As India Inc goes global, compliance with anti bribery legislations of the developed countries, in particular of the United States of America (the “US”) and the United Kingdom (the “UK”) may become essential. An attempt has been made in this article to describe how an effective compliance program can be designed and implemented for ensuring adherence to the...
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As India Inc goes global, compliance with anti bribery legislations of the developed countries, in particular of the United States of America (the “US”) and the United Kingdom (the “UK”) may become essential. An attempt has been made in this article to describe how an effective compliance program can be designed and implemented for ensuring adherence to the US and the UK anti bribery laws.
Foreign Corrupt Practices Act, 1977 ( the “FCPA”) was enacted by the US Congress in response to a maelstrom of outrage following the report by the Watergate Special Prosecutor that US corporations were bribing government officials in foreign lands.
Following the pressure mounted by the Organisation for Economic Cooperation and Development and the US to act tough against the bribery, the UK Parliament passed the Bribery Act 2010 (the “UKBA”) and brought the same into force from 1st July 2011.
The FCPA prohibits direct or indirect bribing of foreign public officials, political parties or politicians, for the purpose of obtaining or retaining business or securing improper advantage. It also mandates that companies registered with securities exchange commission to maintain accurate books and records of all transactions and an effective internal control system. It applies broadly to the US companies and their foreign subsidiaries, individuals, companies that have issued securities registered in the US, directors, employees and agents of the US businesses, and foreign nationals and businesses that cause prohibited acts in the US.
The UKBA prohibits bribery of both government and private officials, whether in the UK or at any place in the world by a person having ‘close connection’ [defined under section 12] with the UK. Close connection is very widely defined term under the UKBA and includes individual holding UK citizenship or nationality or a body incorporated in the UK.
A criminal offence will be committed under the UKBA if an employee or ‘associated person’ [defined under section 8] acting for, or on behalf of, ‘relevant commercial organisation’ [defined under section 7] offers, promises, gives, requests, receives or agrees to receive a bribe; and if such relevant commercial organisation does not have the defense that it has adequate procedures in place to prevent bribery by its employees or associated persons.
While both the FCPA and the UKBA deal with anti bribery provisions, following are key differences:
Type of Bribery
Applies only to bribery of foreign official.
Prohibits bribe to ‘any person’. Thus, a bribe to a private individual or corporate is also covered.
Active and Passive Bribery
It is an offence to give bribe. But it is not an offence to receive bribe.
Covers both receiving a bribe and giving a bribe, i.e., not only is the act of offering, promising or giving a bribe criminal, the passive acceptance of a bribe.
It must be proved that person offering the bribe did so with a “dishonest or corrupt” intent.
No requirement to prove dishonest or corrupt intent in case of bribes to foreign public officials. The company is strict liable for failure to prevent acts of bribery.
Allows facilitation payments under limited circumstances provided such payments are properly reported in the company’s financial records.
Facilitation payments are illegal.
Allows promotional expenses if it can be demonstrated that they were a reasonable and bona fide expenditure.
No such provision. However Ministry of Justice (“MoJ”) has provided some comfort on this aspect in its guidance by stating that hospitality may be legitimate provided it is reasonable and proportionate for the organisations’ business.
Existence of compliance program is not a defense; however it would be an essential factor for considering prosecution and the terms of settlement.
While relevant commercial organisation is accountable for failing to prevent bribery, it is a statutory defense if it is proved that the relevant commercial organisation had in place “adequate procedures” designed to prevent bribery.
Liability of senior officers
Senior officers (officer, director, supervisor, manager, or another person having “control” over the conduct) may be held liable for offence in their capacity as a ‘control person’.
Senior officers (director, manager, secretary or other similar officer of a body corporate) may not liable if such offence is committed without their consent or connivance.
Bribery. Imprisonment upto 5 years and fine up to US$ 2,50,000 per violation. Penalties may be levied under other laws as well.
Accounting Offence. Imprisonment upto 20 years and fine up to US$50,00,000 per violation. Penalties may be levied under other legislations as well.
Bribery. Fine up to US$ 20,00,000. Penalties may be levied under other laws as well. Accounting Offence. US$ 250,00,000 or twice the benefit sought. Penalties may be levied under other laws as well.
Individual: Imprisonment upto 10 years and unlimited fines. Penalties may be levied under other laws as well.
Corporate: Unlimited fines. Penalties may be levied under other laws as well.
Relevance of the FCPA and the UKBA to an Indian Company:
a) Under the following circumstances, an Indian company ( including its directors, employees or agents) is required to comply with the FCPA and the UKBA :
1) has principal place of business is US; or
1) it carries on a business or any part of a business in the UK;or
2) is listed on the US stock exchange(s); or
2) is listed on the UK stock exchange(s); or
3) is required to file periodic reports with the US Securities and Exchange commission (the “SEC”); or
3) is a branch or subsidiary or a joint venture of the UK entity.
4) is a branch or subsidiary or a joint venture of the US entity.
b) An Indian company positioning itself to act as an agent, representative, distributor, reseller, consultant, contractor, sub contractor or as any other service provider; or for merger, joint venture, acquisition; or foreign investment from a organisation, subject to the FCPA and the UKBA (the “covered persons”),need to ensure that it complies with the FCPA and the UKBA provisions, because the covered persons:
c) FCPA cases relating to Indian Companies.
Importance of designing and maintaining a strong compliance program for the FCPA and the UKBA stems from the fact that:
a) it provides assurance to the stakeholders that the company operates ethically and transparently;
b) under the FCPA, in case of violation, it may help in avoiding prosecution or reducing the penalty; and
c) under the UKBA, it acts as full defense against liability if it is established that proper and adequate procedures were in place to prevent bribery.
