Coach Dean Smith's brand of ethics.

Reading this obituary by John Feinstein for Coach Dean Smith, I believe the Coach has a lesson for the fight against corruption as well.

There isn't a big law firm or accounting firm that isn't investing a considerable amount on marketing in the governance, risk and compliance (GRC) space. The marketing has catered to the diverse threats criminal misconduct has in store for companies and their directors from - enforcement action, penalties, a strong business case against corruption to name a few. How a service is marketed conveys a great deal about market conditions and the sad reality is the social and moral argument to not bribe is no longer a strong enough case for a company to not bribe.

While making a strong economic case for compliant conduct takes centerstage, what's worse is corporations asking for recognition and credit for their anti corruption initiatives. Business ethics thus faces suspension on the pendulum of 'not a strong enough a business case' or 'insufficient recognition or credit'.

I long for the day when we don't have to sell compliance and companies are compliant without wanting credit for being compliant, because like Dean Smith says to John- "You should never be proud of doing the right thing. You should just do the right thing.”

Rest in peace Dean Smith and I hope your brand of ethics does not have to rest in peace alongside you.

Supreme Court of India holds ‘officers’ of private banks to be public servants under the Prevention of Corruption Act

The Supreme Court of India in a landmark judgment held officers of private banks to be public servants under the country’s principal anti corruption legislation - the Prevention of Corruption Act, 1988 (“PCA”). The bench comprising of Justices Ranjan Gogoi and PC Pant delivered their judgement on 23^rd February 2016 in the matter of Central Bureau of Investigation, Bank Securities & Fraud Cell versus Ramesh Gelli and Others.^[1]

Brief facts:

In August 2004, Global Trust Bank, a private bank in India amalgamated / merged with the Oriental Bank of Commerce which is a public sector bank. Allegations were levelled against Mr Ramesh Gelli (Chairman & Managing Director) and Mr Sridhar Subasri (Executive Director) of the Global Trust Bank that at their behest loans were sanctioned and disbursed “by throwing all prudent banking norms to winds” which resulted in the creation of a large quantum of non performing assets, thereby compromising the interests of the bank’s depositors. These allegations pertained to the pre-amalgamation period but were brought to light as a result of an audit after the amalgamation.

India’s premiere investigation agency - the Central Bureau of Investigation (“CBI”) investigated the matter and accordingly filed a charge sheet before the Special Judge (CBI), against the accused persons charging them with the commission of offences under the Indian Penal Code[2] and the PCA (Section 13[3] – Criminal misconduct by a public servant). The Special Judge (CBI), declined to take cognizance against Mr Ramesh Gelli and Mr Sridhar Subasri of the offences punishable under the PCA, on the grounds that were not public servants at the time of the alleged transactions. The Bombay High Court on appeal upheld this view of the Special Judge (CBI).

The CBI thereafter filed a special leave petition before the Supreme Court of India, which was clubbed, with a writ petition filed by Mr Ramesh Gelli, as similar questions of law were involved in both petitions, and thus a common order was passed.

Provisions of law in question:

The Supreme Court was focussed on the following provisions of law:

A.    Section 2 (b) of the PCA – "public duty" means a duty in the discharge of which the State, the public or the community at large has an interest

B.    Section 2 (c) (viii) of the PCA – “any person who holds an office by virtue of which he is authorised or required to perform any public duty”

C.   Section 46A of the Banking Regulation Act, 1949 (“BRA”)

This provision is at the heart of the matter, as it provides for officers of a bank to be deemed as public servants for the purposes of Chapter IX of the Indian Penal Code. The section reads as follows:

“Every chair­man who is appointed on a whole-time basis, managing director, director, auditor], liquidator, manager and any other employee of a banking company shall be deemed to be a public servant for the purposes of Chapter IX of the Indian Penal Code (45 of 1860).”

It is pertinent to mention that when the PCA was enacted, Sections 161-165A contained in Chapter IX of the Indian Penal Code were repealed and the said offences were embodied in the substantive sections (7-12) of the PCA.

What the Supreme Court held:

The Supreme Court thus was required to adjudicate on “whether the Chairman, Directors and Officers of Global Trust Bank Ltd. (a private bank before its amalgamation with the Oriental Bank of Commerce), can be said to be public servants for the purposes of their prosecution in respect of offences punishable under Prevention of Corruption Act, 1988 or not ?”

