China to blacklist health care companies involved in bribery

China's decision to publish a blacklist of health care companies that have been involved in paying of bribes is a positive initiative. What is most commendable is that they will publish the blacklist, which is something even the EU has shied away from since its 2004 Directive - Kudos for that. 

Blacklisting is in my view the most effective mechanism to combat corruption in public procurement, especially in emerging markets and developing countries as it is cheaper to implement and more deterrent in impact. Blacklisting establishes a case whereby acts of corruption are no longer commercially viable as once blacklisted for a definitive period of time the commercial organisation loses access to that particular market thereby forgoing the opportunities it provides. While one sees an increase in financial penalties for bribery actions, these penalties are in cases of minor offences and sufficient compliance window dressing being incorporated as opportunity realization cost. Blacklisting on the other hand takes away the end result which is 'opportunity realization'.

My take on what China should and should not do:

1. As far as China's model goes what is unclear is whether they will consider pre-conviction blacklistings - which would set a very tough tone and would be most effective. 

2. Secondly, a comprehensive system of ensuring fairness and transparency in the process of blacklisting itself needs to be established in order to prevent abuse. It is imperative that though the blacklisting sanction will principally be an administrative action it embodies a sound quasi-judicial approach to prevent abuse.

3. Thirdly, the time frame of blacklisting should not be limited to just 2 years and should be extendable based on the seriousness of the matter. Further to be re-listing should be contingent upon incorporating concrete compliance measures to prevent bribery, the failure of which would extend the blacklisting (World Bank approach).

4. Lastly, a blacklisting sanction should not become a substitute for criminal prosecution. I would side with Immanuel Kant on this whereby the perpetrator of an offence must be punished for the sake of the law itself and to ensure that the law is not undermined.

Lessons the Indian legal system needs to draw from Khobragade and allied instances.

The US District Attorney for the Southern District of New York - Mr Preet Bharara decides to press charges and cut a deal with a complainants family while a warrant against that same complainant was already issued in India and the Govt. of India's version of facts were on record for close to 6 months. Similarly, a UK High Court judge allows a UK national to sue the Indian Hotels Company Limited (Tata Group) in the United Kingdom for failure to provide adequate security at their Hotel in Mumbai resulting in a terrorist attack - on the grounds that the time taken by the legal process in India which could take up to 20 years creates a right for hearing and trial in the UK.

In both the above mentioned cases a growing contempt for the Indian legal system and its lacunae is clearly visible. While we may like to passionately argue in India that this is clear disrespect of a sovereign nations legal system in violation of established International principles of mutual respect, equality and sovereignty - it would be imperative to keep the strictly legal argument aside and consider the reality one as well. While Mr Bharara felt the Indian legal system would be compromised (Yes, we are the same country where an arrest warrant was issued against its President by a lower court which was bribed), the UK Judge's rationale is presumably the incalculable duration of legal proceedings and our courts' primitive view to compensation. The premises on which these two individuals acted is not far from the truth, as most of us from the profession would agree. Justice delayed or compromised is most definitely justice denied. This is a major embarrassment for India where the global perception is leaning to the fact that for justice to be done it needs to be exported. 

Our higher judiciary does command a good reputation and as several legal luminaries like Ms. Zia Mody have also pointed out, our faith in the higher judiciary remains. However, mere faith in the higher judiciary does not necessarily translate into justice for litigants nor does it in any way put an end to the suffering those face who come knocking on the doors of the law. The reason I use the term legal process is to cover the entire ambit of interaction that an individual has with the law which would include not only the courts but authorities as well. On one side we of course have the human rights suffering which besides abuse is also the suffering a citizen endures to have even basic legal remedies realized (filing an FIR, probate of a will, etc). 

