UK's Aviva found guilty in $26 million fake invoice scandal in India: Report (2024)

The Income Tax Department has accused British insurer Aviva of breaching local regulations by using a system of fake invoices and clandestine cash payments to bypass commission caps for sales agents, reported news agency Reuters.

According to the report, this discovery was made by the Directorate General of GST Intelligence, which is responsible for monitoring indirect tax violations.

The report, based on a notice sent to Aviva on August 3rd, revealed that the insurer’s India business paid approximately $26 million between 2017 and 2023 to entities that supposedly provided marketing and training services.

However, the tax notice alleged that these vendors did not do any actual work. Instead, they served as a front for transferring funds to Aviva's agents, enabling the company to bypass regulatory limits on agent commissions.

The Directorate General of GST Intelligence described the situation as a "deep-rooted conspiracy," with Aviva and its officials allegedly using fake invoices to divert funds to insurance distributors.

"Aviva and its officials have indulged in a deep-rooted conspiracy and used the modus of fake invoices (without receipt of services) to pass on certain money to ... insurance distributors of Aviva," investigators wrote in the notice, Reuters reported.

Such "show cause" notices usually require companies to explain why authorities should not impose penalties for their actions.

This case is part of a broader investigation involving over a dozen Indian insurers for allegedly evading $610 million in unpaid taxes, interest, and penalties.

The notice indicated that Aviva wrongly claimed tax credits on the $26 million in fake invoices, thereby evading $5.2 million in taxes.

Aviva has not yet issued any statement on the development.

A source familiar with the situation mentioned that the company intends to challenge the allegations but has not yet formally responded, reported Reuters.

Alleged fake invoices and cash payments

The tax agency's 205-page report included emails and WhatsApp messages between Aviva executives and insurance distributors, discussing ways to circumvent compensation regulations.

The report also summarised interviews conducted by tax officials, including one with Aviva India’s Chief Financial Officer, Sonali Athalye, who explained the process of making the payments.

One significant finding was an email from 2019, in which Trevor Bull, the then-CEO of Aviva India, was copied.

The email discussed payments exceeding regulatory limits, indicating that senior management was aware of these practices. Both Bull and Athalye, along with Indian tax and insurance authorities, did not respond to requests for comment.

The tax notice stated that Aviva could face penalties amounting to roughly $11 million, a sum equivalent to its 2023 profit from life insurance sales in India.

Aviva operates in India through a joint venture with Dabur Invest Corp, a well-known local firm.

Aviva holds a 74% stake in the business, which it increased from 49% in 2022. Despite being a relatively small market for Aviva, India is considered a growth market by the company, given its status as the world's most populous nation.

India's life insurance sector, though competitive, represents a smaller portion of the national GDP compared to the UK.

Data from India's insurance regulator shows that life insurance premiums accounted for 3% of the national GDP, whereas the figure in Britain stands at 8.1%.

The tax notice suggested that Aviva's actions were part of a broader strategy to increase its market share in this challenging environment. The emails recovered during the investigation revealed that Aviva officials referred to commissions paid over regulatory limits as "ORC," or "Over Ride Commission." CFO Athalye confirmed this term during an interview with tax investigators last year, stating it was often used interchangeably with "marketing and sales promotion expenses."

Investigators found that vendors who generated fake invoices for Aviva were given a cut of about 5% of the amount billed. One email from November 2022 showed that while Aviva paid a commission of 17% to one insurance distributor, as per the rules, it had committed to a total payout of 75% by raising invoices from marketing and advertisem*nt vendors.

The email chain included an executive seeking approval for these ORC payments, with detailed figures on business generated, commission paid, and pending ORC. The approval for these payments was granted in the subsequent correspondence.

In another instance from November 2022, an Aviva executive shared a spreadsheet detailing payments to a broker who generated $906,000 in business in a year. The broker received an official commission of $156,600 and an additional ORC of $400,000.

In its efforts to distribute excess commissions to agents, Aviva also hired 559 individuals it called "agent mentors" to train sales agents. However, according to the notice, these agent mentors did not provide any services. Instead, they issued fake invoices to facilitate excess commission payments.

In one instance, an insurance agent from Arunachal Pradesh, Bymat Taloh, testified that Aviva advised his family to appoint an agent mentor, leading to his sister, Aina Mimum Taloh, taking up the role. The notice cited Bymat's testimony, stating that Aviva suggested this arrangement as part of its policy for disbursing additional commissions. However, the notice revealed that Aina did not perform any activity for Aviva, either as an agent or agent mentor.

Another curious detail mentioned in the notice was that Aviva officials facilitated payments by taking photos of 10-rupee bills and sending them to both vendors and insurance agents. The agents then approached the vendors with these photos to collect their excess commissions in cash.