The court reasoned that the objectives of the PCA clearly specified that the statute was to “make the anti corruption law more effective and widen its coverage.” The BRA deemed officers of banks to be public servants and thus, the pith and substance of Section 46A would not be defeated merely because the PCA repealed Section 161-165A of the Indian Penal Code and an express provision to this effect was not made in Section 46A of the BRA. Taking exception to the rule of cassus omissus (what has not been provided for in the statute cannot be supplied by the Courts), the Court held that the legislative intent to widen the ambit of the country’s anti corruption law and the definition of “public servant” can not be defeated due to a mere omission in Section 46A of the BRA. This omission was held to be capable of “being filled up by the court”.

After conjointly reading the provisions of the PCA with Section 46A of the BRA, the court harmoniously constructed them to determine in the affirmative that officers of a private banking company would fall under the definition of a public servant as defined in the PCA. The matter was therefore, remanded back to the trial court to take cognisance of the offences punishable under the PCA.

Impact:

The judgment has provided law enforcement authorities with considerable clarity on the conflict between the provisions of the PCA and BRA, thus now enabling them to charge private bankers under the country’s anti corruption law. The judgement thus in the context of private bankers fills the void in the statute books of a substantive offence of commercial bribery, while the Ministry of Home Affairs still sits over its proposal to introduce commercial bribery in the Indian Penal Code.

It would be imperative to mention that the Supreme Court’s judgement comes at the backdrop of India battling a major non-performing asset crisis, where several banks have been accused of sanctioning loans without following due process. It is highly likely (and hoped) that law enforcement will explore the ‘quid pro quo’ angle more seriously now that private bank officers can be charged with the PCA.

Private banks should consider risk mapping the potential for criminal misconduct with respect to the sanction of loans to non-performing assets, and of course strengthen their compliance programs to incorporate elements of the PCA. Officers of private banks must understand the nuances of criminal liability that the PCA would cast on them, which would is a considerable departure from the earlier substantive position of the law.

In the same breath of optimism and without casting an aspersion on the deterrent value of this judgement, it is hoped that our enforcement statistics do not continue to remain abysmal.

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[1] Criminal Appeal Nos. 1077-1081 OF 2013 with Central Bureau of Investigation through Superintendent of Police, BS & FC & Anr. Versus Ramesh Gelli, Writ Petition (CRL.) NO. 167 OF 2015.

[2] Section 120B read with Sections 409 and 420.

[3] Section 13(2) read with Section 13(1)(d) of the PCA.

Bribery and Compliance in India: Know the Challenge and Prepare for It

Today I welcome Sherbir Panag, for another post in my series of  country discussions, where we will address Bribery and Anti-Bribery Compliance in India. As a forward, this was an interesting engagement, as it provided me with a opportunity  to ask questions pertaining to the procurement environment in India, as I experienced it during my own work in the field.

RB: Hello Sherbir, thank you for joining me in today’s interview, as we try to share some of the issues confronting employees and corporations who are either working in India or trying to enter the market. But first, perhaps you can share some of your background: 

SP: Hi Richard thank you for the opportunity to discuss compliance and procurement challenges in India. It is a pleasure to be here today.

I am an attorney with MZM Legal, with a focus on business crime, compliance and investigations. I lead my firm’s Criminal Compliance practice where our principal focus is on assisting companies with bribery and other criminal misconduct challenges of India. The scope of my practice besides Indian anti corruption laws, includes working with foreign lawyers on aspects of the U.S. FCPA, UK Bribery Act, German administrative law and other foreign legislation / mechanisms that prevent foreign bribery.

My firm is a member of the Roxin Alliance – an international association of white collar crime lawyers. I am intrinsically involved in all projects of the Roxin Alliance including their working group commitments to the World Bank GFLJD, and I co-head the Alliance’s Administrative Sanctions practice group.

RB: So, lets first address the internal market. What is the current enforcement environment in India with respect to anti-corruption laws, and has that changed in recent years?

SP: The enforcement environment has dynamically changed over the last 3-4 years in India as a powerful social coalition of proactive media houses and civil society has ensured that fighting corruption remains a mainstream issue. Law enforcement authorities and the political establishment see themselves being under greater scrutiny, which has impacted the perception against corruption and the enforcement numbers positively.