On the other hand the legal process in its current form has an adverse affect on business in India. Disputes between commercial organisations rarely are resolved through the legal process in a manner that would be conducive to business. The delays in the legal process (which also include alternative dispute resolution mechanisms like arbitration) ensure that the time value of money is never adequately protected. Further, as I said earlier the Indian courts have taken such an archaic view to awarding damages that belligerent parties get away with murder in the commercial scheme of things. Having simple provisions of contracts enforced is today costly, time consuming and the chances of success are more remote than the ISRO landing a man on the moon - as the ISRO may still do so in this generation but for a civil dispute you may lose a generation fighting it. In more and more strictly civil disputes parties attempt to bring the criminal law into motion as well, however remote the criminal case maybe in order to ensure that some pressure is created to resolve the dispute. (There are no brownie points for answering how the criminal law is set in motion in a civil dispute). This has resulted in the unfortunate instance of forum shopping whereby the preferred forum for a commercial dispute in India - is not in India but in another country, where the chances of a time bound and fair resolution of the dispute are higher. There is a concerted attempt to create this jurisdiction and act upon it as even subsidiaries of foreign companies in India are exploiting the legal system to their advantage. While not every case does find a foreign country's jurisdiction the question is one that legal professionals are often asked when dealing with India Inc.

India is no longer a geopolitical or geocommercial minnow and would like to portray itself differently to the international community as well. If we would like to increase foreign investment and establish ourselves as a business conducive economy, it is but imperative that the legal system should be able to complement this aspiration. If it does not then the India Shining Story will begin to progressively dim with each such case. We will remain viable but not as viable as the dreams for India a few of us have seen.

What the passing of the Lokpal should not result in

The Lokpal Bill gets passed and there is multi-party rejoicing. I still firmly believe that a Lokpal is not the solution to India's endemic corruption problem. The passing of the Bill will drive us further away from addressing the substantive and procedural law issues that are at the core of the problem, as most see the Lokpal as a magical and mystical fix to everything that's wrong with this country. I see it as a dangerous precedent of running to establish external bodies every time we are faced with execution or operational challenges in upholding the law. That to say the very least is an escapist approach for a young nation. 

Now since the albatross is slung around our neck I do hope this does not mark an era where the Lokpal is perceived as the only necessary anti corruption legislation that required passing. Parliament should take it upon itself to pass the following legislations on a war footing - Prevention of Corruption (Amendment) Bill 2013, Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill 2011, Whistleblowers Protection Bill 2011 and the Public Procurement Bill 2012.

After these Bills are passed, the onerous task of defining guidelines for compliance with the new offences / policy / procedures will need to be elucidated along with a comprehensive investigation and prosecution strategy. While we do need convictions to establish deterrence, the multitude of authorities dealing with corruption need to also consider administrative and financial sanctions which will have a far greater impact on the supply side of bribery, bringing its viability into question - which unfortunately has not been addressed so far leaving bribery as the more viable alternative.

Catching companies that bribe

India's principal anti-corruption legislation - the Prevention of Corruption Act, 1988, or PCA - is set to undergo a major change. The Prevention of Corruption (Amendment) Bill 2013, as introduced in the Rajya Sabha, seeks to further strengthen the PCA and for the first time directly makes an offence of bribery by commercial organisations. With India Inc seeing itself at the forefront of various corruption scandals, the proposed provisions will definitely make heads turn.

The Bill, for the first time, introduces a substantive offence defined as follows: any commercial organisation which in order to obtain or retain business or a business advantage gives, or promises to give, any financial, or other, advantage to a public servant would be liable to pay a fine. The definition of a commercial organisation is fairly broad, including bodies and partnership firms incorporated or formed in India, carrying out business in India or outside India. It also includes bodies and partnership firms incorporated or formed outside India which carry on business in India. Interestingly, the term business would extend not only to conventional trades or professions, but would also cater to providing services, including charitable services.

The offence may be committed directly by any person associated with the commercial organisation - which gives the term 'associated person' a very broad ambit. Judging from the tone of the proposed legislation, third parties acting for the organisation would be included as well. The Bill goes on to provide 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.

The only defence applicable to the commercial organisation will be what is now generally accepted as the 'compliance defence'. The compliance defence would mean that the commercial organisation could still absolve itself and its officers of liability and guilt if the organisation has adequate procedures in place to prevent such misconduct. Now this is where the real bone of contention lies: what are adequate procedures?

There is no straight answer to this question. Companies which come under the ambit of the US Foreign Corrupt Practices Act and the UK's Bribery Act - which provide for a similar defence - have been struggling with this very point for the last few years and have faced million-dollar penalties even with anti-bribery compliance programmes. Finding the right procedures is going to be a challenge for India Inc; Indian authorities will also struggle to create clarity on this point. It would be pertinent to consider the guidance UK's Ministry of Justice released on this, which listed out six principles:

• Proportionate procedures
• Top-level commitment
• Risk assessment
• Due diligence
• Communication and training
• Monitoring and review.

