Identifier | Created | Classification | Origin |
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09KOLKATA34 | 2009-02-10 08:58:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Kolkata |
VZCZCXRO7036 RR RUEHAST RUEHBI RUEHLH RUEHNEH RUEHPW DE RUEHCI #0034/01 0410858 ZNR UUUUU ZZH R 100858Z FEB 09 FM AMCONSUL KOLKATA TO RUEHC/SECSTATE WASHDC 2261 INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE RHEHAAA/NSC WASHINGTON DC RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RUEATRS/DEPT OF TREASURY WASHINGTON DC RUEHCI/AMCONSUL KOLKATA 2768 |
UNCLAS SECTION 01 OF 02 KOLKATA 000034 |
1. (SBU) Summary: Two partners from PricewaterhouseCoopers (PWC) remain in judicial custody in connection to admissions of large scale fraud by the chairman and founder of Satyam Computers Limited (Reftel). PWC leadership contends that the charges are politically motivated and that there is no evidence of fraud or criminal negligence by PWC partners. This comes at a time when the Institute of Chartered Accountants of India (ICAI) is pressing the GOI to further reduce the type of work done by international accounting firms in India. End summary. PWC Claims Political Motivated Arrests 2. (SBU) Kolkata ConGen met on February 6 with Ambarish Dasgupta, the director of PricewaterhouseCooper's (PWC) Kolkata office to discuss the January arrests of two PWC partners, Srinivas Talluri and S. Gopalakrishnanon. These partners signed Satyam's last two audit reports and have been accused of fraud and criminal negligence. The media had extensive coverage of the arrests and the partners' subsequent suspension from PWC. Dasgupta claimed that the Satyam scandal took PWC by surprise and they immediately brought in staff from their United Kingdom and the U.S. offices to review their files to ensure that PWC's audits of Satyam were properly done. While acknowledging that there is always room for improvements, he said that the review did not reveal any indication of fraud or major problems in auditing. He said that the last audit was through the end of September 2009. They had not yet begun to audit the next quarter, which is when funds allegedly disappeared. He said that PWC is confident that they are clean, stressing that an auditor cannot (and is not expected to) detect fraudulent documents submitted by a company. 3. (SBU) Dasgupta explained that PWC suspended the partners in order to keep an arm's length from the investigation, but they are providing financial and moral support to the partners. He said that their supervisor resigned because of his personal feeling that he morally failed his staff and that PWC did not seek his resignation. PWC objects to the press characterization of the suspension of the 2 partners and resignation of their supervisor as an admission of guilt by PWC and stressed that PWC has found no evidence of fraud by these 2 partners. 4. (SBU) Dasgupta stressed that PWC has cooperated fully with investigators and will continue to do so. According to Dasgupta, no charges have been filed, but local police authorities have acknowledged that they found no evidence of fraud and the police are now only pursuing possible charges of criminal negligence. The partners remain in judicial custody, a status that prohibits police interrogation, and were most recently denied bail on February 3. PWC is concerned that vested interests are involved in these arrests, but is not sure exactly who is behind it and why. PWC's concern now is that any police investigation be conducted quickly, transparently and fairly. The investigation has been moved from the Andhra Pradesh state Criminal Investigation Division to the federal Criminal Bureau of Investigation at PWC's request and PWC hopes this move will reduce the politicization of the investigation. Dasgupta confirmed that DiPiazza met with the corporate affairs minister Prem Chand Gupta to discuss the case, but had the impression that Gupta is still trying to understand what is going on. PWC has not previously dealt with Gupta and cannot gauge his capabilities. Is Pressure on PWC to Drive Out Foreign Accounting Firms? 5. (SBU) Dasgupta speculated that one motivation behind the arrests is to put greater pressure on foreign accounting firms practicing in India. Currently, foreign firms are not allowed to perform accounting, offer auditing services or engage in taxation practice, but they are allowed to perform management consulting services. Therefore, international firms have had to enter into partnerships with individual accountants, but these partnerships are limited to twenty partners and partnerships with firms are not allowed. He explained that PWC provides accounting services because they were operating in India before the new restrictions were imposed. New Delhi EconOff recently met with Richard Rekhy, the Chief Operating Officer of KPMG in Gurgaon and Vikram Aggarwal, Partner of BSR and Company shortly after Satyam's board asked them and Deloitte to discuss media statements by Ved Jain, the president of the Institute of Chartered Accountants of India (ICAI), claiming that KPMG is not allowed to practice in India because they are not registered with ICAI. KOLKATA 00000034 002.2 OF 002 6. (SBU) Both Mr. Rekhy and Aggarwal said that the scope of work they were asked to do by the Satyam board was not the type of work reserved for chartered accountants in India and that the Satyam board would clarify this with ICAI. They said that the motive behind the statements was not to stop them from doing the work at Satyam but to revive a long standing argument between ICAI and international firms regarding the scope of work that they could perform in India. ICAI's position is that even consulting services is tantamount to allowing international firms to have surrogate practices and that they should not be allowed to do indirectly what they cannot do directly. The KPMG and BSR executives stated that another reason ICAI doesn't want to allow international firms greater inroads is because Indian accounting firms are not allowed to practice in other countries, and until they receive reciprocity they do not intend to relax their position. Mr. Rekhy and Aggarwal also said that many of ICAI's members believe if they can shut international firms out of the market the business currently performed by international firms will fall to them. Comment 7. (SBU) It is still too early to know what or who is behind Talluri and Gopalakrishnanon's arrests. However, if police are eventually unable to substantiate claims of malfeasance and criminal negligence, particularly after leaking negative information to the press, there is a good chance the arrests were politically motivated. The PWC arrests come amidst ongoing, unresolved service trade disputes between India and the U.S. regarding each country's permission to allow the others' accountants to practice in their home markets, making a difficult environment for American firms even tougher. PAYNE |