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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Importance of Cross Border Compliance
• As nations and regional groupings seek to implement stricter
laws with respect to bribery and corrupt practices, the legal risks
faced by trans-national corporations are becoming more
complex.
• Scope and operation of anti-corruption laws such as the US
FCPA and the new UK Bribery Act is not restricted to
territorial boundaries.
• Anti-corruption compliance is a hot-button issue in countries
such as India, where trans-national corporations are increasing
presence.
Challenges and Compliance under Indian Anti-corruption Laws
Importance of Cross Border Compliance
(contd.)
• Anti-corruption is also gaining more relevance as, simultaneous
with increasing enforcement of anti-corruption laws, nations
have started to focus on individual and corporate liability in
cases of violation of anti-corruption laws.
• In the context of these far-reaching developments, it appears
unlikely that India can act very differently and buck this trend, in
the current context. Moreover, India has entered into mutual
obligations with several countries including the US, to extend
cooperation in respect of investigations and legal proceedings.
Challenges and Compliance under Indian Anti-corruption Laws
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Perception of Corruption Levels in India
• India was ranked 84th out of 280 countries in Transparency
International’s 2009 Corruption Perceptions Index.
• Both Brazil and China were ranked better in the Corruption
Perceptions Index .
• Further, a series of recent reports by consultancies including
KPMG, E&Y and Deloitte have highlighted the fact that there
are many systemic and cultural challenges facing anticorruption compliance in India.
Challenges and Compliance under Indian Anti-corruption Laws
PCA Enforcement: Statistics and Trends
• While the perception might be that enforcement of anticorruption laws in India is poor, recent statistics suggest
otherwise.
• Data regarding cases under the PCA, recently presented in
Parliament, stated that:
– The Central Bureau of Investigation has registered 2,439
cases of corruption against public servants in the last three
years, 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 upward
trend.
Challenges and Compliance under Indian Anti-corruption Laws
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PCA: Enforcement Risks
• The public reporting of details of FCPA prosecutions, has resulted in the
issue being raised in the Indian Parliament many times.
• In the recent past, a number of sensational cases have grabbed media
headlines, including those involving the President of the Medical Council of
India, the temporary Chairman of the Company Law Board, and the Chief
General Manager of the National Highways Authority of India, all of
whom have either been arrested or are under investigation on charges of
bribery.
• Practically, prosecutions against companies, officials on the rise.
• This can result in continuing legal risks and adverse publicity for the
corporations involved.
Challenges and Compliance under Indian Anti-corruption Laws
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History of Indian Anti-corruption Laws
• The present anti-corruption laws in India are based upon colonial
laws enacted while India was under British control.
• Some of the important landmarks include:
– In 1860, the Indian Penal Code was enacted, and incorporated
corruption-related offences. The provisions under the Indian
Penal Code made it an offence for a public servant to accept a
bribe, as well as to offer a public servant a bribe.
Challenges and Compliance under Indian Anti-corruption Laws
History of Indian Anti-corruption Laws
(contd.)
• In 1947, to supplement the provisions under the Indian Penal Code, the
Prevention of Corruption Act was passed in order to tackle corruption in
the post-war scenario. Corruption had increased during the war years due to
scarcities and strict controls. The new offence of criminal misconduct was
introduced. Later amendments introduced the offence of possession of
assets beyond known sources of income.
• In 1988, the present Prevention of Corruption Act was passed, replacing the
earlier statute, subsequent amendments, as well as the sections of the Indian
Penal Code which dealt with corruption. This brought the anti-corruption
laws within one statute, and provided for increased penalties, and also
broadened the definition of ‘public servant’.
Challenges and Compliance under Indian Anti-corruption Laws
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Scope of the PCA and Penalties
• Under the PCA, there are broadly three sets of offenders who are
covered:
– A bribe taker who is a public servant.
– The giver of a bribe.
– Any middlemen who influences a public servant (either by a payment
or personal influence).
• The definition of ‘public servant’ under the PCA is wide, and includes
employees of government-owned and statutory corporations.
• Punishment ranges between 6 months and 5 years along with a fine. In
certain cases of habitual offenders imprisonment could be 7 years. There
is no limit on the maximum fine payable. Liability could be attributed
to a company, if an employee/agent acted within the scope of
employment, to obtain benefit for the company.