On the flip side, the Bill is a step in the right direction. It should help ensure commercial organisations start taking anti-corruption and anti-bribery compliance a lot more seriously. Foreign companies operating in India have often complained about the unfair playing field that they face, as they are mandated to follow compliance structures to prevent bribery of foreign public officials in their home jurisdictions - while their rival Indian companies stand unaffected. The provisions of this Bill, if actually enforced, will help level the playing field to a large extent and will make the competition in the market a lot fairer. The Bill finally attacks the supply side of bribery in a comprehensive manner and not just the demand side.

At a time when India's emerging market and viability image are taking a beating due to economic and corruption factors, legislation like this would go far in attempting to boost market confidence and reaffirm the country's commitments to the United Nations Convention Against Corruption. However, knowing Parliament's far-from-expeditious manner in dealing with such legislations, we must not lose sight of the fact that the last time an amendment to the PCA was introduced, in 2008, the Bill lapsed; and the 'Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisations Bill, 2011' is yet to be passed. In the case of the 2013 Bill there seems to be a more proactive approach in play - it has already been referred to the Standing Committee. One can only hope that it is passed in time.

Source: Business Standard

Bail: Law, Trends & Judgments

Bail walks the thin line between harmonizing the conflicting claims of individual freedom and the interests of justice.   While the objectives of trial and thereby of arrest are of paramount importance to society, the grave consequences of pre-detention trial have a negative impact on the accused person since he/she may be presumed to be innocent in the court of law but subjected to physical and psychological deprivations that jail life carries.

Courts face a dilemma while adjudicating bail matters, best highlighted in the words of Justice N. Talukdar and Justice A Banerjee:   “The Law of Bails, which constitutes an important branch of the procedural law, is not a static one; and in a welfare state, it cannot indeed be so.   It has to dovetail two conflicting demands, namely, on one hand, the requirements of the society for being shielded from the hazards of being exposed to the misadventures of a person alleged to have committed a crime; and, on the other, the fundamental canon of criminal jurisprudence, viz., the presumption of innocence of an accused till he is found guilty.”  

Bail has not been defined in the Code of Criminal Procedure per se and is covered under Chapter XXXIII of the Code “Provision as to bail and bonds” under sections 436-439.   Broadly speaking, bail must be granted in the following cases:  

• If the person so arrested is not accused of committing a non-bailable offence. 
• If the investigation has not been completed within the time prescribed for the same.
• If there are no reasonable grounds which exist to believe or assume that the accused person is guilty of committing a non-bailable offence.
• If the trial before the concerned magistrate is not completed before 60 days. 
• If there are no reasonable grounds to believe that the accused person is guilty after the completion of trial but before the judgment is pronounced.

In case of offences involving the commission of non-bailable offences, the operative term is ‘may be released on bail’ which brings it under the component of higher juridical discretion.   This discretion is again based on multiple factors, mainly the facts and circumstances of each case.   The decision is always expected to be guided by law and the principle that bail is the rule and refusal of it are the exceptions.   Here is a look at some landmark judgments under the law of bail and anticipatory bail before commenting on the direction that the law has taken over the last few years. 

BAIL

SANJAY CHANDRA V. CBI The case brought to the forefront the dilemma of a court hearing bail, being further compounded in cases of economic offences that result in major losses to the exchequer.   The CBI’s contention that witnesses may be influenced by the appellants was disregarded by the Supreme Court on the grounds that seriousness of the offence is not the only rule to guide the discretionary power of the court while granting bail.   The court has to take simultaneous cognizance of the punishment that maybe afforded to the accused person after trial and conviction under the relevant statute, it ruled.   The Supreme Court held that if only the first rule of ‘seriousness of offences’ is taken into account, the constitutional rights of the accused would be severely compromised.

