MUMBAI: Cognizant said it was conducting an internal investigation into whether certain payments relating to its facilities in India violated the US Foreign Corrupt Practices Act and that it had voluntarily notified the US Department of Justice and the US Securities and Exchange Commission.
The US Foreign Corrupt Practices Act makes it illegal for companies to bribe officials in foreign countries. The law is enforced by the US Department of Justice and US SEC and the punishments are severe. However, voluntary disclosure of violations limits the severity of the fines that are imposed.
“The investigation is being conducted under the oversight of the Audit Committee, with the assistance of outside counsel, and is currently focused on a small number of company-owned facilities,” Cognizant said in a filing with the SEC. Cognizant’s shares were down 10% in early trade on Nasdaq.
Cognizant said the internal investigation is in its early stages and that it is not able to predict what action may be taken by the DOJ, or the SEC.
It added that it could not predict the impact of the investigation the company’s operations, cash flows or financial position.
Separately, Cognizant had announced that its President Gordon Coburn had resigned and was being replaced by Rajeev Mehta. The company did not specify a reason for Coburn’s resignation. Coburn had been a president at the Teaneck, New Jersey-headquartered IT company since 2012 and had earlier served at its chief financial officer. He joined Cognizant in 1996 and was the CFO who helped it go public in 1998.
Mehta was previously chief executive officer for IT services at Cognizant.
Cognizant is the latest US company to fall foul of the US law for payments in India, after Wal-Mart faced similar troubles last year. Analysts said that given Coburn’s strong reputation, his resignation and the potentially improper payments issue could compound the problem of slowing company growth. Analysts also worry about repercussions from the investigation.
“While we haven’t seen this in the past, we consider possible outcomes to include reputational damage, which could hurt revenue growth via client loss/limited client wins, fines and potential limits on operations in certain areas,” David Koning, analyst with RW Baird, said in a note.
Coburn’s resignation comes a little over a month after Cognizant reorganised its delivery services by service line and appointed three new presidents in the wake of its disappointing results in the last quarter.
Debashis Chatterjee was appointed President of Next-Generation IT services, Gajen Kandiah was appointed President of Digital Works and Sumithra Gomatam was appointed President of Global Process and Platform Solutions.