First, it was a phantom factory that marred Cadbury’s India story of 67 years. This March, the Central Excise department concluded that part of its plant at Baddi in Himachal Pradesh did not exist on the date Cadbury claimed it did, and fined it Rs 241 crore.Now, with evidence sourced from Cadbury India’s (now known as Mondelez India Foods after a global merger) own investigations, internal emails and documents, the Excise Department order as well as interviews with former company officials, ET has pieced together the story of how it may have bribed government officials and, possibly top politicians, to create paperwork showing an integrated factory as two separate units.Its parent Mondelez International Inc is the target of a federal investigation in the US. But Mondelez was unlikely to face criminal charges under the Foreign Corrupt Practices Act (FCPA), which bars American companies from bribing foreign officials, because no evidence has emerged connecting the suspicious payments to the US, the Wall Street Journal reported on October 13 quoting unnamed sources.Mondelez, however, knew about irregular payments in India at least three months before the Securities Exchange Commission (SEC) and the Department of Justice (DoJ) began formal investigations in February 2011, said Rajan Nair, who headed the company’s special security investigations group in 2010-11, when contacted by ET.“It was very obvious that the company had hired dubious consultants who bribed government officials, including possibly top politicians in Himachal Pradesh, for statutory approvals,’’ Nair said. External investigators engaged by Cadbury found that irregular payments appeared to tally with periods during which crucial approvals came through. One permission they examined was from a state industrial clearances committee headed by the then chief minister Prem Kumar Dhumal, records show.The chief minister used his discretionary powers to grant in-principle approval overruling pollution control board (PCB) objections, according to the Cadbury investigation.Dhumal told ET over telephone that he hadn’t overruled the PCB. “It was only an in-principle clearance given to Cadbury subject to it obtaining other permissions. It was later found that the company had manipulated records to claim tax benefits,’’ he said.The issue relates to Cadbury India’s largest manufacturing plant located in Baddi, Himachal Pradesh, which makes Bournvita, 5-Star bars and buttonshaped Gems. According to the company’s investigation, it sought to designate production lines of 5-Star and Gems as a separate unit (Unit II) to claim excise and income tax benefit of more than 60 million pounds (Rs 600 crore) over 10 years. It would have helped the company make an internal rate of return of 58.5%, documents show.Dhumal said he did not know Deepak Singh Chandel, the consultant hired by Cadbury to get the de-amalgamation approval, and had never met him. The former chief minister said Cadbury never paid him any money. ``Not even for my election campaign.’’ Cadbury needed the clearances fast. When contacted, Shivanand Sanadi, Cadbury’s then vice-president, legal, told ET he had advised the management that the company required a host of prior approvals to set up Unit II and it could not claim tax benefits without them in place.The move got underway in August 2009 and the unit had to be operational by March 31, 2010, the sunset date to claim tax benefits under the state industrial promotion policy. Chandel admitted to excise department officials who had launched a probe in September 2011 that Cadbury asked him specifically to get backdated approvals.On March 25 this year, excise commissioner Parminder Singh Sodhi ordered Cadbury to pay Rs 342 crore it owed in excise and imposed a total penalty of Rs 241 crore for evading it over three years beginning May 2010. Sodhi also fined 12 individuals a total of Rs 2.29 crore, including a Rs 1 crore penalty on the then managing director Anand Kripalu. The company is contesting the order in the Customs Excise and Service Tax Appellate Tribunal.Cadbury’s internal probe led to a cleanup in April 2011. Several employees, including top managers, were forced out. However, they continue to get legal support and help in paying fines from the company, said at least one person who was thus being aided.Among those who left was Rajesh Garg, finance director, whom the investigation report described as the “main architect and proponent for claiming separate tax incentives for Unit II”. The report also said that Garg “closely monitored the progress of approvals and licenses for Unit II but claims no knowledge of Daksh”. Daksh Associates and Consultants is run by Chandel. Garg could not be reached for comment despite repeated attempts by ET.The day after Garg signed his separation agreement with the company, managing director Kripalu sent out a company-wide mail: ``Over the last three years as FD (finance director), Rajesh has built the finance function into a strong business partner, enabling decision making that creates significant value.’’ Kripalu, who has since moved to United Spirits Ltd as CEO, told ET by text message that “it would be inappropriate for him to comment’’.Responding to an ET questionnaire, a Mondelez India spokesperson emailed: “A compliant and ethical corporate culture, which includes adhering to laws and industry regulations in all jurisdictions in which we do business, is integral to our success. It would be inappropriate for us to comment at this time since the matter is in the legal domain.’’Mondelez directed ET to its 10-Q quarterly SEC filing on October 29, which said it was continuing investigations in India and that it continues to cooperate with government authorities.Cadbury India became part of Kraft Foods when Kraft acquired Cadbury’s British parent in a $19.6 billion global deal creating the world’s biggest confectioner in January 2010. In October 2012, Kraft renamed itself Mondelez International Inc.