CDPQ's Trusted Man at the Heart of the Corruption Plot
In September 2021, Azure Power – which received more than $600 million from Quebecers – announced the arrival of Alan Rosling as chairman of its board of directors. The Indian company emphasized that he was appointed by the Caisse, its controlling shareholder. Considered an accomplished businessman and pioneer of climate finance in India, he was in principle responsible for ensuring the good governance of the organization.
According to the American stock market watchdog, Rosling instead participated in the plot to pay some US $250 million in bribes to representatives of Indian states. He would have acted in concert with Azure's main rival, the Adani group, whose founder, Gautam Adani, 27th richest person in the world according to Forbes, is close to Indian Prime Minister, Narendra Modi.
For the nest egg of Quebecers, this story of corruption is added to a series of disasters having undermined its bet in Azure, which is today worth less than 5% of the value of the initial investment. The American authorities are interested in the matter because Azure's shares were traded on the New York Stock Exchange, before being delisted in July 2023.
A New York prosecutor unveiled, on November 20, a series of criminal charges against eight people, including three former executives of the Caisse and two former CEOs of Azure whom they had put in place.
Mr. Rosling is not one of them, but he nevertheless finds himself implicated in this matter, according to a civil complaint from the Securities and Exchange Commission (SEC). The document primarily targets the former vice-president, infrastructure for Asia-Pacific, at the Caisse, Cyril Cabanes.
In the first months of his mandate, Rosling had no significant role to play in suspicious contracts or in discussions with Adani, according to the American stock market watchdog. “That changed in spring 2022,” however, underlines his complaint.
On April 29 of that year, Rosling attended a meeting with the head of its competitor, the Adani group. On this occasion, “the complete list of bribes promised or paid to representatives of Indian states was read aloud to him,” mentions the SEC.
These payments were intended to convince authorities to sign contracts to buy 12,000 megawatts of solar electricity. A third of them were to go to Azure. The Adani family had already committed to paying all of the bribes to corrupt Indian representatives, as part of a market sharing agreement.
During the meeting with Rosling, “Gautam Adani sought to collect Azure’s share of the bribes, which amounted to tens of millions of dollars,” specifies the SEC.
He is considering “a feasible transaction”
Far from sounding the alarm, Rosling instead put his hands to work to find a way to conclude “a feasible transaction”, in the words that the vice-president of the Caisse Cyril Cabanes would have used.
While an internal investigation was in full swing in the summer of 2022 into potential embezzlement at Azure, Rosling and Cabanes “took steps to hide information about the bribes from executives at Azure and the company. Fund,” the SEC wrote.
The organization specifies that Rosling and Cabanes would have “agreed with other people at the Caisse and at Azure to agree on a false story”. They even allegedly lied to internal investigators and Azure lawyers.
Instead of paying its share in cash, Azure ultimately transferred its largest solar farm contract to Adani in 2023 under a false motive, says the SEC. “The resulting transaction resulted in a significant transfer of value from Azure to Adani."
Investigations launched in India finally got the better of the last contract that Azure had kept.
The company suddenly announced Rosling's resignation on October 12, 2023, an effective departure the day before the announcement. The statement did not mention any thanks for his services or the reasons for his ejection.
“More than shocking”
Former analyst at the Caisse and author of the Pension Pulse blog on pension plans, Leo Kolivakis said he was stunned by the content of the SEC complaint.
“It’s more than shocking,” he wrote on his blog. "You just can't make this stuff up. It should be made into a Hollywood blockbuster because it’s so serious."
Radio silence at the Caisse
Since the opening of its office in New Delhi in 2016, the Fund has bet 9 billion on India. Its three former executives accused of corruption were all employees of the Quebec institution in this region of the globe between 2018 and 2023.
How many investment cases have they been involved in? Has the Caisse established a process to ensure that its three former executives accused of criminal offenses have not committed other acts of embezzlement over these years?
Impossible to know. Despite requests from La Presse, the Caisse refuses to offer details.
“We are committed to the highest standards of ethics and compliance and no compromise is made on these issues,” its spokesperson, Jean-Benoît Houde, wrote in an email. We are talking here about three isolated cases, which concern individuals dismissed more than a year ago."