The higher judiciary in India has also played an important role in keeping law enforcement on track against corruption. The Supreme Court has resorted to day to day monitoring of certain high profile corruption cases, while also taking suo moto cognizance of matters and reprimanding the executive on its failure to prevent corruption or institute anti corruption initiatives.

Further, reports of foreign law enforcement action with respect to foreign bribery in India has forced the Indian authorities to take up these matters in India as well. The recent example being the AgustaWestland case where an Italian investigation,  reported by the Indian press resulted in India commencing an investigation and subsequently terminating a Euro 556 Million contract, while AgustaWestland’s corruption case is still ongoing.

While empirical data is far from being ideal at the moment, one can reasonably say that the enforcement climate of ‘no enforcement’ or ‘compromised enforcement’ has seen a positive dent.

RB: Do you see a focus on individuals, corporations, or both?

SP: The focus of law enforcement in India has been primarily on individuals. Even in cases involving corporations, the corporation being an accused aside – the authorities have seeked to determine the individuals behind the corporate veil. This slightly traditional prosecution approach stems from the fact that corporate criminal liability has only recently been recognized by the Supreme Court of India.

Legislative changes have been proposed to enhance the liability of companies in corruption related offences, which would bring companies into a potentially greater spotlight with law enforcement authorities. The Prevention of Corruption (Amendment) Bill, 2013 seeks to establish a substantive offence for bribery by a commercial organisation, and also provides that when a commercial organisation is found guilty of the offence of bribery, all such persons who at the time at which the offence was committed were responsible or in charge of conducting the business of the organisation will also be guilty of the offence. The Bill concurrently establishes a compliance defence, which would be a first in India.

RB: Do you think that the enforcement resources are sufficient to promote and enforce current regulations? In other words, are the laws “on-the-books” but unlikely to be aggressively enforced? Again, here I speak of internal bribery as well as enforcing corruption laws governing overseas conduct.

SP: Richard, when it comes to anti corruption enforcement India takes a beating owing to a multitude of factors chief among them being the lack of political will in my view. Appointments to anti corruption enforcement bodies have a high degree of political involvement, which is coupled with insufficient resources in the hands of our authorities in terms of both manpower and technology. Furthermore, enforcement is impacted by these very enforcement authorities being compromised by the same means, which they are to investigate and prevent. This problem is further compounded by inordinate delays in our justice dispensation mechanism which is widely taken advantage of, and the legislative hindrance that the Prevention of Corruption Act, 1988 poses in the form of requiring ‘sanction to prosecute’ high ranking officials.

Enforcement is not ideal but it is yet to be devoid of not having a deterrence impact all together. The Indian legal system is provisionally sound to deal with corruption when the need arises and the question for companies really is, whether in the cross winds of media trials, whistleblowers and enhanced public scrutiny – they would like to the object of this system working?

As for preventing foreign bribery – as of date it does not constitute an offence in India. As India has signed and ratified the UN Convention Against Corruption, in compliance of which a bill is pending in the Indian parliament since 2011 namely the Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, which seeks to criminalize foreign bribery.

RB: Sherbir, so here is where you can really provide some assistance to those who look to the Indian market for growth. What advice would you give them in terms of how to conduct business with respect to corruption risk? I ask this in two parts, first, what do they need to do before entering the market to steer clear of corruption, and for those already in the market, what do they need to do to maintain anti-bribery ethics and compliance?

SP: The corruption risk in India is very real and apparent, and businesses must attempt to constructively address this risk and not “just go with the flow”. I say this as many a times I have seen foreign companies resign themselves to the fact that bribery is a cost that they have to incorporate into their India operation, thereby making no genuine efforts to prevent it. This resignation at times accrues greater liability for business as it breeds a culture of using bribes as the easier way out. Let me emphatically state that business in India is possible without bribery. Easy – no, possible – yes; and this gap can be bridged by a determined organization.

Enforcement of laws preventing foreign bribery have helped create a certain degree of universality in compliance policy, the devil however is with the on ground challenge. Addressing the bribery issue outside a mere policy framework mandates that an anti corruption strategy for India focuses on ‘knowing the challenge and preparing for it’ and ‘avoiding avenues of bribery’.

