How to ensure compliance with foreign bribery laws

By Nusrat Hassan and Yosham Vardhan, DH Law Associates

With the globalization and liberalization of Indian economic policies, foreign and multinational companies have been increasing their presence in the Indian market. At the same time the rampant corruption in the corporate and government sectors is raising its ugly head, with various scams being uncovered. India is ranked at 94 out of 177 jurisdictions in Transparency International’s Corruption Perceptions Index 2013.

Nusrat Hassan
Nusrat Hassan
Managing Partner
DH Law Associates

This situation however is changing as government sectors and many Indian companies are becoming aware of anti-corruption laws being successfully enforced in many countries, which has brought corruption in various companies to the forefront. The most prominent anti-corruption laws globally are the US Foreign Corrupt Practices Act (FCPA) and the UK’s Bribery Act 2010.

The FCPA has both anti-bribery provisions and record keeping and internal control provisions, and is enforced by the US Department of Justice (DOJ) and the Securities and Exchange Commission. The UK Bribery Act is enforced by Serious Fraud Office (SFO).

The FCPA covers anyone who commits bribery in the US regardless of whether the person resides or does business in the US, giving it extraterritorial jurisdiction over foreign nationals and businesses. In short, the act aims to prevent direct or indirect bribery of foreign officials by any person within the territory of the US, by any US person outside the territory of the US or by any person working for a US company in any other state.

Yosham Vardhan
Yosham Vardhan
DH Law Associates

An important question that interests companies is whether a US parent company can be held liable for bribery acts of its foreign subsidiaries. The FCPA does not address this issue, however the guidance notes published by the DOJ state that US parent companies can be held liable for bribery acts of their foreign subsidiaries even if these subsidiaries do not have any direct connection with the US. This makes it pertinent for companies to ensure compliance before entering into any third party contracts.

In order to ensure compliance with the FCPA and UK Bribery Act, companies must establish a proper, systematic and functional internal control system and record keeping suitable to the company’s industry. We recommend the following to ensure compliance by enabling early identification of potential violations which would be detrimental to a company.

(1) Formulate and implement an anti-corruption policy: All parent companies must formulate and put in place an anti-corruption policy with procedures for compliance. Each organization has to evaluate and develop a procedure. There is no “one-size-fits-all”. A universal procedure for such compliance must be effected, which enables the policy to be followed by all members of the entity, starting from top management level to lower level employees, including all third parties such as agents, joint venture partners, etc. A senior officer responsible to ensure compliance of the policy and procedures under it on all levels must be appointed. Additionally a team must be set up under the officer to review records in an orderly and timely manner. Top level commitment is required at all times.

(2) Communication and training regarding compliance policies: It is crucial to communicate the company’s policies on compliance with anti-corruption laws to the directors, managers, employees, agents and business partners, and to educate them regarding the provisions of the FCPA and train them on avoiding violations on a periodic basis in light of the developments globally.

(3) Implement an internal reporting system: An internal reporting system on the lines of the whistleblower provisions of the FCPA provides a forum for directors, employees, agents and business partners to alert the company of any suspected or potential violation of the anti-corruption policies so that it can be identified and immediately dealt with by the management.

(4) Internal auditing: The company should adopt a reliable and foolproof auditing procedure in compliance with the standard auditing principles applicable in India and conduct regular audits and properly maintain books, records and accounts and a system of monitoring important transactions. It is also important to conduct due diligence of accounts and transactions of third parties, agents and business partners before entering into any contract with them in order to ensure that there is no previous record of bribery acts which could hinder the business of the company.

(5) Incorporating anti-corruption compliance policies in all contracts: All agreements and contracts with agents and business partners must contain provisions regarding anti-corruption policy compliance and ensure that all transactions comply with the auditing provisions and applicable anti-corruption laws.

Following a compliance programme greatly mitigates the risk of being heavily penalized for any violation. Voluntary disclosures of such violations are also encouraged. A majority of FCPA enforcement actions have resulted from voluntary disclosure. However, the SFO’s stand seems to be that self-reporting is no guarantee of non-prosecution.

The above policies and mechanisms enable an entity to greatly reduce the likelihood of violating anti-corruption laws and being held liable for any acts of subsidiaries or third parties.

Nusrat Hassan is the managing partner and Yosham Vardhan is an associate at DH Law Associates.

(D.H. Law Associates)Mumbai

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