Difficult to comment without additional information, judge Nicola Bonucci, associate professor at Paris Cité University and former director of legal affairs at the Organization for Economic Co-operation and Development (OECD). In this capacity, he monitored the application of the Anti-Corruption Convention in member countries.
“In absolute terms, the question that arises is whether the people in question acted autonomously or with the at least tacit consent of management,” he says.
He adds that if executives were able to act by circumventing internal compliance controls, “this should lead the company to question the effectiveness of its programs.”
I was going to take advantage of the long weekend in the United States to take some time off but this article came out early this morning.
First, Julien Arsenault of La Presse did reach out to me and asked me if I was aware of Alan Rosling and his role in the bribing scandal, citing this passage from the SEC complaint against former CDPQ executive Cyril Sebastien Dominique Cabanes:
On September 30, 2021, CDPQ, with Cabanes participating, appointed the Azure
Chairman as Chairman of Azure’s Board of Directors. The Azure Chairman had had no
substantive involvement with the contract awards for the Manufacturing Linked Projects, or with any discussions or negotiations involving any Adani Green officials. That changed in spring 2022.
I told Julien I didn't know Alan Rosling but referred him to my recent blog comment and said there are many unanswered questions here and there needs to be accountability at the CDPQ.
However, I also mentioned several times there is an ongoing investigation so we don't know if others are involved.
In the article, CDPQ spokesperson Jean-Benoît Houde, wrote in an email:
“We are committed to the highest standards of ethics and compliance and no compromise is made on these issues. We are talking here about three isolated cases, which concern individuals dismissed more than a year ago."
Well, those "highest highest standards of ethics and compliance" proved completely worthless in this massive bribing scandal.
CDPQ has a Policy on Fraud and Corruption Prevention and Detection which you can view here and it was last updated in October 2020.
I note this part:
When I posted my comment on CDPQ Rocked by Major Indian Bribery Scheme on LinkedIn, Adriana Arrillaga, President and Portfolio Manager at One Summit Capital Wealth Management shared this in a comment:
“According to a recent study by Transparency International – a Berlin-based NGO working against corruption, India is the ‘Most Corrupt Country in Asia-Pacific Region’, and seven out of 10 people in India, pay a bribe to access public services. Ever since India received its independence, several corruption scandals have broken out in the country causing crores of loss to the central and state governments. Here’s a look at most infamous corruption scandals of India.”
One contact of mine who is a director on a board told me he wasn't shocked:
India is very corrupt, all these emerging markets are so doing business in India, Indonesia and other emerging markets adds reputation risk to Canada's large pension funds, a lot more than doing business in the US, UK, Australia or other countries where bribes and corruption aren't rampant.
He added:
This scandal stinks, you have to wonder who else knew about it at CDPQ and if there was pressure to obtain performance and look the other way. Keep in mind, it was a whistle-blower who went to the SEC, not CDPQ, to tell them about these alleged bribes. CDPQ senior execs were caught with their pants down. And to be honest, I wouldn't be surprised if similar bribing schemes are also occurring at other CDPQ subsidiaries in India and at those of other large Canadian pension funds.
He raises several important points there. Who exactly reported this to the SEC? Are there other people at CDPQ currently being investigated? Was there pressure to perform in India and did they knowingly look the other way as all this unfolded?
Moreover, this person found it odd that neither CDPQ's senior management or its board of directors released a public statement stating they have launched their own internal investigation and findings will be presented very soon.
I told him it's not odd when you consider the US investigation is still going on and all CDPQ's internal and external legal counsels are telling them to stay quiet.
But in his email, CDPQ spokesperson Jean-Benoît Houde, wrote: "We are talking here about three isolated cases, which concern individuals dismissed more than a year ago."
Three isolated cases? If that's truly the case, then why not release a public statement on this scandal and launch an internal review where findings are made public?
Something doesn't add up here and I'm not surprised politicians are circling around this case, demanding answers:
Here is the translation:
"I expect an explanation from the Minister of Finance on these actions by the CDPQ. Quebecers must have all the information and those responsible must be punished. It is our reputation and credibility that is damaged by this terrible story."
