An Indian tax investigation has revealed that the British insurer Aviva (AV.L) allegedly breached local regulations by using fake invoices and secret cash payments to circumvent commission caps for sales agents. According to a notice dated August 3, obtained by Reuters, Aviva's India operations reportedly funneled approximately $26 million between 2017 and 2023 to entities claiming to provide marketing and training services. However, these vendors did not perform any work and were instead used to channel funds to Aviva’s agents, according to the Directorate General of GST Intelligence, which oversees indirect tax violations.

The tax agency accused Aviva and its officials of engaging in a "deep-rooted conspiracy" by using fake invoices to transfer funds to insurance distributors. The notice, which is not public, is the first detailed report on the matter and is part of a broader investigation into over a dozen Indian insurers for alleged tax evasion totaling $610 million in unpaid taxes, interest, and penalties. The notice alleges that Aviva used these fraudulent invoices to wrongly claim tax credits, resulting in an evasion of $5.2 million in taxes.

In response, an Aviva spokesperson in the UK declined to comment on what they termed "speculation or ongoing legal matters." Aviva's Indian operations have not responded to inquiries, though a source indicated that the company plans to challenge the notice’s allegations.

The 205-page report includes evidence such as emails and WhatsApp messages between Aviva executives and insurance distributors discussing ways to bypass compensation regulations. It also contains summaries of interviews with executives like Aviva India CFO Sonali Athalye, who explained how payments were made. Then-Aviva India CEO Trevor Bull was copied on a 2019 email regarding payments exceeding regulatory limits, suggesting that senior management was aware of the situation.

The notice claims Aviva faces around $11 million in penalties, nearly equivalent to its 2023 profit from life insurance sales in India. The insurer’s India business operates as a joint venture with Dabur Invest Corp., in which Aviva holds a 74% stake after increasing its ownership from 49% in 2022. Dabur did not respond to requests for comment.

Despite India's relatively small market size for Aviva, the company sees the country as a growth opportunity, even as it faces stiff competition from state-run LIC, which dominates about two-thirds of the market. The investigators noted that Aviva's tactics were an effort to "garner more business and market share."

India's insurance regulator had long capped commissions on new policies at rates between 7.5% and 40%, depending on the product, with lower caps on renewal commissions. These limits were relaxed in 2023. However, internal emails revealed that Aviva officials referred to payments exceeding these limits as "Over Ride Commission" (ORC), which CFO Athalye described as being used interchangeably with terms like marketing and sales promotion expenses.

The investigation found that vendors who generated fake invoices were typically given a 5% cut of the billed amounts. A November 2022 email from an Aviva executive showed that the company officially paid a 17% commission to one insurance distributor but committed to a total payout of 75%, with the excess disguised through invoices from marketing and advertisement vendors. Another executive approved these ORC payments.

In another November 2022 email, an Aviva executive detailed payments to a broker who generated $906,000 in business in a year, receiving an official commission of $156,600 and an additional ORC of $400,000.

The notice also revealed that Aviva hired 559 so-called "agent mentors" to train sales agents, but these roles were a facade. Instead, the agent mentors issued fake invoices to Aviva, allowing the company to disburse excess commissions to agents. In one case, an insurance agent in Arunachal Pradesh, Bymat Taloh, was advised by Aviva to appoint his sister, Aina Mimum Taloh, as an agent mentor. She did not perform any actual work for Aviva, according to the notice.

Investigators also discovered that Aviva officials facilitated these payments by photographing 10-rupee bills and sending the images to both vendors and insurance agents. The agents would then present these photos to vendors to receive their excess commissions in cash.