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.

A Focus On Indian Pre-Contract Integrity Pacts

The Government of India  unilaterally terminated a Euro 556 Million contract with the Anglo-Italian helicopter manufacturing company AgustaWestland on the 1^st of January 2014 for breach of the pre-contract integrity pact on the basis of allegations of bribery. Similarly in March 2012 the Ministry of Defence (which is incidentally the Ministry concerned in the AgustaWestland case as well) cashed a bank guarantee put forth by the Israeli Military Industries andblacklisted six companies amidst allegations of bribery and breach of the pre contract integrity pact.  A similar blacklisting was also imposed by the Ministry of Agriculture for a period of 5 years on M/s Dow Agro Sciences India Pvt. Ltd in the year 2011. The operative term in the above cases is the ‘allegation of bribery’ or rather the assumption of bribery after which consequences have ensued.

What is a Pre-Contract Integrity Pact?

‘Pre-Contract Integrity Pact’ or ‘Integrity Pact’ is a tool that was developed by Transparency International to help governments, businesses and civil society fight corruption in the field of public contracting where the scope of abuse is immense owing to the large value of contracts. The ‘Pre-Contract Integrity Pact’ establishes binding obligations on both parties, those being the State or its instrumentalities and the commercial organisation.

As the name suggests these obligations become effective from the stage of bidding itself that is prior to the contract and remain in force thereafter as well. The Central Vigilance Commission of India in a document explaining the nature of ‘Pre-Contract Integrity Pacts’ states that failure to implement the Pre-Contract Integrity Pacts’ , would result in public officials being subjected to penal action and bidders would face cancellation of contracts, forfeiture of bonds, liquidated damages and blacklisting. Such action does not require a criminal conviction but can be based on “no-contest” after the evidence is made available or there can be no material doubts. Pre-Contract Integrity Pacts are gradually being widely used by the State and its instrumentalities in all areas of public contracting.

The Ministry of Finance, Government of India in  a circular titled ‘Use of Integrity Pacts by Ministries / Departments – Implementation of Administrative Reforms Commission’ provided a draft of a Pre Integrity Contract.  A perusal of this draft puts forth the following salient points:

• Commitments to not engage in any form of bribery either directly or through any agents or third parties on the part of the bidder
• Commitments to not accept any form of bribes or demand any bribes and to treat all bidders fairly by the Buyer (Government)
• A declaration by the bidder that no previous transgression occurred in the last three years before the signing of the Pact with any other company in any country with respect to corrupt practices.
• Clause 6 of the Pact lays down sanctions for violation which include cancellation of the contract if awarded, confiscation of the security deposit, debarment, recovery of sums so illegally paid, applicable damages with interest, so on and so forth.
• The Buyer (Government) will appoint Independent Monitors in consultation with the Central Vigilance Commission to have an objective review of the implementation of the Pact.
• The Pact extends to a period of 5 years after complete execution of the contract.

Why should companies take Pre-Contract Integrity Pacts seriously?

The cases discussed above and a perusal of the text of the pact, puts forth a situation that companies must take stock of whereby companies have faced the consequences whether it be blacklisting or contract termination, without the investigation being completed or a trial commencing or an ensuing conviction from such trial. Why should companies engaging in public procurement with the Indian State be worried:

• Allegation of bribery: Firstly, as stated above the provisions of the pre-contract integrity pact become operative on the allegation of bribery. In AgustaWestland’s case, India began investigating the matter after proceedings commenced in Italy which the Indian media reported. Thus, news travels and there is no caution that a media house has to exercise in reporting an allegation of bribery as it technically still remains an allegation.
• Simple procedure:  No strict procedure per se is in place to invoke the provisions of the pre-contract integrity pact and nor is there any guidance in this regard as to what the State must follow. The procedure to be followed would merely be to ensure conformance with the principles of natural justice namely audi alteram partem i.e, to hear the other party, which in this case would take the form of a show cause notice. When the State considers the evidence is conclusive enough to invoke the provisions of the pre-contract integrity pact still remain unclear.
• Time frame of action: The time frame in which the action is taken against the company is considerably faster than the regular legal process in India. In AgustaWestland’s case, the allegations came forward in early 2012 and in less than 2 years action was taken. In the case of the blacklisting by the Ministry of Defence, the allegations emerged in May 2009 and by March 2012 the blacklisting was effectuated. This as compared to the time frame of investigations and trials in India which can go into over 10-15 years is something to take note of. Companies’ earlier taking advantage of the tortoise pace of the Indian legal system would come onto the receiving end of the same when they would challenge it in adverse action initiate against them in the courts.
• Checks foreign bribery: Through the Integrity Pact the State is also plugging the loophole of a prevention of a foreign bribery clause (Indian law does not prevent foreign bribery, though a bill is pending in Parliament) by stating  that no transgression viz a viz corruption has taken place in any country for a stipulated period before the signing of the pact.
• Plethora of remedies: If the State terminates a contract in furtherance of the pre-contract integrity pact, it would in no way be precluded from concurrently blacklisting the company or forfeiting deposits or cashing bank guarantees or claiming damages. The use of one remedy would not prevent another from being put into motion.
• Still open to criminal prosecution: While remedies the State has for an act of bribery by a company under the Pre-Contract Integrity Pact remain essentially contractual and administrative in nature, an action or invocation of  a clause from the pact (termination, penalty, blacklisting) would in no way preclude criminal prosecution for these offences. Such action would not constitute a plea bargain or settlement of any kind, but would be independent of the criminal law machinery of the Indian state.

This notwithstanding, a company would have grounds to challenge the State’s action when it invokes a breach of the pre-contract integrity pact before a higher court, but it’s definitely not going to be an easy battle nor will the result be immediate.

Conclusion:

In light of recent actions in India, companies engaged in public procurement / public contracting need to take Pre-Contract Integrity Pacts more seriously and not view them as a mere procedural requirement before signing the contract. Further, companies should also consider the impact that proceedings / investigations / disclosure in one jurisdiction may have in another and should address the risks of the same. With public pressure against corruption mounting and proactive media houses in India reporting instances of corruption, companies need to do a major re-think on the economic viability of bribing in India and the consequences that may follow.

Source: FCPA Professor, published on 8th January 2014.

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