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Sources said that the Enforcement Directorate (ED) is investigating Philip Morris International Inc and its partner Godfrey Phillips for the alleged violation of the country's laws.
The ED has been looking into both the companies and the scope of the investigation is much broader than the alleged foreign investment law violations highlighted in a story published on Wednesday, the source said.
Philip Morris has for years paid manufacturing costs to Godfrey Phillips to make its Marlboro cigarettes, circumventing a nine-year-old government ban on foreign direct investment in the industry, Reuters reported based on a review of dozens of internal company documents, which were dated between May 2009 and January 2018.
Three former officials and one former head of the ED had reviewed the Philip Morris documents for Reuters and said the dealings should be investigated for circumventing India's foreign direct investment rules.
On Friday, the ED source declined to comment on whether the ongoing investigation included Reuters reporting findings, but said “this is already under investigation.”
“Both companies are being looked into,” said the source, who declined to be named citing sensitivity of the investigation.
The source declined to share further details of the probe.
Philip Morris has previously said its business arrangements with Godfrey comply with India's foreign direct investment (FDI) rules. Godfrey has said all the commercial arrangements are in complete compliance with the extant regulations governing India's FDI and other laws.
Shares in Godfrey briefly pared gains on Friday following the report about the investigation. They closed two per cent higher.
Manufacturing charges
India in 2010 prohibited FDI in cigarette manufacturing, saying this would enhance efforts to curb smoking.
Ahead of the ban, Philip Morris formed a new wholesale trading company with Godfrey. Since then, Godfrey has acted as a contract manufacturer of Marlboro cigarettes in India, while Philip Morris's local unit acts as a wholesale trading company and promotes the brand.
Dozens of internal company documents showed Philip Morris has been indirectly paying costs related to Marlboro cigarette manufacturing in India in a phased manner.
If the ED finds a company in violation of the rules, the law allows it to impose a penalty of up to three times the amount contravened.
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