challenges and compliance under indian anti-corruption laws - mohit saraf - june 8

8/2/2019 Challenges and Compliance Under Indian Anti-Corruption Laws - Mohit Saraf - June 8

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AMERICAN CONFERENCE INSTITUTE

FCPA Compliance in Emerging Markets

Effective Country-Specific Strategies to Detect and Mitigate FCPA Risks

Challenges and Compliance under

Indian Anti-corruption Laws

Mohit Saraf

Senior Partner

Luthra & Luthra Law Offices


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Challenges and Compliance under Indian Anti-corruption Laws

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Importance of Cross Border Compliance

As nations and regional groupings seek to implement stricterlaws with respect to bribery and corrupt practices, the legal risksfaced by trans-national corporations are becoming morecomplex.

Scope and operation of anti-corruption laws such as the USFCPA and the new UK Bribery Act is not restricted toterritorial boundaries.

Anti-corruption compliance is a hot-button issue in countriessuch as India, where trans-national corporations are increasingpresence.


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Importance of Cross Border Compliance

(contd.)

Anti-corruption is also gaining more relevance as, simultaneouswith increasing enforcement of anti-corruption laws, nationshave started to focus on individual and corporate liability incases of violation of anti-corruption laws.

In the context of these far-reaching developments, it appearsunlikely that India can act very differently and buck this trend, inthe current context. Moreover, India has entered into mutual

obligations with several countries including the US, to extendcooperation in respect of investigations and legal proceedings.


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4

Perception of Corruption Levels in India

India was ranked 84th out of 280 countries in TransparencyInternationals 2009 Corruption Perceptions Index.

Both Brazil and China were ranked better in the CorruptionPerceptions Index .

Further, a series of recent reports by consultancies including

KPMG, E&Y and Deloitte have highlighted the fact that thereare many systemic and cultural challenges facing anti-corruption compliance in India.


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5

PCA Enforcement: Statistics and Trends

While the perception might be that enforcement of anti-

corruption laws in India is poor, recent statistics suggestotherwise.

Data regarding cases under the PCA, recently presented in

Parliament, stated that:The Central Bureau of Investigation has registered 2,439cases of corruption against public servants in the last threeyears, including 78 against senior officers.

795 cases were registered under the PCA in 2009, as against

744 in 2008 and 688 in 2007, presenting a clear upwardtrend.


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PCA: Enforcement Risks

The public reporting of details of FCPA prosecutions, has resulted in theissue being raised in the Indian Parliament many times.

In the recent past, a number of sensational cases have grabbed mediaheadlines, including those involving the President of the Medical Council ofIndia, the temporary Chairman of the Company Law Board, and the ChiefGeneral Manager of the National Highways Authority of India, all ofwhom have either been arrested or are under investigation on charges ofbribery.

Practically, prosecutions against companies, officials on the rise.

This can result in continuing legal risks and adverse publicity for thecorporations involved.


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History of Indian Anti-corruption Laws

The present anti-corruption laws in India are based upon coloniallaws enacted while India was under British control.

Some of the important landmarks include:

In 1860, the Indian Penal Code was enacted, and incorporatedcorruption-related offences. The provisions under the IndianPenal Code made it an offence for apublic servant to accept abribe, as well as to offer a public servant a bribe.


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History of Indian Anti-corruption Laws

(contd.)

In 1947, to supplement the provisions under the Indian Penal Code, thePrevention of Corruption Act was passed in order to tackle corruption inthe post-war scenario. Corruption had increased during the war years due toscarcities and strict controls. The new offence of criminal misconduct was

introduced. Later amendments introduced the offence of possession ofassets beyond known sources of income.

In 1988, the present Prevention of Corruption Act was passed, replacing theearlier statute, subsequent amendments, as well as the sections of the Indian

Penal Code which dealt with corruption. This brought the anti-corruptionlaws within one statute, and provided for increased penalties, and alsobroadened the definition ofpublicservant.


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9Scope of the PCA and Penalties

Under the PCA, there are broadly three sets of offenders who arecovered:

A bribe taker who is a public servant.

The giver of a bribe.

Any middlemen who influences a public servant (either by a paymentor personal influence).

The definition of public servant under the PCA is wide, and includesemployees of government-owned and statutory corporations.