“It all started with a simple lie to wrongfully claim income tax and excise benefit but they got cornered by the excise authorities,’’ said Nair, who now works as an independent fraud, risk and security consultant to corporates.Shivanand Sanadi, now an independent lawyer, said after internal investigations revealed that illegal payments may have been made, Mondelez’s counsel assessed options regarding disclosures in India and the US. It also got law firm AZB Partners’ opinion on how anti-corruption law applied in India and its implications.The first time the top management in the US was alerted was in late October 2010 after Nair and Adrian Wong, director, Asia Pacific, global security, met Mohit Vesasi at Hotel Taj in Chandigarh earlier that month. Vesasi, a canteen contractor at the Baddi plant, alleged that the company routinely paid bribes to government officials. The company immediately flagged it as Special Situation 1. “It means the SSM (Special Situation Management) note would reach the Kraft leadership team in the US, including (CEO) Irene Rosenfeld’s office,’’ said Nair, who was familiar with company processes.Rosenfeld is the CEO of the $30 billion-by-revenue Mondelez, which makes Cadbury Dairy Milk and Oreo, among other snacks.Following the initial findings, Mondelez hired Baker & McKenzie LLP and AZB & Partners as legal advisers and forensic experts from Ernst and Young (now EY) to investigate the allegations.The secret probe was called Project Maxim. EY investigators probed suspicious payments of $177,650 (Rs 80 lakh) to several outside parties, the bulk of it to Chandel’s Daksh Associates.On January 26, 2011, in the conference room of the Taj Land’s End hotel in Mumbai, EY shared its findings with the Mondelez management, including Terry Sabol, vice-president, finance and strategy, Asia Pacific, and audit chief Carolyn Gibbs, vice-president, internal audit. EY described how bribes were masked, who were involved, why Daksh was a conduit and how Daksh’s invoices were created at the Cadbury office, investigator Nair said.In an internal memo sent five days later to several people, Mondelez’s chief counsel for Asia-Pacific, Cathy Heeley, wrote that investigations had unearthed evidence that ``the allegations regarding improper payments to government officials appear to be well-founded’’.Heeley also raised the possibility of public exposure if the investigation was disclosed to the DoJ. Unknown to the company, a whistleblower had weeks ago informed the SEC about irregularities at Cadbury. An SEC subpoena regarding alleged FCPA violations arrived February 1. A fortnight later, the company asked AZB Partners what the implications of the disclosure to SEC would be in India.Project Maxim reported unambiguously: “Based on the interviews with company employees and Mr Chandel [of Daksh to which Rs 48 lakh was paid], the following was determined: Daksh was appointed to deliver approvals and licenses through his contacts with government officials, including chief minister of Himachal Pradesh having discretionary power and presiding over the State Level Single Window Clearance Authority (SWCA) — which provides in principle approvals for setting up new industrial units in HP and is also an appellate authority for any rejections of orders passed by state government agencies.’’ An annexure to the report presented a ‘rate-card’ that Chandel gave to Cadbury HR chief Bhavana Dogra.Dogra, who now works at Bunge India, told ET by a text message that she would not comment on anything. Chandel provided an email address over phone but did not respond to questions ET sent him. He also did not answer follow-up calls to his cellphone. Three executives met Chandel at a hotel near the factory and negotiated the rates down, according to two former Cadbury employees. Negotiated rates appear added by hand in the same rate-card. It lists 23 licences that were required.Chandel delivered, partially. Box of Chocolates In an update on November 30, 2010, EY pointed out key events that raised potential FCPA compliance concerns. The most important approval for de-amalgamation of Unit II came in March. The report noted during March 1-15, 2010: “De-amalgamation decision moved to single window clearance committee on March 21, 2010. Jaiboy Philip [Jaiboy Phillips, then director, supply chain, Cadbury India] spoke to Vijay Chandan — principal secretary to the chief minister for de-amalgamation. Additional quotations [for money] requested from Daksh.’’The update showed that Daksh asked for Rs 10 lakh on March 8. The next day Chandel and Cadbury official Tarun Walia traveled to Chandigarh and Delhi and stayed there for three days. Cadbury paid for the trip. On March 16, Bhavana Dogra sent an email to colleagues: “We have just received information that Unit I & II case of De amalgamation has been decided in our favour in SWCA this evening. Although the meeting notes will be published in a day or so. We will confirm back the same once we get the copy of formal approval informing them.’’Project Maxim notes that during March 16-22: “Jaiboy Phillips spoke to Mr Dhumal (CM of HP) and has agreed to clear the de-amalgamation application and also speak to the secretary, PCB (Pollution Control Board). De-amalgamation is passed in CIL’s favour in spite of PCB member secretary objected (sic) to the proceedings but was overruled by CM.’’Dhumal’s intervention came after a sub-committee of members from the pollution control board, the state electricity board and industries department rejected Cadbury’s application on March 6. He told ET that there was no question of his taking a decision without the other departments’ concurrence.Project Maxim found that some critical approvals coincided with the submission of invoices by Daksh. It raised one invoice for Rs 11.6 lakh on March 30 and the same day a copy of the de-amalgamation letter was received after meeting officials from the chief minister’s office, the report noted.