BHARAT SINGH JADEJA V. STATE OF GUJARAT The Supreme Court established that very cogent and overwhelming circumstances are necessary for an order seeking cancellation of the bail as the trend today is towards granting bail. The reason to back this was the well-settled position that the power to grant bail is not to be exercised as punishment before trial.   The material consideration to be taken into account while evaluating the circumstances to cancel a bail is whether the accused would be readily available for his/her trial and whether he/she is likely to abuse the discretion granted in his/her favour by tampering with evidence, the court ruled. 

JOGINDER KUMAR V. STATE OF UP In this case, the Supreme Court reiterated its position of balancing individual rights and societal rights under the question of arrest and bail.   The apex court established that the concerned authorities need to justify an arrest and not merely arrest in furtherance of the power of arrest bestowed upon them.   It was ruled that no arrest can be made in a routine manner on a mere allegation of commission of an offence made against a person.   The court further held that it would be prudent for a police officer in the interest of protection of the constitutional rights of a citizen and perhaps in his own interest that no arrest should be made without a reasonable satisfaction reached after some investigation as to the genuineness and bona fides of a complaint.   This, besides the reasonable belief both as to the person’s complicity and even so as to the need to effect arrest.

ASLAM BABALAL DESAI V. STATE OF MAHARASHTRA The Supreme Court held that once a persons’ liberty has been interfered with with his arrest without a court’s order or a warrant, the investigation must be carried out with utmost urgency and completed within the maximum period allowed under the Criminal Procedure Code.   This would be operative in law by ensuring that if the prosecuting agency fails to show a sense of urgency in the investigation of the case and omits or defaults to file a chargesheet within the time prescribed, the accused would be entitled to be released on bail. The orders so passed in such circumstances under Section 167 (2) of the Criminal Procedure Code would be deemed to be an order under Section 437 (1) or (2) or of Section 439 (1) of the Criminal Procedure Code. The rules for cancellation of such bail will continue to operate as established under the Criminal Procedure Code, it was held.

SHAHZAD HASSAN KHAN V. ISHTIAQ HASAN KHAN The Supreme Court laid down that when subsequent bail applications are made, after the first bail application has been rejected, such applications should be placed before the same judge who passed the earlier order of refusal.   The reasoning behind the same was to prevent the abuse of the process of the court.   GAMA V. STATE OF UP In the instant matter, it was laid down that bail may be applied for even after it has been rejected in the first or subsequent instances.   That there is no provision for the operation of constructive res judicata in dealing with bail applications was the view taken by the court.   This is an extremely important position of law which supports individual liberty as compared to the process of the court.

ANTICIPATORY BAIL

Siddharam Satlingappa Mhetre v. State of Maharashtra This case was a landmark judgment by the Supreme Court on the law of anticipatory bail.   The apex court highlighted the importance of life and liberty as being inalienable constitutional rights the upholding of which was of paramount importance.   It observed that the society has a vital interest in grant or refusal of bail because “every criminal offence is the offence against the state”.   The order granting or refusing bail must reflect perfect balance between the conflicting interests, namely, sanctity of individual liberty and the interest of the society, the court said.   In light of these guiding principles, the Supreme Court laid down ten parameters to be taken into consideration while dealing with anticipatory bail.

GURBAKSH SINGH SIBBIA V. STATE OF PUNJAB The Supreme Court took a very serious view on anticipatory bail applications by persons belonging to the higher echelons of society in this case.   It was held that the power of the court to grant anticipatory bail u/s 438 of the Criminal Procedure Code must be used “very sparingly and in exceptional cases only”.   The discretion under Section 438 cannot be exercised with regard to offences punishable with death or imprisonment for life unless the court at that very stage is satisfied that such a charge appears to be false or groundless, the apex court ruled. The court further reasoned that bail or anticipatory bail cannot be granted to any person on the basis of his status in society as this would be inequality.   The court’s position in this case was a significant departure from the earlier position on anticipatory bail.   

