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December 07, 2015

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Global Issues In Anti-Corruption Legislation


- Tushar Ajinkya, Partner [ Dsk Legal ]
- Ankita Kashyap, Manager [ Dsk Legal ]

tushar-ajinkya-ankita-kashyap

There is a crying need for MNCs to incorporate strict internal checks and balances to combat corruption worldwide

“The anti-corruption sentiment is not a whisper - it’s a scream. This is a movement whose heart and voice cannot be ignored”1.

Corruption is something which exists globally in some or the other form and in varying degrees. Unfortunately, India also ranks fairly high on the corruption index.2 The presence of complex multi-layered supply chain arrangements in industries like pharmaceuticals, retail and manufacturing, large value contracts and continuous government interaction in infrastructure are some of the factors that drive the quantum and frequency of bribery and corruption in such sectors. The Indian government is increasingly probing into malpractices in the private space in addition to taking action in bribery involving public officials. The Serious Fraud Investigation Office, the investigative arm of the Ministry of Corporate Affairs, has been directed to probe as many as 139 cases in the last three years3. In the meantime, around 41 countries have signed the Organization for Economic Cooperation and Development Anti-Bribery Convention which requires criminalising the bribery of foreign public officials and provides for measures for implementation of domestic legislation.

Rampant issues

With the rise of global business operations of corporates, multinational companies (“MNCs”) are increasingly facing challenges for mitigating risks related to corruption and kickbacks etc. in multiple jurisdictions. Fines and sanctions levied against corporations are on the rise. Actions that may not be illegal in a country could attract criminal prosecution in another. Some of the most common challenges faced by such MNCs are identified below:

  • Extra-territorial reach of foreign legislations and consequent compliance related issues

    Owing to extra-territorial reach of foreign legislations, companies are now required to ensure that their subsidiaries across jurisdictions are compliant with multiple anti-corruption legislations and related compliances. Recently, New York-based pharmaceutical company Bristol-Myers Squibb paid more than $14 million to settle the Securities and Exchange Commission’s charges that its joint venture in China made cash payments and provided other benefits to health care providers at state-owned and statecontrolled hospitals in exchange for prescription sales. The Securities and Exchange Commission found that, Bristol-Myers Squibb had violated the FCPA’s internal controls and recordkeeping provisions owing to failure to institute an effective internal control system and failure to respond promptly to indications of significant compliance gaps at its Chinese joint venture.

  • Overlapping laws across countries coupled with varying cultural practices and norms

    This makes it challenging for MNCs to adopt uniform compliance programs across jurisdictions. This can be elucidated below by way of few examples.

    • Bribery in the private and public space

      Unlike the UK Bribery Act, 2010 (“UKBA”) which covers bribery in both the public and private sectors, there is no specific bar in India under the Prevention of Corruption Act, 1988 (“PCA”) for paying compensation or giving gifts or commission to a private person insofar as it relates to contracts involving two or more private parties. The position is different insofar as the act concerns paying compensation or giving gifts or commissions to a person who comes under the purview of the definition of a “Public Servant” under the PCA. An offence of a Public Servant taking gratification other than legal remuneration in respect of an official act is punishable under the PCA. Further, any person abetting the abovementioned act is also liable to be punished under the PCA.

    • Bribe giving v. bribe taking

      Unlike the US Foreign Corrupt Practices Act, 1977 (“FCPA”) and UKBA, there is no explicit prohibition on bribe giving under the PCA. However, judicial precedents in India suggest that a bribe giver is usually considered an accomplice/abettor and hence a person (including a company) who is engaged in giving bribes to Public Servants could be construed as an abettor and be punished accordingly.

    • Facilitation payments

      One of the common forms of payment measures adopted by MNCs includes facilitation payments, which are often indistinguishable from bribes. The recording of such payments poses a great challenge for the companies, and poses an immense apprehending risk, when done in countries having different approach with regards to facilitation payments. Under the UKBA in the absence of an explicit exemption for facilitation payments, such payments might invite prosecution. Under the FCPA, “facilitating or expediting payments” made in furtherance of routine governmental actions, involving non-discretionary acts, are exempt from the purview of prosecution.

  • Due diligence on third party intermediaries

    The frequent use of middlemen, consultants and agents across the globe is not unknown to many sectors, especially the telecommunications, media, and entertainment sectors. Additionally, the inclusion of other sub-contractors and third parties in outsourcing business adds on to the vulnerability index of a sector, making it more prone to corruption.

    Under the PCA, accepting payments / gratification from others in order to influence a Public Servant by corrupt or illegal means or exercise personal influence over a Public Servant is a punishable offence. This could make third parties accepting gratifications from a corporate, in order to influence a Public Servant, liable under the PCA.

    Foreign companies constantly face challenges performing due diligence on foreign agents/ third parties. Recently, Louis Berger, a US firm, has been charged with bribing Indian officials with several crores to secure two major water development projects.

  • Corporate gifts

    Corporate hospitality, promotional or other legitimate business expenditure, falls under a grey area of regulation across various jurisdictions. For e.g. FCPA does not prohibit gift giving but prohibits payment of bribes including those disguised as gifts. FCPA does not contain a minimum threshold for corrupt gifts or payments. Therefore, there are chances that what might be considered as an insignificant payment in developed countries could be a much more significant amount in a different country; moreover, what may be considered customary in a country may be liable to scrutiny under FCPA.

  • Director’s liability

    Another question that requires consideration relates to potential liability of a company in relation to bribes given by third parties on their behalf. In India, with the new Companies Act, 2013, directors are required to furnish statements in the board’s report stating that directors had devised proper systems to ensure compliance with provisions of all applicable laws and that such systems were adequate and operating effectively. Devising proper systems to ensure compliance with the provisions of all applicable laws (including preventing giving bribes) could be seen as an obligation of the directors. Misstatements in the director’s report could attract criminal liability. Indian companies may be subject to indictment or other criminal processes, although the criminal act is committed through its agents.

Way Forward

The above provisions identify the need for MNCs to incorporate strict internal checks and balances to combat corruption. Companies also adopt mechanisms such as entering into deferred prosecution agreements (“DPA”s), self-reporting etc. to avoid criminal proceedings in exchange for their commitment to abide by the dictates of the DPA as well as bearing financial penalties and remedial measures. A commercial organization may have policies in place articulating the organization’s stance on anti-bribery, formulating processes and procedures to be undertaken in case an act of malpractice is suspected etc. Further, companies must be aware of creating whistleblower policies as well as the protections available to whistleblowers across jurisdictions.

1 Anand Mahindra, Vice Chairman, Mahindra & Mahindra, on Twitter.
2 Transparency International, “Corruption Perceptions Index 2014: Results”. Accessible at https://www.transparency.org/cpi2014/results.
3 Article titled “Government ordered SFIO probe in 139 cases: Arun Jaitley” dated April 24, 2015, The Economic Times./p>

Disclaimer – The views and opinions expressed in this article are those of the authors alone and should not be construed as legal advice.

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