The DoJ in various cases settled under the FCPA has prescribed best practices for the FCPA compliance program. The MOJ in accordance with section 9 of the UKBA, on 30th March 2011, published ‘adequate procedures’ guidance that relevant commercial organisations can put in place to prevent their ‘associated persons’ from committing bribery.
Combined analysis of the compliance programs prescribed under various deferred prosecution agreements and non prosecution agreements under the FCPA by the DoJ and the guidance of the MoJ on the ‘adequate procedures’ under the UKBA, reveal that there are several important components to an effective FCPA and the UKBA compliance program (compliance program”). Following are the practical tips for the company to consider while designing and implementing compliance program:
The risk assessment procedures should be designed keeping in view the nature and size of the organisation, its activities, customers and countries of operation. The risk assessment can be done using various methodologies and tools including reviewing audit reports, customer complaints, employee interviews, surveys, review of targeted accounting records.
Having identified the relevant areas of risk, the next task is to establish relevant and proportionate policies, procedures and controls that address the likely areas of bribery.
(i) Code of Conduct: Code of conduct is an important element of compliance program as it gives broad guidelines for expected ethical behavior from all concerned. Code of conduct should detail required standards of behaviour from directors, employees, third parties viz., agents, representatives, distributors, resellers, consultants, contractors, sub contractors or any other service provider (“business associate”). Following are best practices in drafting and implementing an effective code of conduct:
(ii) Anti Bribery Policy: Zero tolerance towards bribery, consequences in case of breach, and the company’s aim to maintain anti bribery compliance as business as usual rather than as a one-off exercise should be made clear through this policy. Following are best practices in drafting and implementing an effective anti bribery policy:
(iii) Facilitation Payment Policy: It should be made clear through this policy, that none should, on behalf of the company, offer, pay, and promise or provide gifts or anything of value to a government official in exchange for a business advantage. Following are best practices in drafting and implementing an effective facilitation payment policy:
(iv) Gift & Entertainment Policy: It should be made clear through this policy, that no gift or entertainment should be given or received if doing so will improperly influence a decision or create a sense of obligation or if there is a risk it could be perceived as doing so. Also limit on receipt or giving of genuine gift & entertainment and the procedure for reporting the same shall be established. Following are best practices in drafting and implementing an effective gift & entertainment policy:
(v) Travel Policy: It should be made clear through this policy, that the company will not pay or reimburse third party travel expenses, such as airfare, lodging, boarding and other incidentals, unless such expenses relate to (i) promotion, demonstration, or explanation of the company’s products or services, or (ii) execution or performance of a contract, and provided such costs are modest and in accordance with the third party’s own travel regulations and restrictions. Following are best practices in drafting and implementing an effective travel policy :
(vi) Political, Charitable contributions and sponsorship Policy: Through this policy, guidance should be provided on political, charitable donations and sponsorship, including a clear prohibition of the sponsorship or payment of donations to political parties or charities that are directly linked to obtaining new business or gaining a business advantage. Following are best practices in drafting and implementing an effective political, charitable contributions and sponsorship policy:
(vii) Petty Cash Policy Following are best practices in drafting and implementing an effective petty cash policy. Petty cash should not be allowed for :
(viii) Whistle Blower Policy Following are best practices in drafting and implementing an effective whistle blower policy:
(ix) HR Process Thorough and effective system for pre-employment verification should be introduced and regular training and awareness programs should be conducted to ensure the company’s values and policies are understood and put into practice at all levels.
(x) Due Diligence To help employees identify warning signs of potential bribery practices and minimise the risk of potential liability for the actions of business associate, the company should adopt comprehensive anti bribery due diligence procedures to screen and monitor such business associate business associate prior to engaging them. Some of the steps that may be taken while engaging business associate are :
M&A due diligence: The company may be held liable for past anti bribery violations of the target and there could be potential risk from target’s conduct that continues post-closing. Accordingly, the company must review, as part of its M&A due diligence exercise, target’s compliance with anti bribery laws and potential exposure stemming from its past activities. The due diligence process should also address whether the target has any weaknesses in accounting, record keeping requirements and internal controls systems. Specific attention should be paid to the following:
Warning signals: Employees should be trained to be alert for suspicious circumstances. Examples of common warning signs are:
(xi) Accounting and internal control: Following are best practices in maintaining accounting records and internal controls:
Communication and Training: Communication and training help people realise what is expected of them and make them accountable. End result, everyone understands their roles and responsibilities. Thus, effective communication and training throughout the organisation is pivotal to implementation of compliance program. Following are best practices for effective communication and training:
Monitor, Audit and evaluate: It is only periodic monitoring and evaluation exercise that would tell whether or not compliance program is on track and whether or not it achieved it objectives. Procedural and substantial compliance should be monitored and audited at regular intervals to identify potential violation, to uncover new risks which have to be addressed and to assess effectiveness and performance in various ways. Frequency and depth of the monitoring and evaluation should be proportionate to the risk associated with the relationship. Following are best practices in monitoring and evaluating effectiveness of compliance program:
Both the FCPA and the UKBA contain wide range of anti bribery provisions and empower the regulating agencies to enforce civil and criminal provisions.The expansive and extraterritorial jurisdiction reach of these two statutes encompasses many companies’ global operations and sharpens the focus on issues of bribery. For organisations committed to conducting business ethically and lawfully, a robust compliance program acts as a tool, for doing business -the right way.
Disclaimer – The views expressed herein are personal views of the author and not those of the employer of the author. This article is for general information only and does not purport to render legal advice. The author expressly disclaims all liability of any kind or nature with respect to any act or omission based wholly or in part in reliance on anything contained in this article.