India has ratified the United Nations Convention against Corruption and the United Nations Convention on Transnational Organized Crime; both of which mandate the criminalisation of the corruption and bribery of public officials.
The primary anti-corruption legislation in India is the Prevention of Corruption Act, 1988 (PCA). The Indian Penal Code, 1860 (IPC) also contains certain provisions relating to unlawful acts by public servants. Government officials are also bound to conduct themselves in accordance with the service rules applicable to them, including the Central Civil Services (Conduct) Rules, 1964 and the All India Services (Conduct) Rules, 1968 (Service Rules), which, inter alia, prohibit them from receiving gifts or other pecuniary advantage exceeding a specified threshold without the sanction of the government.
General principles of statutory interpretation for criminal statutes are applicable to the enforcement of the Indian anti-bribery laws and regulations. Enforcement of anti-corruption-related legislation is largely done in terms of the Code of Criminal Procedure (CrPC) and the guidelines followed by local law enforcement in each state. Additionally, the Central Bureau of Investigation’s (CBI) Anti Corruption Branch has its own set of guidelines for investigation of corruption-related offences and their prosecution.
The PCA was amended in 2018. Prior to the amendment, the prosecution and punishments under the PCA were aimed only at public officials who received and accepted bribes. Companies which facilitated or paid bribes to public officials could only be prosecuted under the offence of conspiracy to commit a crime. Now, payment of a bribe to public officials has been included as a distinct offence, opening up the scope for direct prosecution of bribe-givers. Moreover, the investigative agencies have been granted broader powers to investigate and prosecute a company along with its director, managers and other officers who consented or connived to commit such offences.
The term "bribe" has not been specifically defined by any legislation. However, courts in India have interpreted it to include payments made to public servants to get unlawful things done and/or to get lawful things done promptly.
The main offences relating to bribery in India are:
A "public servant" has a very wide definition and includes the following:
As a general rule, intent is required as an essential ingredient to prove an offence under Indian law. There are only a limited number of offences for which intent is not required to be established, such as waging war against the government.
The government has formulated guidelines and monetary thresholds for certain public servants regarding the acceptance of gifts, business courtesies and hospitality in the Service Rules. These rules must be followed by public servants employed in specified government services. Bribery of foreign officials and bribery between private parties is not an express offence under Indian laws.
The mere attempt or promise to indulge in bribery is sufficient to constitute an offence and there is no specific requirement that the results expected by the bribe-giver from the public official should actually occur for it to qualify as an offence.
Failure to prevent bribery has not been specifically made an offence in India. It is pertinent to note that, with the recent amendments to the PCA, companies can raise a defence that adequate anti-bribery policies had been implemented by them within the organisation.
Indian law does not have specific provisions relating to influence-peddling. Influence-peddling may be punishable under the PCA as an offence concerning bribery as long as a person is using his or her influence to induce a government servant to commit an act punishable under the PCA. The offences concerning bribery are set out above.
Influence-peddling of foreign public officials is not specifically punishable under Indian law, but may be prosecuted as instances of criminal breach of trust and cheating under the provisions of the IPC.
The Prevention of Money Laundering Act, 2002 (PMLA) and the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 (the "PML Rules") require maintenance of records of identification and transactions as well as their disclosure. Banks, financial institutions and intermediaries must maintain and furnish information on records of cash transactions of more than INR1 million, records of cross-border wire transfers in excess of INR500,000, along with various other kinds of transactions. Under the PMLA, a fine of between INR10,000 and INR100,000 can be levied on the failure to disclose those accurate financial records which must be maintained according to the Act. Under the Companies Act, 2013, the failure to maintain financial records with due and reasonable care will render a director liable to a fine ranging from INR50,000 to INR500,000 and/or imprisonment for up to one year.
Additionally, the Companies Act, 2013 requires companies to maintain records with full and true financial statements in accordance with accounting standards prescribed by the central government, for a period of eight years. Failure to maintain the books of account of a company as per the provisions of the Companies Act, 2013 can attract fines of up to INR500,000 and imprisonment for up to one year.
The Income Tax Act, 1961 also prescribes certain requirements for certain professionals to maintain books of accounts and other supporting documents for a period of six years following the assessment year. Transfer-pricing documents must be maintained for a total period of ten years.
Public officials can be held guilty for misappropriation of public funds, unlawful taking of interest, embezzlement of public funds and favouritism under the provisions of the PCA as set out above.
The PCA makes it clear that an undue advantage obtained or accepted by a public servant through an intermediary is treated at par with an undue advantage obtained or accepted directly by the public servant.
There is no all-encompassing limitation period for all criminal offences in India. Only specific kinds of offence are subject to a limitation period. These periods are:
There is no limitation period for offences which are punishable with imprisonment in excess of three years. Given that an offence of bribery is punishable with imprisonment for up to seven years, the limitation period does not apply.
The PCA is applicable to the whole of India. An Indian citizen can also be punished for committing an offence under the PCA outside India.
Generally, under Indian criminal law, corporate criminal liability is established through the principle of attribution of intent. The criminal intent of the individuals (directors/agents/employees) representing directing minds or alter ego of the company is attributable to the company in order to hold the company liable along with the individuals. Therefore, criminal liability is imputed to a company when its directors, agents, etc act with criminal intent in the course of the business of the company. As a matter of law, this principle cannot be applied in reverse in the absence of a specific statutory provision imposing vicarious liability. Therefore, directors and agents of a company cannot be subject to criminal liability, in the absence of any involvement or intent on their part, merely because criminal liability is attached to the company.
