Understanding the US charges on Adani

The US Department of Justice has indicted Gautam Adani, the founder of Adani Group, his nephew Sagar Adani, and other senior Adani Green executives for allegedly bribing or offering bribes to the tune of $265 million to Indian state government officials to get them to sign solar power contracts, while raising money for the same projects in the US by promising that the company abided by anti bribery laws. This constitutes fraud under US federal securities law and, if proven, may invite criminal liabilities.

The US case rests on the premise that Adani Green bribed government officials in Odisha and Andhra Pradesh, and possibly Tamil Nadu, Chhattisgarh and Jammu & Kashmir, to get their power distribution companies (discoms) to commit to purchase solar power at above market rates. The timeline of the alleged bribes is from the middle of 2021 to the end of 2022. The Biju Janata Dal (BJD), YSR Congress, Dravida Munnetra Kazhagam (DMK), and Congress governed four of the states mentioned, while J&K was effectively under central BJP rule.

The Adani Group denied the allegations, calling them “baseless” and vowing to “seek all possible legal recourse”.

The conglomerate’s spokesperson insisted the company has “always upheld and is steadfastly committed to maintaining the highest standards of governance, transparency and regulatory compliance.”

In the charges unsealed on Wednesday evening eastern time, the US attorney’s office for the eastern district court of New York, alleged that between 2020 and 2024, senior executives of Adani Green and associated entities “conspired to misrepresent the company’s anti-bribery practices” to US investors and international financial institutions. The indictment added that Adani and others also “concealed” from the same investors their bribery of Indian government officials to obtain billions of dollars of financing for green energy projects”, included the “corrupt solar energy supply contracts” for which they were raising funds.

The US Security and Exchange Commission (SEC) has, in parallel, filed a complaint against Adani and his nephew, Sagar, the executive director of Adani Green, “for conduct arising out of a massive bribery scheme”. This allegedly involved “paying or promising to pay the equivalent of hundreds of millions of dollars in bribes to Indian government officials to secure their commitment to purchase energy at above-market rates” while raising $175 million from US investors in the same period, based on “materially false and misleading” statements. If proven, the charges may invite financial penalties and a bar on the defendants from serving as director or officers in companies that fall under US exchange regulations.

The US allegations rest on a particular chain of events. Adani Green benefited from a central solar agency scheme that incentivised companies to produce solar production component parts in return for a guaranteed power purchase agreement. But this hinged on the central agency signing similar power sales agreements with state discoms, which didn’t want to buy power at what had become above-market rates. The core allegation is that Adani Green bribed state discom officials to do that and then lied about it to American investors at the other end.

Both US prosecutors and SEC have also charged Cyril Cabanes of Azure Power Global Ltd — described by SEC as a company owned by two Canadian pension funds, and formed under laws in Mauritius, that produces and sells solar power in India — for allegedly facilitating the authorisation of bribes and violating the Foreign Corrupt Practices Act. Azure also won contracts under the same solar scheme. The DOJ indictment listed out various other employees of both Adani Green and Azure and its Canadian institutional investor allegedly involved in the scheme in different ways. It also charged Azure employees of conspiring to obstruct justice.

A caveat: This story is a detailed account of the US charges based on a reading of both the indictment and complaint — but it is just that, a story of the allegations made by one side. None of these charges have been proven in court and the multiple stakeholders mentioned in the story — Adani Green, Azure, state governments and individuals associated with them — have not had chance to respond.

US charges: What Adani did wrong

Offering context, the SEC complaint places the establishment of Adani Green in January 2015 in the backdrop of the Indian government’s stated goal of achieving 100 GW of solar energy production capacity by 2022. The company’s model was developing, building, owning, operating and maintaining utility scale grid connected solar and wind farms, and earning revenue by selling power to both central government agencies and discoms under long term fixed price power purchasing agreement.

The SEC complaint states that the company’s solar ambitions rested “significantly on programs and economic incentives” implemented by Solar Energy Company of India (SECI), a government body. Adani Green and Azure Power, according to the SEC complaint, benefited from SECI’s manufacturing linked incentive scheme that incentivised a firm to produce solar power component parts, in return for an official commitment to buy power of a certain quantum at a certain price.

Adani won two-thirds and Azure won one-third of the projects. But the award of the contracts in June 2020 did not include an SECI guarantee of power purchase. This, according to the complaint, hinged on two steps — SECI entering into similar arrangements with state discoms whereby discoms would commit to buying power at those rates; and then SECI signing an agreement with the companies.