The principle of bail and the colossal sanctity of individual liberty as enshrined by the Constitution have been reaffirmed and emphasized by the apex court as well as the high courts.   To compile and recapitulate, the ratio accent of the law would be that while bail is a rule, jail is an exception.   The principles governing the discretion vested with the upholders on the august bench may vary based on the facts and circumstances of each case.   However, the basic underlying consideration remains that liberty of a citizen can be encroached only under due process of law wherein the enforcement agencies are required to assign cogent reasons for need to justify custodial interrogation and sustained detention at a pre-trial stage which is otherwise punitive and against the principles of natural justice.   Further, in view of the reformative theory applied to the principles of punishment, it has always been an approach to balance deterrent and punitive theories vis-à-vis reformation of an accused and to keep them away from hardened criminals in jail which are deemed to be universities of crime.   The broad considerations that may weigh in the minds of the judge while allowing or refusing bail are The gravity of the offences alleged.   The need for custodial interrogation for lawful pursuit of investigation or for recovery, etc. The chances of the accused fleeing from justice/trial.   The fear of tampering with prosecution evidence/threatening witnesses.   The criminal antecedents of the accused, if any.   With rising media awareness and human rights activism, there is a constant watch that maintains the equilibrium between the individual liberty on one hand and the interest of the society and victims of crime on the other.   However, one cannot ignore the pressure the media trials create on courts, a fact that does not positively contribute to the rules of equity or justice.   It is imperative that adequate safeguards are built in to avoid abuse in case of high pressure media trials.     

Comment by Mr. Majeed Memon (Noted Criminal Lawyer)   

No encroachment on personal liberty of a citizen in civil society governed by rule of law could be justified unless there are compelling reasons for doing so.   Pre-trial arrest in any case needs to be invariably avoided unless it is specifically found in a given case that interest of justice would suffer if arrest is not made.   However, after arrest by the investigating agency if the arrestee is brought before judicial officer in the matters of bail ,the question which the learned judge from the lowest court to the highest court has to ask himself is not whether I should grant bail or not, but whether I can refuse bail to the applicant.   Unless the judge is satisfied that there are compelling factors to deny bail, liberty of the arrestee has to be resorted and bail be granted.   This is in keeping with the golden principle of “bail is a rule and jail is an exception”. 

Authors: Sherbir Panag and Pervez Memon

Source: Lex Witness

Legal developments in anticorruption in India

The year 2012 has seen India at the centre of much speculation regarding the growth opportunities it presents and the corruption risks associated with realising the same opportunity. The speculation in the private sector is complemented by with the masses conveying their strong displeasure with the corrupt state of affairs in the country. The 2012 Corruption Perception Index published by Transparency International ranked India 94^th out of 176 countries. The Economic Times in September 2011 had a put a figure of US $ 462 Billion as the loss that India has suffered post its Independence in 1947, to tax evasion, crime and corruption. Post the publication of this report, the country has already been witness to various other corruption scandals, including a scandal involving the allocation of coal blocks which is estimated to be at US $ 33 Billion and a scandal in the State of Karnataka dealing with Wakf land estimated at US $ 36 Billion in addition to others – further contributing to this astronomical figure. 

This notwithstanding, the public pressure and the proactive role played by the Indian media is bringing to the fore front a no corruption sentiment, forcing the law makers, the judiciary and the enforcement agencies to pick up the ante. India has also signed and ratified the United Nations Convention against Transnational Organised Crime and also the U.N. Convention against Corruption.  Thus, the tide is definitely turning. Through the course of this article we seek to map out the latest trends in the anti corruption framework in India from both a legislative and enforcement perspective.

Legislative update: The legislative framework dealing with anti corruption definitely requires a major revamp in order to strengthen the substantive offences. India’s principal money laundering legislation Prevention of Money Laundering Act 2002 was amended with the passing of the Prevention of Money Laundering (Amendment) Bill, 2011 in December 2012. This amendment introduced the concept of ‘corresponding law’ which would seek to link the provisions of the Indian law with foreign law and also removed the maximum penalty amount of Rupees Five Hundred Thousand as earlier prescribed, in addition to other reforms – bringing India’s money laundering laws closer to its western counterparts.

The Indian Parliament is currently sitting over several legislations that will strengthen the anti corruption framework considerably. These are:

·      Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, 2011: This bill seeks to criminalize the offence of bribing foreign public officials and officials of public international organisations. The punishment for the offences is imprisonment from six months to seven years and a fine. This bill further empowers the Government of India to enter into agreements with other countries to enforce the same and also provides for the amendment of existing extradition treaties to cover the mentioned offences.