Challenges and Compliance under Indian Anti-corruption Laws
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Ingredients of Corruption under the PCA
• Any gratification to a public servant for doing or forbearing
to do an official act or favour/ disfavour to any person.
• Any gratification to any person for inducing any public
servant by corrupt/ illegal or personal influence to do/ forbear
from doing an official act or to show favour/ disfavour to any
person.
• Any valuable thing, without adequate payment for the same, to
a public servant by a person who has or is likely to have official
dealings with the public servant.
Challenges and Compliance under Indian Anti-corruption Laws
PCA compared with the FCPA
• Facilitation payments are illegal under the PCA, while the
FCPA has a specific exemption for them.
• Definition of “foreign official” is broader than “public
servant”, foreign official includes officers of public international
organisations.
• The FCPA applies to payments made to political parties and
candidates, while the PCA does not.
Challenges and Compliance under Indian Anti-corruption Laws
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Common Issues
• Does anti-corruption law apply only to payments or also to gifts/ other
forms of benefit?
– Indian law is extremely broad in scope. It covers any
payment/ 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.
Challenges and Compliance under Indian Anti-corruption Laws
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Common Issues (contd.)
• For an offence, is it necessary that a payment/ gift/ other benefit is actually
given?
– No, mere offer of payment/ gift/ other benefit for a favour
would also constitute an offence.
• For an offence, is it necessary that a favour should have actually been
granted?
– No, if a payment/ gift/ other benefit is given or offered for
any 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.
Challenges and Compliance under Indian Anti-corruption Laws
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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 is
permissible under Indian law. Hence, any payment/ gift
provided 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 be
permissible.
– Gifts up to certain value are permissible under conduct
rules of public officials. Conduct rules for civil servants
govern their conduct as employees and are not directly
related to the offences under PCA.
Challenges and Compliance under Indian Anti-corruption Laws
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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 and
customs departments).
– Demands for payment to undertake routine action.
– Rendering of hospitality to business contacts who are public
servants, at promotional events and in the course of official
visits/ inspections.
– Gifts on marriages/ festivals/ new year.
Challenges and Compliance under Indian Anti-corruption Laws
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Accounting and Other Issues
• The FCPA, apart from making bribery an offence, also casts
certain obligations upon corporations under the ‘books and
accounts’ provisions.
• The following issues are commonly observed with respect to
accounting treatment of improper payments:
– Incorrect invoicing of sales.
– Creation of fictitious expenses/ incorrect booking of
expenditure/
routing
of
payments
through
agents/consultants.
Challenges and Compliance under Indian Anti-corruption Laws
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Accounting and Other Issues (contd.)
• Improper accounting has a host of implications under Indian
law, including:
– There is an obligation under the Companies Act to state
‘true and fair accounts’, which could be violated in these
cases, entailing personal criminal liability for officers of the
company.
– Payments with an illegal purpose cannot be deducted as
expenses under Indian tax laws. Therefore, recording such
payments as expenses, and recording fictitious expenses,
could be construed as tax evasion.
Challenges and Compliance under Indian Anti-corruption Laws
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Steps Towards Compliance
• Lay out a comprehensive compliance policy with respect to all
dealings with public servants, including guidelines for giving gifts
and offering hospitality.
• Set up an effective internal monitoring mechanism to check
illegal acts by employees, and also ensure that incentives do not
exist to engage in such illegal acts.
• Conduct regular compliance training for employees of all
levels, to sensitise them to anti-corruption laws and their
consequences.
Challenges and Compliance under Indian Anti-corruption Laws
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Steps Towards Compliance (contd.)
• Establish and publicise a whistleblower policy to encourage
reporting of illegal activities.
• Conduct due-diligence on prospective business partners.
• Ensure that a comprehensive business plan is put in place at the
start, to ensure that unanticipated regulatory hurdles do not
result in incentive to engage in illegal activities.
Challenges and Compliance under Indian Anti-corruption Laws
Thank you.
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Email: msaraf@luthra.com
Challenges and Compliance under Indian Anti-corruption Laws
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