Knowing the challenge and preparing for it: The bribery challenge in India is one that in the course of business you are likely to regularly encounter as opposed to as an exception. Therefore, understanding the challenge in the Indian context and accordingly responding to it is imperative.

• Firstly, there are no good bribes or bad bribes. Once a reputation as a bribe payer is established, my experience has been that the company is regularly flocked to by public servants from diverse backgrounds demanding bribes for simple tasks or at times for no tasks at all, but just in case there is a future task. Word spreads fast and the scale of bribery multiples even faster, with the company then being required to provide lavish gifts during festivals, an increase in the bribe amount every year or even a bonus bribe for loyalty.

Companies which choose to believe that small bribes or facilitation money thus are acceptable should take a step back to determine its impact, and should also view it in the context of the organizational culture they are building. While operating in a country which has a cultural disposition to bribery due to the unfortunate ground reality, you would not want that culture to be given sanction in the organization as well.

• Secondly, compliance policies and procedures need to address elements of Indian law and ground realties specifically. For example, under Indian law specific threshold limits are prescribed in Indian Rupees for the gifts, entertainment and hospitality that public servants may receive. Now if a company’s gift policy is listed in USD terms there could be a high possibility of violation due to currency rate fluctuations inadvertently if not more blatantly by getting the value wrong all together. Another example is third party agent due diligence forms which use the word ‘company’ for the third party; while majority of third parties / agents are organized as sole proprietorships and partnerships – thereby allowing them to make incorrect disclosure to the foreign company.

These are small examples of minor mistakes having greater repercussions for businesses operating in India, hence it being important to localize compliance.

• Thirdly, is creating a response framework to when there is a bribery log jam. Merely communicating to employees to refuse bribe payments, does not necessarily solve the problem at hand. There is no easy way to address this issue and it varies from case to case, but companies – among others do have available to them the option of reporting the matter to the Anti Corruption Bureau of the concerned state or where they find an arbitrary decision being given by a public servant due to bribery or the lack thereof approach the concerned High Court via writ jurisdiction. Pros and cons aside, it is helpful to know and communicate to the rank and file, that options do exist.

Avoiding avenues of bribery: Businesses should plan out their operations by determining where and how they can limit interaction with government entities. This is no easy exercise and would not have a one size fits all, but is an effort worth undertaking. For example, if a procedure can be e-filed versus filing it physically at a government department; obtaining information through the Right to Information Act, 2005 versus exposure to bribery by sending an employee to a government department; using the right to service legislation / citizens charter in states where applicable versus engaging third parties who are likely to add to a company’s exposure; single window clearance while setting up operations in a special economic zone versus having to deal with a multitude of government departments and agencies. While these examples do not guarantee bribery free business, they considerably reduce the odds of it.

An exercise in bribery avoidance, will also help streamline interaction with government servants where it is unavoidable, thereby allowing them to also understand the company’s firm stand on business ethics. Companies would thus benefit by incorporating into their strategy creative mechanisms of avoiding bribery at an operational level as opposed to a mere policy framework of what to do when the big question is asked.

RB: From my own experience with Indian procurement, and let me share for those who have not experienced this first hand, it is a very complicated process. The Indian rules and regulations governing procurement on a National, Regional and Local level are somewhere between intricate and entirely confusing. The paperwork, for lack of a better word, is massive, and as stated, quite often puzzling. Sherbir, as we all know, this leads to great dependence on third parties to sort out such regulations, and also presents great peril with respect to requests for small bribes to “move things along.” So, what responsibility does India have to make this process as structurally sound as possible, as to reduce the risks for companies outside India to enter the market in a way which is fair and transparent? Also, my reflection here is from my experience up to 2009, so since then, do you think there has been progress?

SP: Richard, the red tape, paperwork and plethora of complex rules and regulations is still very much a reality when it comes to public procurement in India. Incidentally, India’s dismal ranking in the World Bank’s Ease of Doing Business Report took a hit by another two places in 2015. The responsibility for this squarely rests on India if it seeks to continue to attract foreign investment and remain an investment viable economy. The argument for us is not just social and moral, but economic. A major push towards e-governance and consolidating regulatory procedures is necessary and the Finance Minister – Mr Arun Jaitley, while introducing India’s budget on 28thFebruary 2015 has made strong references to help ease doing business in India. But only time will as to how many of these initiatives actually are implemented effectively.

