As companies expand, how can they patrol local markets?

High value products and corruption are common partners. That is why the global spirits producers have to be vigilant about what their employees around the world do in their name, especially in some emerging markets where business ethics are not as codified as they are in Europe and America.

So as the global players seek to expand their influence in growing areas via niche takeovers, their compliance officers have to be ever more aware that the newly-acquired routes to market need detailed supervision, especially where state monopolies control whose products are made available to the public or where civil servants grant (or refuse) trading licences.

In some instances, rather than draw the local business closer under the global umbrella, it is safer to accept a reduced margin and let a local agent represent you.

That is what Diageo seems to have decided in Tamil Nadu, one of India’s largest markets for branded spirits where both the wholesale and retail trade is controlled by the state government, which sells 50m cases a year. For many years, Tamil Nadu has been a closed market to distillers from outside the state and is dominated by a cartel of 10 local producers

When it bought a 27% stake in USL earlier this summer, Diageo gained control of the Bangalore-based company’s board. And rather than draw the Tamil Nadu part of USL’s business closer to itself, Diageo has put it at arm’s length by selling Poonamallee distillery in Chennai to a local group, Enrica Enterprises only three years after USL bought it to gain access to the state. Crucially, the deal includes USL granting Enrica a franchise to represent its market-leading brands in Tamil Nadu.

It is widely suggested in India that Diageo is imposing very tight compliance standards, as are rivals such as Beam, which has also come under the microscope of anti-bribery investigators. While there are no allegations of impropriety, it is a fact of life that multinational corporations such as the global drinks groups fall under suspicion simply because of their size and the premium priced products they offer. Only Bacardi now has its own direct operation in Tamil Nadu and there are reports in the Indian press that it too is considering moving to a franchise agreement with a local company.

While none of the drinks groups would wish to fall foul of local laws, the greater anxiety for them is the global reach of both the US Foreign Corrupt Practices Act and Britain’s Bribery Act.

Diageo has already experienced the power of America’s authorities when in 2011 it paid $13m plus a $3m penalty to the Securities and Exchange Commission in Washington following investigations of its subsidiaries in India, Thailand and South Korea. In the latter instance, two former Diageo Korea employees were convicted for making improper payments to customs officials and three others were found guilty of tax evasion.

Diageo neither admitted or denied the offences but itself reported the incidents to the US authorities. At the time of the settlement it announced that enhanced systems were being put into place “everywhere the company operates” to prevent similar incidents and to ensure “a culture of compliance and commitment to the principles” in its code of business conduct.