Bloggers views on 2G Telecom Scam Story

The 2G Telecom Scam investigations are heating up. In the coming weeks decision will be taken by the special court judges on famous names in politics and business about their involvement in the fraud. The lifting of veil covering deceit, crime and corruption will end the current saga.

To get a baseline understanding of the scam read my last year’s post titled “Indian Telecom Licenses Scam.” To recapture the details, Comptroller Auditor General (CAG) had reported that the 2G spectrum sale was underpriced by Rs 1.76 lakh crore (USD 39.6 billion). A. Raja, ex-telecom minister, was primarily suspected of circumventing government regulations and procedures in favor of select companies. It was estimated that the telecom companies bribed Raja to get preferential allotment of 2G spectrum at low rates.

This week I thought as all of us follow the case closely let me brush up memories and share some potent details, which add to the controversial plot. While Raja and others are cooling their heels in Tihar jail, public is speculating whether CBI will add a few more names to the list.

The first post “Raja’s 2G Scam-How and for whom he did it?” is from Ramanan50’s Blog. Ramanan’s blog has a number of posts on the scam detailing the modus operandi, beneficiaries of bribes, the esteemed organizations and the political connections to DMK party and family. The post has excellent disclosures on behind the scene connections and dealings of A. Raja. The unfolding story shows that Raja’s penchant for corruption goes way back and it was just unfortunate (?) that he got caught this time.

The second post from Green World Investor blog discusses the involvement of ADAG, Essar and other telecom companies. Central Bureau of Investigation (CBI) has interrogated top honchos of telecom industry, namely Anil Ambani, Ratan Tata, Ruia to list a few. Anil Dirubhai Ambani’s Group (ADAG) companies have taken a beating in share market and questions are being raised on involvement of three senior company officials.

While CBI and Supreme Court are leading the legal battle, the opposition parties had insisted on forming a special committee to hold independent investigations on the case. Public Accounts Committee of Parliament has summoned senior IAS secretaries, industrialists and the suspects to provide explanations on the procedural lapses and their involvement. Read the details on “2G Scam- Anil Ambani faces PAC “

It appears that the well-oiled corruption machinery is slowly being dismantled. As the layers are being uncovered, the high-flying crooks are getting exposed. Indians last year lost the sheen in their eyes and pride in their gait while witnessing such huge corruption scandals. The “India Shining” motto looked out of sync, as the “India Drowning” stories were unfolding. I hope there is some light at the end of the tunnel and Indians will witness justice being delivered even when big names are involved.

 1.   Raja’s 2G Scam-How and for whom he did it? (via Ramanan50’s Blog)

The Connected

AS THE 2G spectrum scam unfolded, senior DMK leaders were in for a shock. Till the raids by the Central Bureau of Investigation (CBI), they believed that Andimuthu Raja’s actions as Union telecom minister were dictated by his master, DMK supremo and Tamil Nadu Chief Minister M Karunanidhi, and that the protege was merely taking his ‘commission’, a well-understood practice in politics and business — and in the business of politics. But now they know Raja was aggressively building a parallel business empire that would have rivalled the K-family’s if he had continued in power. Which is ironic, for when Raja was preferred over family member Dayanidhi Maran for the telecom minister’s post, it was because he was considered so loyal that he could never be a threat.

No wonder, right from May 2010, when both Houses of Parliament were rocked by demands for Raja’s resignation over the 2G scam, Karunanidhi backed him, saying detractors were opposed to him because he is a Dalit. But after the December raids and subsequent disclosures, the DMK chief ended up saying that Raja would be punished if he was found guilty.

Raja’s modus operandi, say CBI sources, was not very sophisticated: he did what film folk do, floating companies in different names and channelling funds to them via two or three other front companies. He ran this empire through proxy and to ensure that the directors didn’t take their roles too seriously, he apparently asked them to give him advance undated resignations.

As the CBI puts the jigsaw puzzle together, it finds Raja had set up front companies well before the spectrum allocation: a mix of hawala channels, realty firms, NGOs, family trusts and export firms ensuring safe passage for the spoils of politics. For this, he established contact with NRIs, audit firms in Malaysia and local companies in Chennai, Perambalur, Trichy, and Coimbatore. With easy money flowing in, many became millionaires overnight.