What do you think Quebec's Minister of Finance will do? He'll end up bringing CEO Charles Emond to Quebec City where he will be grilled hard on this scandal involving alleged bribes to foreign government officials.
And let me be even more blunt, if CDPQ sticks to the "three isolated cases" line, they're going to be crucified, literally crucified.
Here are a list of tough questions that need to be answered:
- Who hired Cyril Cabanes, who did he report to initially and who did he report to while these alleged activities took place?
- When did CDPQ get contacted by the FBI, SEC and US Department of Justice that there was an ongoing investigation into alleged bribes? How did CDPQ respond? Did it immediately launch an internal investigation and if it did, will the findings be released? What are the internal policies to mitigate fraud like this? Why didn't they work?
- When did CDPQ dismiss former executives Cyril Cabanes, Deepak Malhotra and Saurabh Agarwal for their participation in an alleged bribery scheme involving Indian conglomerate Adani Group? When did they dismiss Alan Rosling? Were they given severance packages to sign non-disclosure agreements?
- Why did Anita George leave CDPQ after heading up operations in India? What role if any did she play in all this?
- Does CDPQ have any issues with other subsidiaries in India? Given what happened at Azure, were independent experts brought in to evaluate activities at other subsidiaries and if so, what were their findings? (for example, were there similar bribe cases? What is the turnover at all Indian subsidiaries and in what departments? Is corruption systemic and widespread?)
I can go on and on as it was my job at CDPQ to grill external hedge funds on investment and operational risks but these are critical questions that need to be answered.
And if CDPQ and its Board do not provide a comprehensive review and solid answers, Quebec's government should launch its own probe, bringing in its independent experts to review how and why this happened.
That's how serious this case is and to dismiss it as "three isolated incidents" is literally to sweep it under the table.
Now, some people have told me that you need to accept some shady things will occur if you're going to do business in India and take part in its great economic transformation there, but my answer is at what cost, the entire reputation and credibility of your pension fund is at stake.
And here we are talking about senior executives who took part in a mastermind plot to bribe Indian government officials to get better contract terms for their solar project.
It can't get any more serious than that.
Lastly, I am aware that bribes can happen anywhere, including here in Canada across all asset classes.
When I was working at the CDPQ back in 2002, I visited the offices of Norshield Financial here in Montreal and it took me 20 minutes to figure out it was a Ponzi scheme and as I was leaving its shady founder approached me and said: "Is there any way to facilitate an allocation?".
I said: "Sure, come to CDPQ and ask my investment committee, you should be ashamed of yourself."
He had greased pension fund managers in Laval and Sherbrooke to invest in his fund of funds (it wasn't even that) and I wasn't shocked when his firm collapsed.
So, yes, bribes can happen here but in a country like India where corruption is widespread, you really need to be on guard and have everything checked out three times by many eyes in your finance department.
What else? OMERS is a minority shareholder of Azure and as far as I can tell, nobody there was involved in this scheme and they must be very uneasy with what has transpired.
Again, this is the most serious bribing scandal involving a global pension fund and unfortunately it involves former executives at CDPQ's Asia-Pacific operations.
One former employee of CDPQ told me flat out "the board and management are extremely weak" and when I asked why, the response was there has "been unusually high turnover at certain levels at CDPQ and the board is made up of people that aren't qualified to oversee CDPQ."
Senior executives at CDPQ have a solid reputation so that surprised me and as far as the board of directors, they look fine to me but I do not know them intimately and cannot judge their qualifications.
I am surprised they haven't come out with a statement on this matter but as I said above, if the investigation is ongoing, the lawyers take control and muzzle everyone.
Alright, I wanted to take US Thanksgiving weekend off but this article couldn't be ignored.
Is this the end of this scandal or is there more to come? I have no idea, I hope not for CDPQ and its members.
As far as the rest of the large pension funds with huge operations in India, I wouldn't be surprised if they are all revising their fraud policies and making sure nothing like this ever occurs at their pension fund.