1.  Public Interest Disclosure and Protection to Persons Making the Disclosure Bill, 2010: This Bill is commonly referred to as the Whistle Blowers Bill and endeavours to create a mechanism whereby complaints on any allegations of corruption or wilful misuse of power against a public servant can be registered, while protecting the identity of the person making such disclosure or the whistleblower. The Bill penalises the disclosure of the identity of the whistle blower and also penalises false complaints which were knowingly made.
2. The Prevention of Corruption (Amendment) Bill, 2008: This Bill will amend India’s principal anti corruption legislation the Prevention of Corruption Act, 1988 by including provisions  for the forfeiture of property acquired by public servants through corrupt means, modification of the fine for the offence of not satisfactorily accounting for pecuniary resources disproportionate to known sources of income and extending the provision for protection of public servants against vexatious complaints to post their ceasing to remain public servants.
3. Lokpal & Jan Lokpal Bills: These Bills seek the formal establishment of an Ombudsman to be the principal anti corruption watchdog and judge. The Jan Lokpal Bill is accompanied by a citizens charter as well.
4. Private sector corruption: The Indian Prime Minister – Dr Manmohan Singh, at a recent conference with various enforcement agencies spoke about amending the Indian Penal Code to cater to offences of private sector corruption in order to better tackle the supply side of corruption. The drafts of the proposed Bill are being circulated with the various States and Enforcement Agencies.

Emerging trends and devlopments: The galvanised anti corruption sentiment has seen its manifestation in the actions of the judiciary and enforcement agencies. We track some of these trends and developments below:

The Government of India has given its assent for the establishment of 71 special courts exclusively for the trial of cases by the country’s premiere investigative agency the Central Bureau of Investigation (CBI) which fall under the ambit of the Prevention of Corruption Act. The Supreme Court of India taking active cognizance of the matter on the 30^th of January 2013 passed an order asking the Government to establish 22 such courts within 2 months.

The Serious Frauds Investigative Office was established in the year 2003, but with the advent of the passing of the Companies Bill 2011, we will soon see the Serious Frauds Investigation Office being given more teeth, including the reported power to investigate companies for violations in India even if they aren’t registered in India, along with a host of other powers. This is coupled with the Economic Offences Wing’s that are being set up in almost all States in the country.

The Investigation trend into acts of bribery, corruption and fraud – is further complemented by the heightened media interest in such cases, which in turn pressurises the agencies and courts involved. The Higher Judiciary in India has been seen making strong recommendations in this regard as was evident when the Supreme Court of India in a landmark case[1] held that delaying the sanction to prosecute public servants as is provided for under the Prevention of Corruption Act by the Government would amount to a violation of the due process of law. The Higher Courts have been taking a major interest in trials that are being conducted in the lower courts, to prevent abuse or manipulation by any sort, and the 2G case trial was the best example of the same.

Executive action is also seeing visible signs of being conscientious about allegations of corruption. In March 2012, six defence companies out of which there were four foreign companies were blacklisted by the Ministry of Defence for a period of 10 years, on grounds of allegations of bribery in the procurement of contracts. A similar blacklisting order was passed by the Ministry of Agriculture against Dow Agro Sciences India a subsidiary of Dow Chemicals, U.S.A. The keyword here is a mere allegation of bribery and not cases where such allegations were proved. A blacklisting proceeding is relatively less cumbersome on the Ministry as they are only required to conform to the Principles of Natural Justice and serves as an effective remedy in their hands, while causing obvious business loss and tremendous loss of goodwill and bad publicity to the blacklisted company. In light of repeated cases involving bribery and corruption, various Government agencies and departments are also proactively making the legal framework stronger in their favour by entering into ‘Pre-Contract Integrity Pacts’ and requiring express representations through documentation that the companies will not bribe either themselves or through agents to obtain government contracts / tenders/ mandates.

We also find growing scrutiny into all sectors having major license regulations. The transactions in such cases are coming under the scanner, and this is an extremely important trend to note. Bharti Wal-mart, Wal-marts Indian subsidiary has recently been reported to have allegations of bribery in obtaining over 50 licenses that were necessary for doing business in India. With the disclosure of investigation made by Bharti Wal-mart, the Indian investigative agencies have also swung into action. This was also visible while Augusta Westland the helicopter manufacturer is facing a probe by Italian prosecutors, the Indian Ministry of Defence had asked for information in this regard through diplomatic channels to evaluate prosecution in India. A similar trend has been noted when investigations were faced by Kraft Foods in the U.S.A under the Foreign Corrupt Practices Act for allegations of bribery by their Indian subsidiary, the Indian agencies took cognizance of the same to investigate the matter in India as well.

