An Unnamed IAS Officer Levels Serious Allegations Of Corruption Against Big-Four Firm KPMG India
By PARANJOY GUHA THAKURTA AND ABIR DASGUPTA | 23 February 2018
An anonymous letter written by a civil servant, addressed to Prime Minister Narendra Modi, has levelled serious allegations against the multinational consulting firm KPMG’s India operations. In the letter, which is dated 5 December, a senior bureaucrat—who claims to be a member of the elite Indian Administrative Service (IAS) and holds the post of a director in the union government—accuses the group of exercising influence over key government officials by, among other means, recruiting their children and relatives. It alleges that there is a pattern of influence among senior officers in the central and state governments and top executives in KPMG India. Other allegations stated in the letter include the purported offer of a bribe to a bureaucrat, and the awarding of crucial government contracts to international firms, to the detriment of domestic industry.
A KPMG spokesperson strongly denied the imputations of impropriety but did not refute particular claims made in the letter.
The unnamed director writes that the letter was intended to bring to the prime minister’s notice “rampant corruption … in collusion with private sector MNC consultants.” The author states that they have withheld their identity “on fear of persecution by fellow bureaucrats.” Reliable sources have confirmed to these reporters the authenticity of the letter, which has been doing the rounds in government circles in recent weeks.
Headquartered in the Netherlands, KPMG is one of the “big four” accounting and financial consultancy networks across the world, along with Ernst & Young, PwC (earlier PricewaterhouseCoopers) and Deloitte, all of which have significant operations in India.
The allegations described in the letter are serious. The director alleges that a senior executive in KPMG India’s government advisory services offered a joint secretary posted in their department a “substantial bribe” in exchange for the award of a large consulting project. The director states that the joint secretary declined the bribe. However, the director adds, the joint secretary chose not to report the matter, allegedly in fear of KPMG’s clout among senior officers of the IAS and the Indian Police Service (IPS) in the central and state governments.
The director details the manner in which such clout in the corridors of power is allegedly achieved. They list a number of jobs held in KPMG by relatives of senior bureaucrats, purportedly in order to curry the officials’ favour. Such jobs are well remunerated—earning close to Rs 40 crore over the course of a professional career, according to the letter—and are akin to a “bribe” of a similar amount, the director states.
The officer has listed the names of nine senior officers whose close relatives hold jobs with KPMG—their names are deliberately being withheld in this report. These include relatives of several former and current top officers in the Ministry of Urban Development, including the son of a former secretary in the ministry who is currently posted in the Ministry of Home Affairs, and who earlier served in a key position in Jharkhand. The nephew of an additional secretary in the same ministry and the son of a former joint secretary are listed as well. Importantly, one of these civil servants currently holds a crucial position in Modi’s flagship Smart Cities mission.
Other relatives named in the letter include the daughter of an IAS officer from the Gujarat cadre who served as a secretary in the home ministry and the sons of: a senior IAS officer belonging to the Rajasthan cadre, a former joint secretary in the home ministry who was formerly the chairman of the Airports Authority of India, a former senior IAS officer from the Andhra Pradesh cadre, a former chief secretary of Telangana, and a former finance secretary to the government of India.
The letter alleges that each of these officers were in key positions when their relatives were hired by KPMG, and that the firm was subsequently awarded large consulting projects by the concerned departments. The urban-development ministry features prominently in the letter—KPMG is executing the ministry’s Swachh Bharat and Heritage City Development and Augmentation Yojana (HRIDAY) projects. Other flagship government projects with which KPMG is associated and which are mentioned in the letter include Make in India, the Smart Cities mission, the Startup India initiative, the Bharatmala project for roads and highways, the Sagarmala project for ports and maritime development, and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). The letter alleges that consulting firm is associated with government projects involving a total outlay of over Rs 5,000 crore.
Featuring prominently in the letter are also allegations against the India head of KPMG, Arun Kumar. Prior to his appointment to KPMG, Kumar served as the Assistant Secretary of Commerce for Global Markets and the Director General of the US and Foreign Commercial Service during US president Barack Obama’s second term. The director claims that in his role as the chairman and CEO of KPMG India, Kumar has favoured American firms for contracts in government missions. The letter claims that American firms such as Cisco, IBM, Dell, Hewlett Packard, Honeywell, United Technologies and Otis have bagged equipment contracts under the prime minister’s flagship Smart Cities programme, to the disadvantage of Indian firms and costing India “lacs of jobs.” This, the director alleges, is linked to KPMG India’s involvement with the United States Trade and Development Agency (USTDA), the arm of the US government that works to advance the country’s business and economic interests globally. The USTDA, the director states, has hired KPMG India to work with the US government to “push US firms into the Smart Cities program.” “Hence tenders are coming out with Cisco equipment specifications, making it impossible for competent Indian firms … to compete.”