Below, India’s Gautam Adani, one of the world’s richest men, was charged last week by US prosecutors over his alleged involvement in a $250 million bribery scheme. The indictment sent the stocks and bonds of Adani’s vast conglomerate tumbling and is the second governance crisis to hit the group in two years.
On today’s Big Take Asia Podcast, host K. Oanh Ha and Bloomberg’s Menaka Doshi discuss what the charges mean for Adani’s empire and corporate India, and the implications for US-India relations.
Also Reuters reports that with $31 billion debt, deep links to the banking system and a star role in India's energy transition, Adani's empire is a crucial part of the country. In this week’s Viewsroom debate Breakingviews columnists look at how US bribery charges will test his role (great discussion).
Lastly, India Today TV decodes the Adani indictment and looks into whether there should be a probe In India. What a mess!
Update: The former CDPQ employee expanded on the weakness of CDPQ's board and management:
The board is weak because no board member has ever invested professionally. If you have never done the job, you will miss a lot of the red flags. Same for the management team, almost no investment experience prior to CDPQ, mostly bankers who never owned their positions. Investing professionally is harder than it seems. CDPQ should not be the place where you learn by trial and error.
This is weak. Have a good read on CPP Investments' management and board prior experience. They have amazing expertise. For me, given the size and complexity of CDPQ, there's not enough hands on investment experience at the board and management level.
Investment experience is defined in the document on the governance competency for the board on CDPQ's web site. According to this definition, none of the board members have it.
I remarked that unions have (minority) board representation on CDPQ's board and that has pros and cons but it is their money and they want a seat at the board table.
I also note that even if board members don't have direct investment experience, they are highly qualified professionals with diverse experience.
As far as CDPQ's management team, some have more direct investing experience than others but let's not forget that Michael Sabia who was Charles Emond's predecessor had zero investment experience and still managed to do a great job for the eleven years he was at the helm of CDPQ (Michael was brought in to clean up shop and he knew how to surround himself with highly qualified and ethical people. And to be completely honest, he rode the bull market up and never had to deal with a major financial crisis, something I told him to his face at a private party and he agreed).
To be fair, REM is Michael Sabia's baby, an incredibly gutsy project that will bolster Montreal's public transit for decades to come.
The former CDPQ employee stated this:
Maybe, but the risk/return (of the REM) is not worth it for the depositors. I think that if you ask Charles, he is probably not happy about all the crap he has to deal with because of Michael’s guiltiness, including the REM, India, and other investments in Europe and South America.
I responded:
REM is going to turn out to be a great investment for Quebec over long run, I’m sure of this (over 30 years) and it’s the envy of North American cities who only wish they had it. Is it perfect? God no! And yes, Charles did inherit lots of problems which is why it’s important to have a probe into this India scandal and see who is really responsible.
The former CDPQ employee strongly agreed (REM over long run and probe).
What else? It's also worth noting that CDPQ is similar to AIMCo and BCI in that it has many clients to answer to and they need to manage these relationships carefully along with that of the government.
CPP Investments has Canadians contributing to the Fund as clients but no direct group of clients (they are lucky in that sense). It is the biggest and most important pension fund in Canada so I expect them to have a very competent and experienced board and management team and the truth is they lead by example.
Lastly, an astute former pension fund manager and current private equity manager notes:
Honestly this is making more out of things than is really required. The bigger issue and solution is get out of India, and other corrupt countries. The fact that this makes the indirect case for investing more in Canada would also suit the theme of the times.This assumes that there is not some sort of pervasive corruption culture in CDPQ. Not likely but certainly not something to be ruled out either. So some further due diligence is required, but guilty until proven innocent puts too much stock in the quality and credibility of US investigators as well. The SEC are very tactical about who they go after. So there is probably more of a story there as well.
I thank him for sharing his comments.
Update #2: Over the weekend, the Adani Group went on the offensive, claiming only CDPQ execs were indicted:
In other news, Adani Green Energy Ltd. will consider resurrecting its scrapped dollar bond between April and June, Group Chief Financial Officer Jugeshinder Singh said Friday, in a show of the conglomerate’s resilience despite the US probe against founder Gautam Adani.