handouts to government officials, according to an October memo sent to the chief financial officer of Sony Pictures Entertainment. The messages didn’t mention whether the investigations had ended or what the results were. The probes, which haven’t been reported on before, put a spotlight on business practices at one of Sony’s key markets. The company generates more revenue from TV programming in India, with an audience twice the size of the US population, than in any other market, largely thanks to its rights to broadcast Indian Premier League (IPL) cricket. Venture status Representatives at Sony Pictures Entertainment in California and the parent company in Tokyo didn’t respond to requests for comment, including from officials mentioned in the e-mails. Representatives of Ernst and Young didn’t return calls. It’s unclear whether the venture between Sony’s Multi-Screen Media Pvt. Ltd and Discovery still exists. The general number listed on the venture’s website is no longer in use. Representatives at Sony didn’t respond to queries about a Business Standard report in November that MSM Discovery would be dissolved by 1 January. Sony gained 3.4% to 2,547 yen at of 10:30am in Tokyo trading. The stock rose amid expectations that the company’s earnings will improve next fiscal year, said Hideki Yasuda, an analyst at Ace Research Institute. Karuna Gulyani, an India-based spokeswoman at Discovery, declined to comment, as did officials at MSM’s Mumbai office. ‘Areas of concern’ In the e-mail from early October, sent by Cindy Salmen, senior vice-president and compliance counsel, Sony Pictures Entertainment’s financial compliance division outlined four “areas of concern” at the MSM Discovery Indian venture. The memo recommended further investigations be conducted, employees be re-trained and that some workers face disciplinary actions, including termination. As a distributor, MSM Discovery buys programming and sells it to broadcasters. In the competitive bid fraud allegations, a review of practices at MSM Discovery’s marketing group pointed to instances where losing vendors either didn’t exist or were tied to the winning vendor, and that some employees were aware of the practice, according to the one-page memo entitled “MSM Discovery Talking Points.” Alleged kickbacks In the probe into alleged kickbacks involving carriage fees, which are payments made by a broadcaster to a distributor, Ernst and Young said it received allegations that MSM and MSM Discovery were receiving kickbacks ranging from 10% to 15% of the fees, according to the memo. Additionally, some employees who were fired for carriage-fee kickbacks at another company were employed at MSM Discovery, according to the memo. A third investigation looked into potential gifts and entertainment of Indian government officials that exceeded MSM Discovery policy limits. The memo cited evidence of employees providing tickets to IPL cricket matches to public servants, as well as laptop bags that were requested as gifts for government officials during the Diwali festival. IPL tickets can cost as much as Rs.25,000 each, according to its website. Customs payments A fourth probe found communications that raised questions about certain payments to Indian customs by MSM Discovery’s marketing group, according to the memo, which didn’t provide further details on those allegations. In India, Sony’s entertainment business mainly consists of distributing Hollywood films and operating sports and entertainment channels such as AXN and Animax. Its assets include broadcast rights for IPL cricket, which American Appraisal estimates to be worth about $3.2 billion. Sony also sells consumer electronics, including its Bravia brand TVs, there. India is the largest market in Sony’s media networks division, accounting for 37% of the $1.6 billion the business generated worldwide last fiscal year, according to the company. Probe recommended E-mails show that in late September, Raymond Smith, Sony Pictures senior vice president for global investigative and forensic services, recommended that a full investigation of MSM Discovery be conducted for alleged policy violations. Smith wrote that he and Mike Ornelas, executive director for global investigative and forensic services, would travel to India for two weeks in mid-October to investigate allegations of carriage-fee kickbacks and competitive bid issues at MSM Discovery. In the e-mail, Smith wrote that it would take Ernst and Young four to six weeks to investigate the allegations at an estimated cost of $176,000. A separate probe was triggered after a person claiming to be an MSM employee sent an anonymous letter to Andrew Kaplan, president for worldwide networks at Sony Pictures Television, and Man Jit Singh, president for Sony Pictures Home Entertainment, alleging “large-scale corruption” at MSM. Alleged collusion The 6 October letter alleged that the head of MSM’s motion-pictures unit was colluding with an agent to raise the cost of movies that Sony bought to air on TV by as much as 35% in return for kickbacks. According to the letter, Sneha Rajani, a deputy president at MSM, was routing the company’s movie purchases through Manish Shah of Goldmines Telefilms, raising prices of the films. According to the letter, Rajani also instructed producers, who offered to sell their films to MSM, to direct their proposals to Shah. A representative at Goldmines declined to make Shah available for comment. Attempts to reach Rajani, who still lists MSM as her employer based on her Twitter feed and LinkedIn page, failed. Cyberattack e-mails The Sony e-mails were released as part of a cyber-attack on Sony’s entertainment unit last year that exposed Hollywood secrets, destroyed company data and caused the movie studio to initially cancel the release of a comedy about a fictional assassination of North Korea’s leader, Kim Jong Un. FBI said North Korea is behind the attack, which rendered thousands of computers inoperable and forced Sony Pictures to take its entire network offline. Sony wouldn’t be the only global company to deal with allegations of malfeasance in India, a country ranked 85th out of 175 in Transparency International’s Corruption Perception Index. In 2012, the US Securities and Exchange Commission said Oracle Corp. failed to prevent a subsidiary from secretly setting aside money off the company’s books that was used to make unauthorized payments to phony vendors in India, resulting in Oracle agreeing to pay a $2 million settlement without admitting or denying the allegations. India’s Central Bureau of Investigation said last year it began probing officials at Rolls-Royce Holdings Plc in connection with alleged bribery in the supply of spare parts for helicopter engines. Representatives at Rolls-Royce, which has said it’s cooperating with authorities, weren’t immediately available to comment on the status of that probe. Bloomberg
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