From an on ground perspective, when it comes to public procurement the use of mandatory integrity pacts has helped level the playing field slightly as action for breach of the pact has been swift. The Integrity Pact lays down mandatory no bribe giving / no bribe accepting provisions, the violation of which may result in blacklisting, forfeiture of bid deposits and bank guarantees among others. In January 2014 AgustaWestland had a Euro 550 Million contract with the Ministry of Defence cancelled for violation of the integrity pact, and earlier in 2012 six companies were blacklisted for 10 years in India by the very same Ministry.

Also pending in our Parliament since 2012 is the Public Procurement Bill, 2012 which endeavors to bring about reform in public procurement by mandating publication of all procurement related information at a central portal, establishment of a bidder grievance committee and establishing open competitive bidding as the preferred procurement method.

RB: Thank you for your time today, is there anything else you would like to add?

SP: Thank you for the opportunity to address your readers today Richard, it has truly been an honour.

On a parting note I would like to reiterate that business is no longer as usual in India, and companies that do not respond to these changing times are likely to be impacted adversely. With all our shortcomings and challenges, we remain a rule of law upholding democracy and if one is on the wrong side of the anti bribery law when it is being upheld, the consequences will follow.

Indian employees are also growing increasingly aware of laws that foreign companies are bound by internationally, not just in terms of foreign bribery prevention but whistle-blowing also. Questionable practices are therefore likely to face greater resistance from the workforce as well. The risk of disclosure of misconduct and scrutiny into company actions, stands considerably higher than what it was in the last decade – to which the compliance function must respond. The compliance function thus, needs to depart from a ‘tick the box’ liability reduction model to one that builds a dynamic and determined culture of integrity.

As a footnote Sherbir can be reached via e-mail at [email protected] on Linkedin here and Twitter here. 

This is a repost of an interview of mine by Richard Bistrong published by JD Supra on 2nd March 2015. 

Navigating The ‘Gift, Entertainment And Hospitality’ Landscape In India

FCPA enforcement actions in 2014 have seen companies such as HP Poland, Bruker and Avon (in part) face heat as a result of alleged bribes being paid under the alleged guise of gifts and corporate hospitality.

The risk for multinational companies operating in countries with engrained ‘gift giving’ and ‘hospitality extending / accepting’ cultures is thus a real compliance concern. India happens to be one such country where its cultural and ethnic diversity, multitude of festivals and high levels of public corruption, make the already complex compliance task all the more challenging.

In the ‘Resource Guide to the U.S. Foreign Corrupt Practices Act’ the DOJ and SEC recognize that a small gift is often an appropriate way for business people to display respect for each other. It further goes on to lay down some hallmarks of appropriate gift giving as “when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.”

The focus of this post will be to help facilitate a better understanding of what gifts, entertainment and hospitality to public servants is permitted under Indian law.

Background:

India’s principal anti corruption legislation – the Prevention of Corruption Act, 1988 (PCA) recognizes that bribes paid to public servants are not limited to pecuniary gratifications or to gratifications estimable in monetary terms. This is further emboldened by the use of the term‘any gratification whatever, other than legal remuneration’ in the substantive text of the bribery provisions. The gratification would be deemed to be illegal or a bribe if it is paid/given with the intention to:

• motivate, influence or reward the public servant to perform or forbear performance of an official act;
• show favour or disfavour to any persons;
• render or attempting to render any service or disservice to a public servant.

Therefore, gifts given or hospitality extended to public servants beyond the threshold limits or in improper circumstances that are likely to influence the public servant, would be deemed as a bribe under Indian law.

Who is a Public Servant?

Section 2(c) of the PCA provides the definition of who would be deemed to be a public servant. The definition is extremely broad and includes among others government officials, local authorities, judicial officers, any holder of office to perform a public duty and employees of government owned or government controlled entities. Broadly speaking state control and financing is a reasonable test to determine whether an individual would be a public servant or not.

 What Gifts Can be Given and Hospitality Extended to a Public Servant?

