British insurer Aviva conspired to evade Indian compensation and tax rules: DGGI | Insurance

An Indian tax agency has found that British insurer Aviva violated local regulations limiting commissions to sales agents with a system of fake invoices and clandestine cash payments, according to a notice seen by Reuters.

In an attempt to grow operations, Aviva’s India business paid about $26 million between 2017 and 2023 to entities that purportedly provided marketing and training services, according to the tax notice sent to Aviva dated Aug. 3.

But the vendors, who did not perform any work, were actually a front to channel funds to Aviva agents, said the Directorate General of GST Intelligence (DGGI), which is responsible for monitoring indirect tax violations.

“Aviva and its officers have engaged in a deep-rooted conspiracy and have used the mode of false invoices (without receipt of services) to pass certain money to… Aviva insurance distributors,” investigators wrote in the notice.

Reuters is reporting for the first time the details of the notice, which is not public. Such “show cause” notices typically require companies to explain why authorities should not impose penalties for their alleged actions.

The case is part of a broader investigation into more than a dozen Indian insurers for allegedly evading $610 million in unpaid taxes, interest and penalties. Aviva misused the roughly $26 million in fake invoices to claim tax credits and evade $5.2 million in taxes, according to the notice.

In response to questions from Reuters, a UK-based Aviva spokesman said: “We do not comment on speculation or ongoing legal matters.”

Its Indian operations did not respond to queries. A person familiar with the matter told Reuters the company intends to refute the allegations in the ad but has not yet responded.

The 205-page report included screenshots of emails and WhatsApp messages between Aviva executives and insurance distributors, in which they discussed ways to circumvent compensation regulations. It also contained summaries of interviews conducted by tax officials with executives including Aviva India’s chief financial officer, Sonali Athalye, who described how the payments were made.

Aviva India’s then-CEO Trevor Bull was copied on a 2019 email discussing payments exceeding regulatory limits, indicating that “Aviva’s senior management is also aware of this,” the investigators wrote.

Bull and Athalye, as well as India’s tax and insurance authorities, did not respond to requests for comment.

The company faces about $11 million in fines, roughly equivalent to its 2023 profits from selling life insurance in India.

Aviva’s India business is run in a joint venture with Dabur Invest Corp., a major local firm. Aviva owns 74 percent of the business, after increasing its stake from 49 percent in 2022.

Dabur did not respond to questions from Reuters.

India is a relatively small market for Aviva, which reported a global operating profit of nearly $2 billion in 2023. It faces intense competition from the likes of state-owned LIC, which controls about two-thirds of the market.

However, Aviva, which sells individual life insurance products and corporate plans in India, sees the world’s most populous country as a growth market.

Data from India’s insurance regulator show that life insurance premiums were worth the equivalent of 3% of national GDP. The equivalent share in Britain is 8.1%.

Aviva’s tactics were an effort to “gain more business and market share,” the investigators wrote.

In 2023, India’s insurance regulator relaxed long-standing commission caps, but had previously capped commissions on new policies at between 7.5% and 40%, depending on the product. Renewal fees were even lower.

In emails recovered by investigators, Aviva officials described paying commissions above regulatory limits as “ORC,” which CFO Athalye told tax investigators last year stood for “Over Ride Commission” and was “used interchangeably with terms such as marketing and sales promotion expenses.”

Sellers who generated fake invoices received a commission of about 5 percent of the invoiced amount, according to investigators.

An email from Aviva in November 2022 showed the company paid a 17 per cent commission in accordance with the rules to an insurance distributor, but was “committed” to a full 75 per cent payment “based on records by generating invoices from marketing and advertising providers”.

The email showed an Aviva executive seeking approval for ORC payments, with a table listing the numbers of business generated, commissions already paid and outstanding ORC.

Another executive responded: “The attached payment is approved.”

In a separate email from November 2022, an Aviva executive shared a spreadsheet detailing payments to a broker who generated $906,000 in business in one year and received an official commission of $156,600 as well as an ORC of $400,000.

Aviva also hired 559 people it called “mentor agents” to train sales agents.

But no such services were provided: Instead, the mentoring agents issued false invoices to Aviva to facilitate excessive commissions to the agents, according to the notice.

In at least one case, an agent and a mentor agent had family ties.

Bymat Taloh, an Arunachal Pradesh-based insurance agent, told tax investigators in May that Aviva had recommended to his family that they appoint a mentor agent. His sister, Aina Mimum Taloh, took on that role.

Aviva “has suggested that, under company policy, a mentor agent is required for the disbursement of the additional commission,” the notice says, citing Bymat’s testimony.

Aina “did not perform any activities for Aviva as an agent or mentor agent directly,” investigators wrote.

Reuters was unable to reach the brothers for comment.

Aviva officials also facilitated payments by taking photos of 10 rupee notes and sending them to suppliers and insurance agents.

The insurance agents then approached the sellers with the photo of the ticket to obtain their excess commissions in cash, investigators said.