All in all there is a positive trend which is visible, but still miles to go before India can actually rest. Until and unless enforcement action and successful prosecution actions pick up, the rest will be window dressing. However, the step in the right direction has definitely been taken.

---

[1] Subramaniam Swamy v. Dr. Manmohan Singh, Civil Appeal NO. 1193   OF 2012 (Arising out of SLP(C) No. 27535 of 2010)

Authors: Sherbir Panag and Zulfiquar Memon

Published by: Criminal Law Section News, International Bar Association Legal Practice Division Newsletter, Volume 6 Number 1

The growing need for Criminal Compliance

 The India growth story is here to stay and so the presence of foreign companies will only grow with each passing year. Besides, most companies see India as a long-term investment option and are flocking to reap the benefits of a stable and vibrant democracy, favourable demographics viz a young population and a ballooning middle-class, and most importantly, the vast internal consumption demand that India throws up. 

This is coupled with the ‘development quotient’ that India offers as a developing country, requiring heightened public-private partnership keeping India lucrative for business cycles to come. The attractiveness of the Indian market with the Euro crisis in play was evident with March 2012 seeing the highest ever monthly inflow of foreign direct investment of US $ 8.1 billion. With the Government’s decision to open foreign direct investment in retail as well as increase the cap in the insurance and pension sector, we see this trend only positively contributing to keep India more and more attractive as ‘the go to’ emerging market.

While India remains a market that cannot be ignored, it does not come without its bane. India is red-flagged as a high risk market, from a bribery, corruption and fraud perspective – shooting up the costs for the non-compliant, and considerably affecting its viability in these cases. This sentiment was reflected in the 12^th Global Fraud Survey, which was conducted by Ernst & Young showing that 70% of Indian respondents to the survey felt that bribery and corruption were widespread in the country and 72% believed that the management was likely to cut corners to meet targets. The KPMG India Fraud Survey further complemented this assertion with results showing that nearly 61% of the Respondents believed their organisations to have a risk of fraud and more than half of them had been victimised by fraud.

With the advent of legislations in their home countries banning the bribery of foreign public officials coupled with hyperactive enforcement agencies, foreign companies doing business in India must navigate a culture in which bribery is rife, without running afoul of local or home-country laws. Besides the obvious social argument for ethical business, the economic argument is equally persuasive. The last decade has seen foreign corporations being crippled by the astronomical fines they have had to pay for acts of bribery in foreign countries, courtesy their domestic laws. The initial advantage that an act of bribery may give thus becomes a speed ticket in the larger scheme of things once the enforcement clampdown begins; case in point is the Siemens Scandal.

This warrants the need for comprehensive and pro-active criminal compliance programmes – to deal with these risks, so that the business potential that a country like India offers may be realised. While, there is a growing compliance trend in larger corporations – the small and medium foreign companies, operating in India still seem to take criminal compliance lightly. A compliance programme, serves a twofold purpose – besides mitigating the risks as they arise, in the eventuality that the risk isn’t avoided, it may still help absolve the corporation of penalties, if the enforcement agencies can determine that the compliance programme was effective and the action of the individual does not correspond as the company’s action. The most recent case in this regard is how Morgan Stanley was absolved of any liability during a recently concluded US Foreign Corrupt Practices Act (FCPA) investigation by the Department of Justice, owing to their robust compliance programme; however the individual in question Mr Garth Peterson individually faced the flak. Further, the Compliance Program is a preventive mechanism and not a reactionary step to a situation that arises – clearly establishing the company’s ideology with respect to compliance. The reaction always costs more, as was evident when Wal-Mart reviewed its compliance programmes in India and China, post the Mexico scandal.