Every public servant is governed by the conduct rules / code of conduct of his or her service or organisation. For example, the ‘All India Services (Conduct) Rules, 1968’ would cover services such as the Indian Administrative Services and the Indian Police Service, the state owned Oil and Natural Gas Corporation (ONGC) has the ‘ONGC Conduct, Discipline and Appeal Rules, 1994 (Amended 2011)’, Ministers of both the Union and States are governed by the ‘Code of Conduct for Minsters’ so on and so forth. These Conduct Rules establish the threshold limits on the value of gifts and hospitality that can be accepted by the concerned class of public servant and the circumstances thereof.

While the threshold value varies among the different services and organisation based on the class and seniority of the public servant, few standard aspects are prevalent:[1]

• Public servants shall not accept nor have any member of his / her family or person acting on his/her behalf accept any gift for him / her.
• Gifts shall include free transport, boarding, lodging or other service or any other pecuniary advantage when provided by any person other than a near relative or personal friend having no official dealings with the Government servant.
• Gifts of the specified value may be accepted by public servants from his / her near relatives or personal friends having no official dealing with him/her when the same is in conformity with prevailing religious and social practices.
• Public servants shall not accept any gifts from any foreign firm which is either contracting with the Government of India or is one with which the public servant had, has or is likely to have official dealings.
• Generally a casual meal, lift or other social hospitality shall not be deemed to be a gift.
• Public servants are to avoid accepting lavish hospitality or frequent hospitality from any individual or commercial organisation that have official dealings with him /her.
• It is imperative to read the conduct rules / code of conduct alongside the applicable provisions and objectives of the PCA.

Best Practices That Corporations Should Bear in Mind While Framing Their ‘Gift, Entertainment and Hospitality’ Policies in India:

As noted above specific threshold limits as specified in the public servants code of conduct / conduct rules are applicable to them. Therefore, a ‘Gift, Entertainment and Hospitality’ policy must cater to these specificities and variations by keeping the following best practices in mind:

• Companies should maintain a database of up to date and official conduct rules / code of conducts of the public servants it regularly interacts with.
• Employees of the company should be adequately briefed on the legal need to carefully evaluate the specific gift, entertainment and hospitality provisions and corresponding threshold value of each class of public servant before giving a gift or extending hospitality to them.
• Threshold values in the company policy must ideally be mentioned in Indian Rupees in order to ensure clarity and prevent any misunderstanding / misconduct that may inadvertently occur due to fluctuating foreign exchange rates.
• Business courtesies should be accurately documented and reported in the company’s books and records.

This article was originally published by the FCPA Professor on 19th February 2015.

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[1] This list is merely indicative and is not exhaustive, nor applicable to all conduct rules / code of conduct. Items included in the list are subject to the exceptions, explanations, exclusions, modifications and additions as narrated in the respective conduct rules / code of conduct.

Misconceptions About India’s Anti-Corruption Framework

In April 2014, the Department of Justice indicted six defendants’ in an alleged conspiracy to bribe government officials in India to mine titanium minerals. A sitting member of the Indian Parliament, Mr. K.V.P. Ramachandra Rao, was one of the six defendants charged with one count of racketeering conspiracy and money laundering conspiracy, and two counts of interstate travel in aid of racketeering.  While Mr. Rao is currently battling the FBI’s request to provisionally arrest him before the Andhra Pradesh High Court, the recent events highlight just one of several instances of bribery allegations in India that see foreign companies at the forefront.

In some cases, if not all, a lack of understanding of the Indian anti corruption framework clearly exists.  This post highlights various misconceptions of Indian anti corruption legislation and discusses the direction of several proposed bills pending in Parliament.[1]

India’s anti corruption law does not target the bribe giver

It is often misconstrued that India’s principal anti-corruption legislation – the Prevention of Corruption Act, 1988 (PCA)-  does not create an offence of bribery on the part of the bribe giver but merely attacks the demand side i.e., the bribe taker.