Punishment ranges between 6 months and 5 years along with a fine. Incertain cases of habitual offenders imprisonment could be 7 years. Thereis no limit on the maximum fine payable. Liability could be attributedto a company, if an employee/agent acted within the scope ofemployment, to obtain benefit for the company.


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Ingredients of Corruption under the PCA

Anygratification to a public servant for doing or forbearingto do an official act or favour/ disfavour to any person.

Any gratification to any person for inducing any publicservant by corrupt/ illegal or personal influence to do/ forbearfrom doing an official act or to show favour/ disfavour to anyperson.

Anyvaluable thing, without adequate payment for the same, toa public servant by a person who has or is likely to have officialdealings with the public servant.


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11PCA compared with the FCPA

Facilitation payments are illegal under the PCA, while theFCPA has a specific exemption for them.

Definition of foreign official is broader than public

servant, foreign official includes officers of public internationalorganisations.

The FCPA applies to payments made to political parties and

candidates, while the PCA does not.


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Common Issues

Does anti-corruption law apply only to payments or also to gifts/ other formsof benefit?

Indian law is extremely broad in scope. It covers anypayment/ gift/ other benefit.

Is it okay to make a payment/ gift/ other benefit for something which a

public servant is supposed to do?

No, Indian law prohibits a payment/ gift/ other benefit even

if it is for a lawful object.The concept of speed money for routine governmental

action does not exist under Indian law.


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Common Issues (contd.)

For an offence, is it necessary that a payment/ gift/ other benefit is actuallygiven?

No, mere offer of payment/ gift/ other benefit for a favourwould also constitute an offence.

For an offence, is it necessary that a favour should have actually beengranted?

No, if a payment/ gift/ other benefit is given or offered forany favour, and such favour is not eventually granted, an

offence may still be constituted. Grant of any valuable thing to a public servant with whom

one has official dealings also qualifies as an offence.


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Common Issues (contd.)

Is any value of payment/ gift permissible?

There is no prescribed value up to which a payment/ gift ispermissible under Indian law. Hence, any payment/ giftprovided for obtaining any favour/ action by the public

servant is prohibited. Hospitality (not frequent or lavish) or gift items of nominal

value, not intended to influence a public servant, may bepermissible.

Gifts up to certain value are permissible under conduct rulesof public officials. Conduct rules for civil servants governtheir conduct as employees and are not directly related to theoffences under PCA.


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Practical Situations

Certain situations that a company might face are:

Routine requests for payments by government officials(including officials of police, utility, railway, post office andcustoms departments).

Demands for payment to undertake routine action.

Rendering ofhospitality to business contacts who are publicservants, at promotional events and in the course of official

visits/ inspections.

Gifts on marriages/ festivals/ new year.


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Accounting and Other Issues

The FCPA, apart from making bribery an offence, also castscertain obligations upon corporations under the books andaccounts provisions.

The following issues are commonly observed with respect toaccounting treatment ofimproper payments:

Incorrect invoicing of sales.

Creation of fictitious expenses/ incorrect booking ofexpenditure/ routing of payments throughagents/consultants.


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Accounting and Other Issues (contd.)

Improper accounting has a host of implications under Indianlaw, including:

There is an obligation under the Companies Act to state

true and fair accounts, which could be violated in thesecases, entailing personal criminal liability for officers of thecompany.

Payments with an illegal purpose cannot be deducted asexpenses under Indian tax laws. Therefore, recording suchpayments as expenses, and recording fictitious expenses,could be construed as tax evasion.


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Steps Towards Compliance

Lay out a comprehensive compliance policy with respect toall dealings with public servants, including guidelines for givinggifts and offering hospitality.

Set up an effective internal monitoring mechanism to checkillegal acts by employees, and also ensure that incentives do notexist to engage in such illegal acts.

Conduct regular compliance training for employees of alllevels, to sensitise them to anti-corruption laws and theirconsequences.


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Steps Towards Compliance (contd.)

Establish and publicise a whistleblower policy to encouragereporting of illegal activities.

Conduct due-diligence onprospective business partners.

Ensure that a comprehensive business plan is put in place at thestart, to ensure that unanticipated regulatory hurdles do not

result in incentive to engage in illegal activities.


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challenges and compliance under indian anti-corruption laws - mohit saraf - june 8

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