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July 23, 2013

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Anti Corruption - Policy And Bribery


- Neill Blundell, Head of Fraud & Investigations Group [ Eversheds, Hong Kong ]
- Vishal Melwani, Consultant [ Eversheds, Hong Kong ]

Neill Blundell & Vishal Melwani

Risk management in view of the UK Bribery Act 2010, US FCPA 1977 and the proposed amendments to the Prevention of Corruption Act, India, 1988.

The far reach of global bribery laws, more prominently, the US Foreign Corrupt Practices Act 1977 ("FCPA") and the UK Bribery Act 2010 ("UK BA") have made companies reconsider the process and procedures that they have in place to minimise their bribery risk

 The last few years have seen the need for bribery compliance to move up the agenda within organisations operating internationally. Not only can these companies now face action in the jurisdiction where the bribe is paid, but also in other jurisdictions where they operate. The far reach of these bribery laws is causing many compliance officers sleepless nights. In particular, the long reach of the US Foreign Corrupt Practices Act 1977 ("FCPA") and the UK Bribery Act 2010 ("UK BA") have made companies reconsider how they operate and the process and procedures they have in place to minimise their bribery risk.

The United Kingdom ("UK")


The UK BA, which covers both private to public bribery as well as bribery of foreign public officials, has a separate corporate offence of "failing to prevent bribery". It has an extra territorial reach, meaning that UK companies and those that do at least part of their business in the UK (named in the UK BA as "commercial organisations") can be caught for acts of bribery committed anywhere in the world. It captures any acts of bribery that benefit the company, whether committed by one of its employees, or a third party providing services to it. The company needs no direct knowledge of the activity itself. The company will, however, have a defence if it can show that it had "adequate procedures" to prevent bribery occurring in the first place. We will explore the meaning of adequate procedures below, but clearly, such procedures will be vital in defending any action. A conviction not only brings with it negative publicity, heavy financial penalties but also the likely debarment for bidding for public contracts in the European Union. Individuals found guilty of serious offences under the UK BA can also be imprisoned for up to 10 years.

The United States of America ("US")


The US regime, whilst only covering bribery with foreign public officials, is also a major concern for those companies who have subsidiaries in the US, or do business in the US or who simply transact in US dollars or use the US banking system. This is because the FCPA is the most enforced anti-bribery legislation in the world and the US authorities have taken a wide view of their extra-territorial reach. The US has, over the last 14 years, been vigorously enforcing the FCPA and the majority of those companies targeted have been non US companies.

India


As international jurisdictions, like the UK, toughen up their regimes, domestically, India has also been bringing statutory reforms in this area. The main relevant statute is the Prevention of Corruption Act, 1988 (the "Act"). In the years since its enactment, a number of bills have been introduced to Parliament to strengthen the provisions of the Act. One recent attempt, the Prevention of Corruption (Amendment) Bill 2008, was passed by the Lok Sabha on December 23, 2008 but due to the general election in 2009, the bill lapsed before it could become the law. The Government resumed discussion of amendments to the Act after the election and on May 1, 2013, the Union Cabinet approved certain amendments. A bill to this effect will be introduced in Parliament.

The proposed changes address loopholes that previously were considered weaknesses in the anti-corruption framework in India. The major proposed amendments are highlighted below:

    1. The definition of bribery will be amended to cover those cases involving public servants where money and favours have been exchanged through intermediaries. This should resolve the existing difficulties if there is no tangible proof that the official concerned had received bribes personally.
    2. There will be a change in focus away from purely the receiver of corrupt advantages to the supply side. Provisions in the Act will be tightened to ensure that those who give bribes are also subject to criminal prosecution. Until now, the Act had conceived of the bribe giver as an "abettor" and not the primary offender. Bribe givers have also been able to claim immunity under Section 24 of the Act in a number of circumstances, for instance if they made a statement against public servants in proceedings or if the bribe giver could demonstrate that they were unwilling to provide the bribe.
    3. New provisions will allow for the confiscation of properties acquired by government officials with funds obtained from corruption.
    4. Corporations will be explicitly brought within the ambit of the Act.
    5. Special judges will now be able to attach before judgement the property alleged to be acquired by holders of public office through corrupt means.