This is an incorrect position as under the PCA (Chapter III: Offences and Penalties) the offence of bribe giving is created as one of abetment of bribe taking by the public servant. Therefore, while the substantive text establishes the offence for a “Public servant accepting illegal gratification other than legal remuneration for an official act” or “Public servant obtaining valuable thing, without consideration from person concerned in proceeding or business transacted by such public servant” – the bribe giver comes under the ambit of the law by way of abetting this offence (Section 12 – Punishment for abetment of offences defined in section 7 or 11). Thus, the punishment for bribe giving is attune to that which a public servant convicted of accepting bribes would receive, which is imprisonment for a minimum term of 6 months extending to five years and would also be liable to pay a fine.

However, a direct offence is created for bribe giving in instances where individuals accept payments / gratification from others in order to influence a public servant by corrupt or illegal means or to exercise personal influence over a public servant (Section 8 and 9). Hence, third party agents who accept bribes from commercial organisations to be passed on to public servants or consultants who offer to exercise personal influence over public servants to win contracts – would fall within the ambit of these offences.

The above position of law will undergo a major change with the Prevention of Corruption (Amendment) Bill, 2013. The Bill which has been introduced in the Indian Parliament in August 2013, seeks to establish a substantive offence for bribe giving which is to includes not just constructively paying a bribe but the mere offer or promise to bribe a public servant as well. The punishment has been enhanced as well taking the minimum imprisonment to 3 years extendable up to 7 years along with a fine. The Bill further establishes a substantive offence for bribery by commercial organisation, which also provides that when a commercial organisation is found guilty of the offence of bribery, all such persons who at the time at which the offence was committed were responsible or in charge of conducting the business of the organisation will also be guilty of the offence – and liable to a minimum imprisonment of three years – extendable to seven years, as well as a fine. Similarly, where the offence has been committed due to the consent or connivance or neglect of any director, manager, secretary or officer of the company, such person will also be held guilty of the offence.

India does not recognise corporate criminal liability

It is amply clear from the proposed amendment in the Prevention of Corruption (Amendment) Bill, 2013 that India is on its way to expressly recognising corporate criminal liability in the substantive law.

It is to be noted that this is already an admitted position in Indian law.  The Supreme Court of India in the ‘Standard Chartered vs. Directorate of Enforcement’ and the ‘Iridium India Telecom Ltd vs. Motorola Inc’  has taken the view that companies can be prosecuted for criminal acts and the criminal liability of a corporation arises when an offence is committed in relation to the business of the corporation by a person or body of persons in control of its affairs.

Gifts are a cultural requirement hence acceptable

Gifts are again a commonly misconstrued area, wherein threshold values of gifts that public servants are entitled to receive are rarely adhered to. This is a complex problem as even gifts at levels that corporate compliance programs envisage of USD. 50-100 may at times not correspond to the laid down threshold values.

In this regard, it would be imperative to understand that the PCA’s ambit for bribes is extremely wide and includes any gratification that a public servant receives other than legal remuneration. The PCA further prevents public servants from obtaining anything of value without consideration from persons such public servant is likely to engage in business with.

Broadly speaking with regards to gifts two classes of public servants emerge:

• Public servants governed by the Central Civil Services (Conduct) Rules, 1964.
• Public servants (Ministers) governed by the ‘Code of Conduct for Ministers’ by the Ministry of Home Affairs.

The Central Civil Services (Conduct) Rules apply to four classes of officials and the individual threshold value of the gifts each class of officials can accept is clearly laid down. Rule 13 of the same does not allow any Government servant to accept, or permit any member of his family or any other person acting on his behalf to accept, any gift. The expression “gift” shall include free transport, boarding, lodging or other service or any other pecuniary advantage when provided by any person other than a near relative or personal friend having no official dealings with the Government servant.  With regards to foreign firms the scrutiny is higher and the Rules provide that a Government servant shall not accept any gifts from any foreign firm which is either contracting with the Government of India or is one with which the Government servant had, has or is likely to have official dealings.

The Code of Conduct for Ministers lays down that Ministers of both the Union and the State should not accept valuable gifts except from close relatives, and that members of their families should not accept any gifts at all from any person with whom such Minister may have official dealings. When Indian Ministers are travelling abroad they are entitled to receive symbolic gifts and gifts beyond Rs. 5000 (USD. 85) may not be retained by the Minister.

Facilitation payments are acceptable

The PCA does not recognise facilitation payments or any exception to the gratification other than legal remuneration concept. The gratification which if not legal remuneration is deemed illegal whether given for a lawful or unlawful purpose. Hence any speed, grease or facilitation payments would be considered to be bribes under the PCA.

