Anti-corruption laws and how to ensure compliance

By Anay Banhatti and Virangana Wadhawan, Economic Laws Practice
0
1540

India’s image for public sector corruption is steadily improving. In 2015, India was ranked 76th (out of 168 countries) in Transparency International’s Corruption Perceptions Index, up from 94th in 2013 and 85th in 2014.

Anay Banhatti
Anay Banhatti

Corruption – traditionally viewed as “the cost of doing business” in India – has mired the country’s growth story. Although the Prevention of Corruption Act, 1988 (PCA), which is the principal law that criminalizes corruption, has been in force for almost three decades, the weak enforcement levels have been the subject of criticism. However, with increasingly stringent anti-corruption laws and a notable increase in investigation by various regulators, anti-corruption compliance has become an important matter for corporations with investments or operations in India.

In the recent past, there has been an increase in enforcement of anti-corruption laws. The focus has been on grant of contracts and licences by government agencies, including in relation to allocation of resources (telecom spectrum, coal blocks, etc.). In some of these cases, the Supreme Court or high courts have directed the Central Bureau of Investigation to investigate and have periodically monitored the investigation process.

The government is also taking steps to strengthen the anti-corruption laws. In line with India’s international commitment as a signatory to the UN Convention against Corruption, India has proposed significant amendments to the PCA and is also considering legislation to criminalize bribing foreign public officials. Stringent anti-corruption laws of other countries, such as the UK Bribery Act, also have extra-territorial application.

Under the PCA, three types of people can be prosecuted: (i) the bribe giver, (ii) the bribe taker, who is a “public servant”, and (ii) an intermediary, who takes a bribe to induce a public servant. It is an offence to give a bribe to a public servant to do or not do an activity, or to show any favour or disfavour, in discharge of their official function. The offence also covers a mere offer, or giving of a bribe without performance of the promised act. The term “public servant” is broadly defined and extends to employees of corporations owned, controlled, or aided by the government and also companies where government is a majority shareholder.

The bribe need not be in money and can be by way of gifts, hospitality, etc. Some examples have been sponsoring family vacations of government officers, giving tickets for company-sponsored events, and paying higher than the market value when renting premises belonging to a government officer. An offence under the PCA is punishable with a fine and imprisonment for up to 10 years. Further, the property derived from corruption can be confiscated under the Prevention of Money Laundering Act, 2002.

Virangana Wadhawan
Virangana Wadhawan

From an Indian perspective, the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act are considered to be most relevant in terms of their jurisdictional reach. There has been a growing trend of companies getting caught in the FCPA net while doing business in India. The FCPA covers all companies having securities listed on a US stock exchange, companies having their principal place of business in the US, and the employees, directors, agents, etc., of such companies, wherever they are located. In several instances the investigation by US authorities or disclosure by companies before the US authorities has resulted in investigation by the Indian authorities.

Under the UK Bribery Act, (i) a company incorporated in the UK, (ii) an Indian subsidiary of the UK company, and (iii) any company or its subsidiary, where the company has “part of its business” in UK, would be guilty of an offence where any person associated with it gives bribe. For example, a French company giving a bribe in India can be prosecuted under the UK law where the company is a subsidiary of a UK company or has part of its business in UK. The only defence for a company is where it has “adequate procedures” in place to prevent associated persons from engaging in the corrupt act.

To tackle risks associated with the stringent laws, corporate governance and setting up of comprehensive, clear, practical and accessible anti-corruption compliance programmes play a pivotal role. A proposed amendment to the PCA would make a commercial organization responsible if a person associated with it bribes a public servant, and the only defence for the organization would be if it had “adequate procedures” in place. This emphasizes the onus on corporations to have robust anti-corruption compliance programmes.

An effective anti-corruption compliance programme requires a wider suite of compliance procedures to be implemented. In the Indian context, corruption risk assessment in relation to third parties is important. This involves enhanced due diligence and verification, contractual provisions with relevant representations and warranties and provisions to secure compliance, training of third parties and regular monitoring. Further, companies should formulate specific policies addressing issues in relation to gifts, hospitality and “speed up” payments, which can be a concern for complying strictly with anti-corruption laws.

Anay Banhatti is an associate partner and Virangana Wadhawan is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.

ELP_Logo_Black

109 A Wing, Dalamal Towers

Free Press Journal Road

Nariman Point, Mumbai – 400 021, India

Tel: +91 22 6636 7000

Fax: +91 22 6636 7172

Email: AnayBanhatti@elp-in.com

ViranganaWadhawan@elp-in.com

Mumbai | New Delhi | Ahmedabad | Pune | Bengaluru | Chennai