The core of the allegation is that discoms refused to get into agreements with SECI because the price that SECI had committed to the companies was at above market rates — and Adanis then, the US regulator alleges, bribed state officials to get them to sign the agreements with SECI. The US case is based on the premise that this is where the corruption happened, and this was what Adani Green did not tell investors in America.

SECI has not been accused of any wrongdoing in the Adani case, its chairman and managing director RP Gupta said on Thursday. “There is nothing against SECI that SECI has done anything wrong… There is no mention of any wrongdoing or irregularity on part of SECI,” he said.

Where Indian states get implicated

The SEC complaint alleges that Gautam and Sagar Adani, “through their personal involvement and promises to pay or payment of a total of hundreds of millions of dollars” obtained agreements from discoms. Adani executives “kept track of the bribes, creating and maintaining multiple records of bribes” that had been paid or promised to government officials to get them to buy power. The complaint gives specific examples.

It states: “According to Adani Green’s internal records, a payment equal to hundreds of thousands of dollars was paid or promised to government officials” in Odisha “to cause Odisha to enter into a power supply agreement with SECI. In July 2021, SECI announced it had its first power supply agreement and Odisha’s grid authority said it would buy 500 MW of power capacity from SECI. Odisha’s chief minister then was Naveen Patnaik.

The BJD did not respond to requests for comment.

The US regulator’s complaint alleges that Adani next personally met Andhra Pradesh chief minister (who, at that time, was Jagan Mohan Reddy) in August 2021 (the indictment only refers to the Andhra official that Adani met as foreign official 1, a “high ranking government official of Andhra Pradesh”). The complaint alleges that “at or in connection with the meeting”,  Adani paid or promised to pay Andhra government officials $200 million (according to the indictment, the payment was $228 million to “foreign official 1”), greater “by orders of magnitude” than bribes paid to Odisha officials. Soon after, Andhra announced its decision to buy 7000 MW of power capacity from SECI.

The YSR Congress defended the agreement signed by the YS Jagan Mohan Reddy government in Andhra Pradesh with SECI and clarified that it had no direct agreement with any other entities including those belonging to Adani Group.

“The agreement was signed with SECI, which is a government of India enterprise. There is no direct agreement between Andhra Pradesh discoms and any other entities including those belonging to the Adani Group. Therefore, the allegations made on the state government, in the light of the indictment are incorrect,” said the statement.

The DOJ indictment alleges that between July 2021 and February 2022, “following the promise of bribes to Indian government officials”, besides Odisha and Andhra, the discoms of Jammu & Kashmir (then run by lieutenant governor Manoj Sinha, and effectively under central control), Chhattisgarh (under Bhupesh Baghel) and Tamil Nadu (governed by MK Stalin) signed power supply agreements with SECI.

Senior Congress leader RP Singh said all approvals to Adani Group projects were given by the administration of former chief minister Bhupesh Baghel’s predecessor, the BJP’s Raman Singh.

“The Congress, after forming the government, stopped all projects that were related to Adani and no new approvals were given. Our government was never involved in facilitating Adani,” he said.

Tamil Nadu electricity minister V Senthil Balaji said the state government’s power firm has no commercial relationship with Adani’s company.

“As regards TANGEDCO (TN Generation and Distribution Corporation), there has been no kind of commercial relationship with Adani’s company during the past three years (after the Dravida Munnetra Kazhagam assumed power in May 2021),” he said.

In Jammu & Kashmir, the lieutenant governor’s media advisor and chief secretary Atul Duloo did not respond to requests for a comment.

Separately, both Gautam and Sagar Adani, the complaint alleges, sought a repayment of its share of the bribe from Azure which had won one third of the contracts. Azure too would benefit from the agreements, as SECI would purchase power capacity from Azure and sell to discoms. In these conversations, Gautam Adani, the complaint says, recounted he paid bribes to Indian state government officials to persuade them to enter power supply agreements. One way Azure paid back was by ceding its share of power it could sell to SECI related to Andhra to Adani Green.

The promise at the American end

At the same time, in August 2021, SEC alleges, the Adani Group was moving ahead on the financing front. Its management committee decided to authorise Adani Green to raise or borrow $750 million “through the issuance of debt securities i.e. Notes”. At the end of the month, Adani Green did a roadshow selling the bonds to investors in US as “green bonds” aimed to fund “eligible green projects”.

The core SEC charge is that despite knowing disclosure norms, Adani Green did not disclose how it had got the contracts (i.e through bribes), and instead made “materially false and misleading” claims of having met all the norms, including anti bribery norms, in the offering circulars. “Both Gautam Adani and Sagar Adani intended, or recklessly disregarded, that Adani Green would offer and sell the notes based on a deceptive portrayal of Adani Green’s core business”.