The director alleges that “[s]uch ability to deeply influence Indian government functioning arises from the fact that many of our senior bureaucrats are compromised as their children work for the US MNC consulting firms.” Further, the letter alleges that the malaise is spread across “the Big Four consulting firms, who have practically infested all our governments.” “A quick investigation will reveal that government projects worth over Rs 300,000 crores are being handled by US consulting firms and that atleast 100 top bureaucrats have their children or relatives working in these consulting firms,” the director alleges.
We reached out to KPMG India regarding the allegations contained in the letter. A spokesperson for the firm rejected the accusations and questioned the motivations of the director, terming the letter “instigated and written with malicious competitive intent.” Though the spokesperson said that the letter is “replete with factual errors,” these were not pointed out. Further, the spokesperson did not deny specific claims contained in the letter—such as the employment of the individuals concerned, or the involvement of KPMG India in the projects mentioned, and the alleged roping-in of US firms into Indian government projects. The full statement sent by the spokesperson reads:
The accusations made in this anonymous letter alleging wrong doing in KPMG’s work for the Government of India are totally baseless. KPMG has worked with the Union and various State Governments over the past years with many diverse stakeholders, and has always conducted its business with utmost transparency and the highest standards of integrity and ethics. KPMG is a best-in-class organization that has been operating for over 25 years in India with a solid, irrefutable track record.
Talent at KPMG is recruited solely on the basis of merit and the organization has robust processes to ensure objectivity and fairness in selection and promotions. To suggest that KPMG associates have been hired on account of their parentage and linking its government work to such hires is an affront to the qualifications and expertise of the employees and to the organisation’s world class credentials. We have examined the insinuations in the letter and find them replete with factual errors apart from being slanderous.
It is unfortunate that the writer has stooped to insinuate motives to the KPMG India Chairman who returned to India after a distinguished career in the US, where he played an important and constructive role in the advancement of India-US relations. His work at KPMG India has no relation, whatsoever, with his prior role in the US Government. His work in India only demonstrates his professional and personal commitment to the growth and development of India, the country of his birth.
KPMG notes these allegations are mischievous and emphatically rejects them. Our guess is that the letter is instigated and written with malicious competitive intent.
A top executive employed in one of the Big Four multinational consultancy firms, reacting to the letter on the condition of anonymity, confirmed the prevalence of corrupt practices in the business of consultancy. He said that “in continuation of the policy of privatization of public resources, it appears that a new cosy relationship has evolved between crony capitalists, government officers and consulting firms.” “Given the fire from the CAG (the Comptroller and Auditor General) faced by government officers in earlier cases of alleged attempts to privatize public resources such as the 2G (second-generation telecommunications spectrum) scam, Coalgate, etc, a convenient mechanism has got formulated, wherein decisions of government officers are now based on ‘neutral’ third party consulting firms, reducing the accountability of the officers and the decisions leading to profiteering by crony capitalists,” the executive said.“The crony capitalists gain, the government officers gain as their children get lucrative employment in the consulting firms and the consulting firms gain as they receive hefty fees from public coffers.”
KPMG is not the only firm that has recently been accused of such impropriety—in early February 2018, the Securities and Exchange Board of India (SEBI), the regulator for the securities market in India, banned the Indian arm of PwC from auditing any firms listed in the country, for the forthcoming two years. SEBI took this action against PwC based on its alleged role in the Satyam scam, in which the computer-services company inflated its earnings by close to $1 billion. SEBI stated in its order that the consulting firm, which was auditing Satyam, failed to “independently check the veracity of the monthly bank statements.” The board said that it felt compelled to take a “stern view of … fraudulent practices, particularly when persons tasked with protecting the interest of investors are themselves hand-in-glove with the main perpetrators of the fraud.”
In the wake of the 2008 global economic crisis, the discourse around wealth inequality and the “revolving door” relationships between major multinational corporations and governments, which foster the maintenance of such inequality, have gained significant prominence. These allegations add to this conversation, and point to a growing familial and caste-community nexus in India that appears to control major levers of governance, public investment and policy, in concert with powerhouse multinationals.
While such a claim—of exercising influence by forming “alliances” with senior government functionaries through the employment of their relatives—may be difficult to prove in court, it is precisely through such ambiguity and the plausible deniability it offers to the concerned officers that the informal networks of power that constitute familial and clan relations can come to capture many of India’s formal institutions of governance.
In conclusion, the anonymous director writes that they are confident that the prime minister will take “swift action” to prevent more “damage” to the country’s interests. The director adds that they are “proud” of Modi, and takes a “pledge” to support his “war against corruption, both from within the government and from private sector.” “I completely believe in your war cry – ‘Na Khayengey, Na Khaneydeyngey’ – ‘I will not be compromised and I will not let others be compromised,’” the director wrote.
The Caravan wrote to the Prime Minister’s Office, enquiring whether any action has been taken on the director’s complaint. At the time this article was published, the PMO was yet to respond. The article shall be updated when a response is received.
Paranjoy Guha Thakurta and Abir Dasgupta are independent journalists.