Coke pressed for answers
to distributors in some markets in order to inflate its financial
results has intensified. A federal grand jury has been scheduled
and employees subpoenaed according to the Wall Street Journal.
The grand jury could begin to hear testimony in the case as early as 25 May.
The investigation centres on allegations that the beverage giant overstated financial results for several years by shipping excessive beverage concentrates to Japanese company Takasago International. This is what is known in the industry as 'channel-stuffing' - the practice of convincing clients to accept unwanted or early deliveries of a product.
The method is used to pad revenue, and can help a firm meet quarterly financial targets. Rebates, extended payment terms and other incentives are often provided to clients in exchange for their complicity.
According to a Wall Street Journal report, investigators have focused on Douglas Daft, Coca-Cola's chairman and chief executive who announced his plans to retire on 19 February.
The Atlanta-based soft drinks giant said that it was co-operating with the Securities and Exchange Commission and US Department of Justice. The investigation began after an ex-worker claimed that the company had overstated revenue and engaged in bogus transactions.
This is not the first time that Coca-Cola has been accused this practice. A shareholders lawsuit four years ago raised the issue of revenue-padding in Coca-Cola's Japanese market. Coca-Cola motioned to dismiss the lawsuit, which was amended and refiled last year.
The announcement that the US attorney's office and the Securities and Exchange Commission have stepped up their investigations is the latest in a series of blows to the beverage giant. The company is also in talks with the European Commission in an attempt to resolve an antitrust case against the group.
The European Commission has been looking into the legality of Coca-Cola's rebates to retailers since 1999, when it carried out an unannounced inspection at the group's European headquarters. Charges have yet to be brought, although the EC is thought to be planning to act against the company's German operations by next June.
In particular, the EC is examining rebates for retailers that carry a range of Coca-Cola products and at rewards for displaying drinks prominently. Coca-Cola claims that its rebates are normal practice, and argues that big retailers exercise more power over the sector. It denies it dominates the relevant market.
The company has also had to deal with the discovery of higher than permitted levels of the chemical bromate in samples of its bottled water brand, Dasani in the UK. A voluntary withdrawal was undertaken as a precautionary measure. The UK's Food Standards Agency said that although there was no immediate risk to public health, Coca-Cola's decision to stop selling Dasani in Britain was sensible.
The agency describes bromate as "a chemical that could cause an increased cancer risk as a result of long-term exposure, although there is no immediate risk to public health".
In a statement, Coca-Cola said that the contamination had been initially caused by its regular practice of adding calcium to Dasani, calcium which in this case "did not meet our quality standards". As a result, bromate went on to be formed during the manufacturing processes.
