Carlsberg India probes find 'potential improper payments', child labour

An investigation of alleged unlawful practices at Carlsberg India found "potential improper payments" to government officials and other regulatory lapses, its former auditor said in a document seen by Reuters.

Reports by a different global consultancy, also seen by Reuters and previously unreported, disclosed other lapses at Carlsberg India Pvt Ltd in 2018, including child labour.

The findings cast a fresh shadow on operations and compliance practices at the Indian joint venture of Danish brewer Carlsberg A/S, which according to IWSR Drinks Market Analysis has a 17% share of India's $7 billion beer market.

Carlsberg's probes and a boardroom dispute come amid other challenges: an antitrust investigation last year concluded Carlsberg India colluded for years on prices with rivals, though a final ruling is pending.

An India affiliate of the PricewaterhouseCoopers (PwC) network recently resigned as Carlsberg India's financial auditor after declining for two years in a row to give an opinion on the brewer's financials, amid boardroom tussles and internal probes into local practices, Reuters reported in November.

Since at least 2019, Carlsberg had been probing allegations levelled by some past and current employees around promotion of alcohol in prohibited areas, kickbacks and bribery, according to regulatory filings and the document prepared by local PwC affiliate Price Waterhouse Chartered Accountants LLP.

The investigation "concluded that there were internal control weaknesses ... potential improper payments made to government officials/other persons and possibility of misappropriation of company's funds over past years by certain customers," says the PwC document, which details the basis of the firm's resignation.

"However, the amount of misappropriation and other amounts relating to inappropriate practices could not be ascertained."

Responding to questions from Reuters, Carlsberg said, "We cannot rule out breaches of our policies and code of conduct." The company said it does everything possible to prevent such incidents.

The investigations "specified that Carlsberg Group's policies were breached in the period until 2018" and the probes identified the need for further strengthening of controls, the company said.

"Carlsberg India has taken several actions as a consequence of the findings, including ... dismissal of and formal warnings to employees," it said.

PwC declined to comment.

Carlsberg told Reuters in November the auditor had quit because of "highly disruptive side-effects" of a commercial conflict with its India joint venture partner, the Nepal-based Khetan Group. Three nominee directors from Khetan refused to approve the last two annual results.

In a filing for the 2018-19 financial year, PwC said it was withholding an opinion due to "divergent views" among board members, ongoing forensic reviews and the possible impact these could have on legal compliance.

Results for the year through March 2020 have not been published, but the PwC document says the "complaining directors" had divergent views on the scope, manner and findings of the investigation into Carlsberg's local practices.

CP Khetan, who manages the Carlsberg India partnership for the Khetan Group, did not respond to a request for comment.

OTHER AUDITS, CHILD LABOUR

Separately, three documents by Ernst & Young (EY) in India showed regulatory lapses in 2018, including child labour at a warehouse.

A May 2018 EY internal report on an audit of two Carlsberg warehouses found underage labourers at a location in the eastern Indian state of Jharkhand. Calling it a "high" risk finding, EY said 24 of 41 workers there were under 21 - the legal minimum age of employment for those engaged in alcohol sales in the state - with some as young as 16 to 18.

The report also showed apparent violation of environment rules, such as incorrect disposal of scrap material.

A draft of that report contained two images - a young boy carrying a box of Carlsberg's Tuborg beer on his head, and another of a boy smiling while sitting atop beer cartons with packaging material in hand. It also contained photos of workers on the job in slippers rather than safety shoes.

On child labour, Carlsberg told Reuters, "The third-party provider was terminated immediately in 2018 following the findings in the internal report."

EY declined to comment.

Another EY audit, which analysed Carlsberg's logistics operations in 2018, found lapses on transportation, revealing there were more than 22,000 instances of overloading trucks.