One such man was Sadiq Batcha, who heads several real estate firms in Chennai. Twenty years ago, he was a salesman in Pallapatti village in Salem district, knocking at doors to sell sarees on 10 instalments. Later, he sold radios and tape recorders. Unable to make ends meet, he migrated to Perambalur, where he met AIADMK’s Varathur Arunachalam. This was his stroke of luck, his key to fame and fortune. Arunachalam introduced him to Raja, a small-time DMK politician. Both were ambitious and ready to take risks. It was Raja who told him to venture into real estate. With small investments on both sides, they grew together. Today Batcha’s real estate empire is worth more than Rs. 2,000 crore.

 2.   CBI 2G Telecom Scandal – Criminal Conspiracy, Cheating Charge against Essar, Reliance Communications; Will SC throw top executives in Jail like Raja (via Green World Investor)

The CBI will charge India’s top conglomerates the Essar Group and Relaince ADAG with criminal conspiracy and cheating in the multi billion dollar 2G Telecom Licenses Scandal. This Corruption Scam was brought directly under the control of the Supreme Court as the government failed to move against powerful businessmen and politicians. Now the investigative agencies which have broken free from the ruling party’s interference have given the status of the investigation to the Court. The CBI has said that the 2 companies Loop and Swan Telecom were used as front companies by established telecom operators Essar and Reliance Communications to get more license. Note this defeated the entire exercise and there is ample circumstantial evidence to prove that the telecom minister Raja and his cronies connived with the companies to give precious spectrum for a song. Massive kickbacks were given through real estate companies like DB Realty whose top billionaire owners are cooling their heels in jail as well.

It remains to be seen whether the top corporate executives of India’s topmost conglomerates get prosecuted over these wrongdoings. Essar and ADAG are amongst the top 10 conglomerates in India with wide ranging operations with billions of dollars in revenues nationally as well as internationally. The Supreme Court has been instrumental in bringing this case so far as the government seems totally cooped by corruption. It has been frequently been castigated by the Supreme Court and has shamelessly defended corrupt bureaucrats and politicians. It remains to be seen how this 2G Telecom Case ends. If justice is done, then it may provide a new chapter to India’s corruption ridden story till now.

3.    2G Scam – Anil Ambani Faces PAC (via

Police accuse Reliance Telecom, a unit of Reliance Communications , and three Reliance ADA officials, of conspiring to set up Swan Telecom as a front company to gain valuable radio spectrum. Indian rules bar an existing licence holder from owning more than 10 percent in another operator in the same market.

Ambani, one of India’s highest profile businessmen, arrived at the parliament building on Tuesday in a white Honda Accord car and entered through a side gate, a day after tycoon Ratan Tata appeared before the same Public Accounts Committee.

While the committee’s recommendations are not binding on the government, the spectacle of some of India’s biggest business names being questioned is almost unheard of in a country where leading tycoons have long been seen as untouchable.

“This investigation has caused corporate India to sit up and take notice of the fact that there are law enforcement agencies in the country who are minded to ask tough questions if things get out of hand,” said Saurabh Mukherjea, head of equities at Mumbai-based Ambit Capital.

“Even if the investigation comes to nothing from this point in, just the fact that we’ve seen our authorities being willing to ask India Inc tough questions will exert a degree of discipline on corporate behavior going forward

I hope corporate India learns a lesson and realizes it is uncool to use bribes to get business advantages. With involvement of such high-profile people, a number of questions are raised on the corporate governance practices followed by these organizations. India is likely to lose its investment advantage and growth potential if it doesn’t clean up its act.

P.S. : I tweet on this story regularly, you are welcome to follow me on twitter to get the latest updates.

A Review of KPMG Report -Risk Management, A Driver of Enterprise Value in the Emerging Environment

KPMG this week released a report titled Risk Management, A Driver of Enterprise Value in the Emerging Environment”. The survey on Enterprise Risk Management (ERM) covered Europe, Middle East, Africa and India. The survey highlights the major issues Indian risk managers are grappling with as 57% of the respondents were from India.

