Turning a blind eye

Misconceptions over the reach and application of the US Foreign Corrupt Practices Act leave many India-based businesses vulnerable
to the imposition of hefty fines

Kyle Wombolt reports

The US Foreign Corrupt Practices Act (FCPA) and India’s Prevention of Corruption Act (PCA) make it a criminal offence to bribe Indian government employees in order to obtain business or secure an improper advantage in the market. In the past these statutes were virtually unknown to many companies and their employees. However, a recent spate of high-profile cases has thrust them into the consciousness of all participants in the Indian economy.

In most jurisdictions, civil and criminal enforcement actions under anti-corruption statutes have risen dramatically in recent years. The penalties imposed for violations have also become more severe. Before 2008 the penalty of US$44 million imposed on oilfield services company Baker Hughes in early 2007 was the largest ordered under the FCPA. That penalty now seems lenient when compared to the US$579 million fine recently imposed on Halliburton and its former subsidiary Kellogg Brown & Root, and the nearly US$1.9 billion imposed on Siemens by enforcement authorities in the US and Germany.

It is important for domestic and international corporations with operations in India, as well as those in business anywhere else, to understand the anti-corruption laws that can affect them. There may be a tendency for those in India to look past the FCPA, assuming it to be a law that will not extend beyond US borders. However, it is crucial to recognize the implications of such laws for multinational companies: although Siemens is based in Germany, it recently paid a substantial fine to US authorities.

Kyle Wombolt is a partner at Goodwin Procter in Hong Kong.