Let’s now look at some of the enforcement risks that emerge from the lack of a comprehensive and robust compliance programme:

US FCPA, UK Bribery Act and other trends: The US FCPA is the first national legislation that banned the bribery of foreign public officials and included associated forms of bribery such as gifts, corporate hospitality, political and charitable contributions. The FCPA till date remains the most dreaded anti-corruption legislation affecting all corporations that have a business presence in the United States, and the increasingly aggressive jurisdiction being asserted by the US Department of Justice reflects how eight of the top 10 FCPA settlements (monetarily) have involved non-US-headquartered firms. Fifteen companies settled FCPA enforcement actions in 2011 by paying a total of US $508.6 million, and in the year 2012 alone tracking the leading India cases, we have settlements made by Oracle and the Huntsman Corporation viz bribes paid in India, while Krafts Foods is facing an investigation, courtesy its Indian subsidiary Cadbury.

The UK Bribery Act took the FCPA initiative further and banned facilitation payments as well as established the corporate offence of failure to prevent bribery. The lack of a compliance programme would fall under the ambit of this offence, and ten years imprisonment and an unlimited fine is a significant price to pay for ignorance.  With the recently launched investigation by the UK Serious Frauds Office into British Petroleum under the Bribery Act for a voluntary disclosure made by them – the tone from the SFO is clear.

Further, with respect to Transparency International’s report on countries increasing prosecution of foreign bribery, we find the list topped by the US, Germany, United Kingdom, Italy and France, out of which four countries contribute the highest FDI into India. Italian prosecutors as we speak are probing helicopter manufacturer Agusta Westland over a 12-helicopter deal with India, clearly establishing the scrutiny - deals with India attract.

The Indian Enforcement Trend Changing: In March this year, the Ministry of Defence blacklisted six Defence Companies, of which four were foreign companies, for alleged involvement in the Ordnance Factory Board Scam. The trend of blacklisting as an effective remedy is growing as the investigative burden on the concerned Ministry is reduced and the only procedural requirement is a show-cause notice in consonance with the Principles of Natural Justice. Such an action, besides the obvious business loss, also renders tremendous loss of goodwill and bad publicity.

With the Cabinet giving its nod to the Companies Bill 2011, we will soon see the Serious Frauds Investigation Office being given more teeth, including the reported power to investigate companies for violations in India even if they aren’t registered here, along with a host of other powers. This is coupled with the Economic Offences Wing’s that are being set up in almost all States in the country. We find growing scrutiny into all sectors having major license regulations post the 2G scam and now Coal Gate, which is an important trend to note.

The Investigation trend into acts of bribery, corruption and fraud – is further complemented by the heightened media interest in such cases, which in turn pressurises the agencies and courts involved. We also find the Higher Judiciary making strong recommendations in this regard as was made by the Supreme Court in Subramaniam Swamy v. Dr. Manmohan Singh, holding that delay in timely grant of sanction as required by the Prevention of Corruption Act, 1988 amounted to a violation of the due process of law and the Court suggested that a three-month period be considered, the non-compliance of which would deem the sanction to have been granted.

New Legislations in the Pipeline: The Indian Parliament is today sitting over three legislations, which will have a significant impact on the compliance requirements of companies. These include, Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, 2011; Public Interest Disclosure and Protection to Persons Making the Disclosure Bill, 2010 and The Prevention of Corruption (Amendment) Bill, 2008.

The above-mentioned trends clearly indicate the need of the hour for Companies seeking to do business in India to get their house in order, to insulate themselves from both the ensuing economic loss and social damage. The Indian scenario definitely requires tailor made criminal compliance programmes to best further business interests and mitigate risks, with major reliance placed on third party management, business establishment & procurement processes and the elimination of conflict of interest positions. Considering the gold standard that the UK Bribery Act has set for anti corruption compliance, the six key principles would be the ideal ground to start with and develop a compliance program according to the individual needs of the organisation and the environment it operates in. These principles are:

•     Proportionate procedures

•     Top-level commitment

•     Risk assessment

•     Due diligence

•     Communication (including training)

•     Monitoring and review

This  mandates that on a war footing companies adopt the conduct of comprehensive due diligences, establishment of strong internal audit functions, investment into training and the establishment of strong policies and standard operating procedures, in addition to others to best safeguard their interests from a criminal compliance perspective. Ultimately, the preventive benefits accrue considerably higher than the reaction or cure approach as by that time, there may not be much left to cure economically or socially for the company.

Authors: Sherbir Panag and Zulfiquar Memon

As published by Legal Era in November 2012