India investigates Wal-Mart over stake in local unit

Fri Nov 16, 2012 4:30am EST
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By Satarupa Bhattacharjya

NEW DELHI (Reuters) - Indian authorities are investigating claims that Wal-Mart Stores Inc. (WMT.N: Quote) violated foreign exchange rules when it invested $100 million in a domestic unit owned by its wholesale joint-venture partner, a law enforcement official said.

An Indian lawmaker first raised the allegations in a letter to the prime minister in early September, and the complaint was subsequently passed from one government department to another without action being taken.

Wal-Mart, the world's largest retailer, has denied any wrongdoing. The allegations relate to the company's complex investment through debentures -- which could later be converted to an equity stake -- at a time when direct ownership by foreign firms was prohibited.

"Yes, the Enforcement Directorate has initiated an investigation into the allegations against Wal-Mart," a senior official, who declined to be named, told Reuters on Friday.

The Enforcement Directorate, an elite agency that falls under the finance ministry, investigates financial crimes.

"The probe is at an early stage and therefore (it is) difficult to say what the outcome will be," the official said.

News of the investigation comes at a bad time for the Congress Party-led minority government, which is preparing to do battle with opponents in parliament next week over its decision to allow foreign companies into India's retail sector. The furor could derail parliamentary proceedings.

Parties opposed to the new retail policy, which include some government allies, may use the investigation to fan suspicion among supporters against foreign retailers including Wal-Mart whose entry is seen threatening the livelihoods of local mom-and-pop store owners.   Continued...

Workers walk inside an aisle of the newly opened Bharti Wal-Mart Best Price Modern wholesale store in the southern Indian city of Hyderabad September 26, 2012. Picture taken September 26, 2012. REUTERS/Krishnendu Halder