 I  found the report good as it identifies a number of problems relating to risk management in India. The same ones which I have ranted about on this blog for nearly a year. Spare sometime this weekend to read the report; it will give you a good grasp on the challenges in risk management. Below are some excerpts from the report that I consider crucial for improving risk management within Indian organizations.

1.    Meet CEO/Board Risk Management Requirements

 The Indian risk managers are perpetually complaining that they have little visibility at board and CEO level. The risk managers’ views are that CEOs do not give attention to their audit reports. My contention is that risk managers are focused on dealing with risks at micro level and do not cater to the risk management requirements of the CEO and Board of Directors. Hence, their work and concerns do not appear on the CEO radar as from a CEO’s perspective they are immaterial.

The KMPG report states that Both CEOs and Board members consider Risk Management to be equally important. CEOs/business leaders would like to see more focus on reputation risk, political risk and the impact of corporate restructuring and M & A on business performance. CEOs view Risk Management through an opportunity lens whereas others view it with a “keep us out of trouble” lens.” Let me ask a basic question to risk managers – how many have attempted to address strategic business risks of mergers & acquisitions, new product development and competitive disadvantages? If not, do we have a right to complain?  Hence, risk managers start focusing on addressing CEO and Board’s concerns on risk management to be effective.

 2.    Integrate Governance, Risk Management & Compliance (GRC) functions

The other challenge from Indian perspective is that risk management is equated to internal audit. If internal audits are done, the presumption is that all organization risks are managed. It is a ticking the box compliance mentality of risk managers which is killing the organization.

The second issue is that though Indian organizations size and turnover has increased, the GRC departments are still ill equipped to handle the task. Various GRC functions are spread across different departments under different heads. These department heads neither are risk management specialists nor are risk management performance indicators a priority to them. I haven’t seen a patient willing to get a surgery done from a physician instead of a specialized surgeon. However, where organizations are concerned, generalists lead risk management functions. Very few organizations have a Chief Risk Officer (CRO) or Head of Risk Management with all GRC functions reporting to him/her at local and global level. Most Chief Risk Officers are not reporting to the CEO. Hence, the disjointed department structures and disintegrated reporting patterns limit risk managers’ capability in giving relevant information to CEO and Board.

KPMG report states that –“two-thirds of the respondents believe that having a CRO will bring about a perceptible change to the quality of Risk Management practices prevalent in their organizations “  Secondly, the report says – “Nearly two thirds of the respondents in our survey indicated that their organizations developed risk responses at an individual risk/process level rather than at a portfolio level. This is partly fallout of the challenges that organizations are facing in risk aggregation/quantification at the organizational-level.” These two responses clearly bring out a need to integrate GRC functions under one department head, develop processes, and deploy tools to improve the functioning.

3.    Focus on Developing a Risk Culture 

I have always harped that Indian organizations are not focused on developing a risk culture. The impact on internal controls due to a negative organization culture is significant. If the tone at the top, psychology and attitude is not geared towards risk prevention and mitigation, the organization will face significant reputation, legal and competitive disadvantage. For example, in the last one year Tata group have faced significant reputation damage. Tata first faced Tata Indica fire issue, then the Niira Radia tapes leak and now is under investigation for bribery in 2G-telecom scam. Similarly, ADAG group first dealt with SEBI charges for insider trading and now is under investigation for 2G-telecom scam. Impeccable reputations are destroyed and questions are being raised on integrity of the industrialists.

Due to high-level corruption in the country,  the mindset is that risk exposures can be managed by greasing the hands of right people. Thus, the tone at the top contributes to slipshod risk management efforts within the organization. If senior management is not walking the talk all communication from risk managers about risk mitigation and business ethics, become paper policies.

Secondly, there is no proper assessment regarding risk appetite of the organization. KMPG report states – Only 20 percent of the Indian respondents have suggested that their company has formally articulated a risk appetite that is approved by the CEO and the Board covering all business units and function.” With such a low percentage of organizations focusing on risk at an organization level can one disagree with KPMG’s statement that – “Embedding a strong risk culture is still in its infancy”

 The above are my takeaways from the report. Share your opinion here. What are your top concerns about risk management in India?