Private Sector Bribery is not punishable in India

There exists no offence for private sector bribery as the PCA is focussed on the bribery of public servants. The Ministry of Home Affairs is at this juncture working on amending the Indian Penal Code to introduce two sections that deal with private sector bribery.

The lack of legislation however would not stop a company whose employee has accepted a bribe in the course of business, from bringing an action of cheating or breach of trust along with other penal provisions against the said employee. This would essentially be a criminal proceeding as both cheating and breach of trust are penal provisions. A similar action of cheating could be also be instituted by the aggrieved company against the individual / company that bribed its employee – as a dishonest intention clearly appears.

India does not criminalise bribery of foreign public officials

At present the bribery of foreign public official or officials of public international organisations is not an offence. A Bill titled the ‘The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, 2011’ has been introduced in the Indian Parliament. The Bill penalises the offer or promise to bribe foreign public officials and will also allow the Government of India to enter into agreements with other countries for enforcing this law and for exchange of investigative information.  Further, extradition treaties that India has with other countries who have signed and ratified the United Nations Convention against Corruption will be deemed to stand amended to include the offences envisaged under this Bill when it is passed by Parliament. The punishment under this Bill is imprisonment for a minimum term of 6 months extendable to 7 years and a fine.

On the flip side India has entered into Mutual Legal Assistance Treaties in Criminal Matters with 34 countries, is a member of the Interpol, has Extradition Treaties with 37 countries and Extradition Arrangements with 8 countries. Hence with growing cooperation between investigative and prosecution authorities, it is to be noted that the legal framework in India is provisionally competent to offer assistance if the need so arises.

Administrative action will not be taken in case of bribery

The FCPA Professor’s post in January 2014 highlighted pre-contract integrity pacts that have become a mandatory requirement for public sector contracts and the ensuing action that could be taken against a company for the failure to comply with the pact or engage in bribery. Administrative action in the form of contract termination, forfeiture of bid amounts, encashing bank guarantees, and blacklisting have proven to be swifter attacking the commercial viability of bribery by putting the stipulated business on hold. Examples of administrative action which has impacted commercial organisations can be seen with the  Ministry of Defence unilaterally terminating  a Euro 556 Million contract with the Anglo-Italian helicopter manufacturing company AgustaWestland on the 1st of January 2014 for breach of the pre-contract integrity pact and earlier in 2012 blacklisting six companies from doing business in India for ten years.

A Bill titled the ‘Public Procurement Bill, 2012’ has also been introduced in the Indian Parliament that further seeks to regulate public sector procurement and provides for a debarment from all public procurements for a period of three years if a bidder has been convicted for an offence under the Indian Penal Code or the IPC. The Bill also creates an offence for interfering or influencing with the debarment process in an unlawful manner.

Conclusion

The last 5 years have seen various efforts being made to reform the Indian anti corruption legal framework and various examples of these proposed legislations that have been introduced in the Indian Parliament have been touched upon above. The Indian legal framework most definitely has various gaps just like every other legal system does, but where India takes a beating is on the execution of its legislative intent and enforcement actions.

The inherently weak enforcement mechanism coupled with compromised political will – is reluctantly faced with reform in the face of a strong public sentiment against corruption and proactive media houses. The business of bribery has been hit as media reporting and public awareness has mandated that demonstrable action is taken, which has resulted in more matters being investigated and finally prosecuted. This notwithstanding, bribery is unfortunately treated as an opportunity cost in India and the number of corruption scandals and global watchdog reports would only go on to re-affirm this point.

The Indian legal system is provisionally sound enough to deal with corruption when the will to implement the same exists. The risk for companies therefore lies in when the system works and thus the only question that companies doing business in India have to ask themselves is whether in the cross winds of whistleblowers, enhanced public scrutiny and media trials they would like to be the rare or growing subjects of this system working.

This article was originally published by the FCPA Professor on 10th June 2014.

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[1] With respect to the analysis on the proposed Bills’ discussed, it is to be noted that these Bills are pending before the Indian Parliament and may be amended / modified before being finally passed. The analysis is based on public drafts of these Bills and nothing in the post should construe finality of the provisions of the same.