If the proposed amendments are adopted by Parliament, the laws against corruption in India will probably be on par if not superior to those in other parts of the world. Nevertheless, corruption has long been a problem in India. The country ranks at 94 out of 176 countries and territories in the world in Transparency International’s 2012 Corruption Perceptions Index. In relation to the new reforms, there has been disappointment with a provision giving retired bureaucrats additional protection by requiring that government sanction be obtained before initiating proceedings against retired officers accused of bribery whilst in office. Arguably, however, the deficiency in the legal framework has never been the key difficulty in the battle against corruption. Rather, the story is the familiar one in India of under-enforcement and overregulation.

Having said this, there is reason to believe that the status quo will not remain unchanged indefinitely and that the recent reforms will assist in reducing the prevalence of corruption in India. The long-standing public apathy in relation to corruption has arguably taken a beating after the Anna Hazare movement gained momentum a couple of years ago. Perhaps, this is not surprising given the increasing aspirations of India’s middle class and the widely reported scandals involving the 2010 Commonwealth Games, the 2G telecom sale, the Uttar Pradesh NRHM Scam, the Karnataka Wakf Board Land Scam and the 2012 Indian Coal mining controversy.

If the proposed amendments are adopted by Parliament the laws against corruption in India will probably be on a par if not superior to those in other parts of the world

In addition to the change of mood, the other factor that will likely lead to changed behaviour is the trend of Indian corporates investing abroad and foreign companies investing in India. Given the provisions within the UK BA and the US FCPA, foreign investors in Indian companies will negotiate arduous clauses in merger agreements to require investee companies to comply with standards of transparency that are expected internationally. There may also be issues in relation to joint ventures. A bribe paid by the joint venture entity may potentially lead to liability for a member of the joint venture if the joint venture is performing services for the member and the bribe is paid with the intention of benefiting that member. Equally, as indicated above, Indian companies doing business or acquiring overseas subsidiaries in the UK, the US and other developed countries will directly come under the statutory regimes of those countries. This means they could face action in the US and/or UK. Finally, internal controls to guard against the risk of corruption should make it considerably easier for any Indian company which wishes to sell one of its businesses to a foreign buyer.

Given the convergence of international and domestic best practices in this area, what can an Indian corporate do to manage risk?

Adequate Procedures


The UK BA in providing for a defence of "Adequate Procedures" to the corporate offence of "failing to prevent bribery" has led the way in helping devise an anti-bribery programme which can be adopted by international businesses. There has been a lot written about what constitutes "adequate procedures" and the UK Ministry of Justice provided guidance on it ("The Guidance") in 2011. The Guidance is helpful but a company needs to remember to build its programme in a risk based and proportionate way. The emphasis is on a "risk based approach" and therefore, the anti-corruption policies and procedures should be "proportionate" to the corruption risks the company actually faces. The Guidance sets out the six areas upon which a company needs to base its anti-bribery regime and these six areas are designed to be "flexible" and "outcome focussed". We quote directly from the guidance below.

They are as follows:

It is vital that Indian companies embrace the changing landscape of anti-bribery laws and adopt policies to minimise their bribery risk. Those companies that fail to act will leave themselves very exposed
    1. Proportionate Procedures - "A commercial organisation's procedures to prevent bribery by persons associated with it should be proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisations' activities. They should also be clear, practical, accessible, effectively implemented and enforced".
    2. Top Level Commitment - "The top level management of a commercial organisation…should be committed to preventing bribery by persons associated with it. They must foster a culture within the organisation in which bribery is never acceptable."
    3. Risk Assessment - "The commercial organisation should assess the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment should be periodic, informed and documented."
    4. Due Diligence - "The commercial organisation should apply due diligence procedures, taking a proportionate and risk based approach in respect of persons who perform or will perform services for or on behalf of the organisation in order to mitigate identified bribery risks."
    5. Communication (including training) - "The commercial organisation must seek to ensure that its bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training that is proportionate to the risks its takes."
    6. Monitoring & Review - "The commercial organisation should monitor and review procedures designed to prevent bribery by persons associated with it and make improvements where necessary".

 

Summary


The changing landscape of anti-bribery legislation world-wide makes it extremely important for companies to adopt policies and procedures to minimise their bribery risk. The extra territorial reach of the US FCPA and UK BA as well as the proposed amendments to the Indian FCPA makes it essential that any compliance regime includes measures to prevent bribery from occurring. Those companies that fail to act will leave themselves very exposed.

 

Disclaimer-The views expressed in this article are the personal views of the authors and are purely informative in nature.

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