Adani Green sold $175 million of the notes to investors in the US — the reason US regulators can claim a locus standi in the case. And therefore the SEC complaint focuses on the claim of Adani Green to these note purchasers/investors that no company director or officer had paid bribes or promised to pay bribes or attempted to unduly influence officials, and that the company was a leader in good corporate governance.

“None of this was true…Defendants were personally involved in paying or promising the equivalent of hundreds of millions of dollars in bribes to Indian state government officials to induce Indian state governments to enter into contracts necessary for Adani Green to develop India’s largest solar power plant project, from which Adani Green stood to earn billions of dollars”, the SEC charge says, in what is the crux of the case.

The SEC has asked the court to order defendants to pay civil money penalties, prohibit them from ever holding the position of a director or officer in a company that has a class of securities under the Exchange Act Section, a decision that may effectively bar the two Adanis from being part of companies that raise funds and go public in US.

The indictment alleges that “false statements, misrepresentations and material omissions” that Adani made and caused others to make “induced investors to purchase bonds and financial institutions to lend money pursuant to terms and at prices that did not account for the true risk” associated with the transaction.

How it unraveled

Neither the indictment nor the complaint has an exact chronology on how the plan came to light or the sources used, and some details are hazy with unclear timelines, but broadly this is what the legal documents appear to suggest.

In April 2022, Vneet Jaain, the CEO of Adani Green, also charged in the indictment, took a photograph to prepare for a meeting that had details of what Azure owed Adani for its share of the bribes (approx $83 million). There were long discussions, including involving Adani, on the possible options through which Azure could pay the bribe back to Adani; one employee, also indicted, prepared a power point presentation on “which corrupt option was best” as the indictment put it. These are the conversations that allegedly led to Azure ceding its rights to Adani in Andhra.

Among the various employees of Adani Green and Azure involved in the scheme, there was communication including via “electronic messaging”, some of which occurred when some of the actors were in the US.

Subsequently, when there was a query from SEC, there was a coordinated plot among employees of Azure and its institutional investor to “suppress documents, conceal information and profile false information” for the purpose of “obstructing, influencing and interfering” with government investigations.

In August 2022, five of these defendants from Azure and associated companies planned a plot to implicate Adanis of having plotted to pay the bribes while hiding their own role.

It was in March 2023 that FBI investigators approached Sagar Adani and took his electronic devices in custody, and informed him and then Gautam Adani of the investigation and served a grand jury subpoena. In subsequent company statements, the indictment alleges, Adani Green “false and misguiding statements” about its anti bribery practices. It accuses Gautam and Sagar Adani of making misleading statements about their awareness of the SEC investigation in statements to the media, market, regulators, and financial institutions.

A key source for the evidence may well have been Sagar Adani’s cellphone. The indictment says that he used notes on his cellphone to track details of bribes offered and promised. These notes included the names of states, the exact amount paid to official, the amount of power discom would purchase, the per megawatt rate for the bribe offered, title of government officials among other details.

Adani’s political and strategic weight

Adani is among India’s richest, most powerful and politically most controversial business leaders with an interest in sectors ranging from coal trading to renewables, ports to airports, power to defence, among others. Pro-government voices in India cast the Adani Group, which has a market cap of over $200 billion, as a national champion which has scaled up Indian infrastructure domestically and expanded Indian economic footprint internationally, while opposition voices attribute the group’s growth to Adani’s perceived proximity with PM, shared history in Gujarat and out of turn patronage and cite it as an example of “crony capitalism”. Both during the Lok Sabha elections and the just concluded Maharashtra state assembly elections, there were political allegations and counter-allegations around the role of Adani.

The group has had mixed experience in the US with the government and the market. The US Development Finance Corporation, an official arm that seeks to counter China’s infrastructure push, has partnered with the Adani Group on a port project in Sri Lanka.  A US market short seller, Hindenburg Research, made a set of allegations against the group, eroding its market value dramatically last year and forcing an investigation by domestic Indian regulators. More recent allegations have hovered around the alleged conflict of interest of a top Indian regulator, the head of the Security and Exchange Board of India, in the group.

The Adani Group has denied all allegations in the past but the current charges may pose the most serious challenge to the credibility of the business conglomerate as well as its founder. In recent weeks, Adani has congratulated Donald Trump on his win in the presidential race, describing him as a person of “unbreakable tenacity, unshakeable grit, relentless determination and the courage to stay true to his beliefs” and promised to invest $10 billion in US “energy security and resilient infrastructure projects” to create 15,000 jobs. Whether Adani needs Trump is a different matter, but Adani may well need all the qualities of strength he claimed he admired in Trump to overcome this crisis.