The PCA specifically provides that if a commercial organisation commits an offence relating to bribing a public servant and that offence is proved to have been committed with the consent or connivance of any director, manager, secretary or other officer of the commercial organisation, then that officer shall also be held liable for the offence (Section 10 of the PCA).
There is no clear policy directive or direction about whether a company or an individual has to be prosecuted. In the ordinary course of events, investigative agencies seek to charge both the corporation and the individuals for the offence in question unless the facts suggest otherwise.
Criminal liability is not extinguished by merger, takeover or other forms of corporate restructuring. However, the mere taking-over of the target entity will not lead to liability for the successor entity and its officers. A prosecution or investigation initiated prior to the acquisition will not abate, and liability, if any, from the prosecution or investigation will be attached to the entity and/or the individuals involved.
The nature of defences which an individual/corporate entity may raise in cases relating to bribery and corruption would depend on the nature of offences that the individual/corporate entity is charged with. In the case of an offence involving bribery, lack of proof of demand and of payment of a bribe could be raised as a possible defence. In cases where individuals are made vicariously liable for acts committed by a company, any such individual may take a defence that the offence took place without his or her knowledge, connivance or consent.
Companies and their officials accused of paying bribes under the PCA can raise a defence that the company had adequate procedures and compliance programmes in place to prevent commission of offences related to bribery. The compliance programmes put in place by the company may help the company to demonstrate the lack of mens rea in commission of an alleged offence. However, the government has not yet notified the relevant rules and standards which set out the scope and contents of an effective compliance programme.
Further, an individual accused of providing illegal gratification under the PCA is provided immunity if that person has been compelled to give the illegal gratification and is willing to report this to the law enforcement agencies within seven days of giving that illegal gratification.
There are no exceptions to these defences.
In India, there are no de minimis exceptions to offences of corruption and bribery, and all corporations and individuals accused of corruption and/or bribery are investigated as per the procedure established by law. However, the absence of consent and connivance on the part of an officer of the commercial organisation is an exception to the offence relating to bribing a public servant by a commercial organisation.
The PCA does not exempt any specific industries and/or sectors from its purview.
India does not recognise self-reporting/self-disclosure and adequate compliance procedures/remediation efforts as a means to secure amnesty or safe harbour in prosecutions related to bribery and/or corruption.
Furthermore, every corporate entity is required to co-operate with the investigating agencies and provide all information and necessary evidence that may be required for investigation from time to time, and also to instruct its officers to assist the agencies during the investigation process. Co-operation on the part of the corporate entity does not make the corporate entity amenable to favourable decisions or lenient actions on the part of the investigating agency.
However, where a person, after informing a law enforcement authority, gives or promises to give any undue advantage to another person in order to assist the law enforcement authority in its investigation of the offence alleged under the PCA, that person will not be liable for any violation of the PCA. Additionally, under the recent amendments to the PCA, a person compelled to pay a bribe will be granted immunity if he or she reports the bribery within seven days.
Nevertheless, a commercial organisation which has adequate procedures in place to prevent any commission of any acts related to corruption and/or bribery can claim a defence, provided it can prove the existence of those procedures and that those procedures comply with the guidelines to be prescribed by the government.
The PCA provides different penalties for commission of different offences. For commission of offences related to bribery, the PCA prescribes imprisonment for a minimum of three years and a maximum of seven years as well as a fine, the amount of which is decided by the court on a case-by-case basis. This penalty applies to all offences except in the case of habitual offenders, for whom the PCA provides for an enhanced punishment which may range from five years to ten years, and a fine, the amount of which is decided by the court. Even abetment of an offence under the PCA, irrespective of whether the offence is committed in pursuance to the abetment, is punishable with imprisonment for a term of not less than three years, which may extend to seven years along with a fine.
Corrupt public servants may be punished with imprisonment for a minimum of three years and a maximum of seven years along with a fine, the amount of which is determined by the court on a case-by-case basis. The punishment for criminal misconduct by a public servant is imprisonment for a minimum term of not less than four years, which may extend to ten years, and may also include a fine.
Where an offence is committed by a commercial organisation and that offence is proven in court to have been committed with the consent or connivance of a director, manager, secretary or other officer, that individual will be subject to a prison term of between three and seven years as well as a fine. The commercial organisation will be punishable with a fine.
The IPC provides that any public servant entrusted with property, or any dominion over property, in his or her official capacity who commits a breach of trust in respect of such property shall be liable for imprisonment for ten years, which may extend to life, along with a fine.
India does not have any specific sentencing guidelines; instead, the courts determine the quantum of punishment after reaching the conclusion that the offence was committed by the accused.
Certain statutes prescribe the standards and rules used to determine the quantum of fines to be levied. For instance, a penalty of thrice the sum involved can be levied under the Foreign Exchange Management Act, 1999 (FEMA) if the violation is quantifiable. Under the PCA, the courts usually take into consideration the value of the property obtained by the commission of the offence in deciding the quantum of punishment, and where the offence is in relation to resources which the official cannot satisfactorily account for, the value of such resources is considered when determining the penalty or sentence.
Furthermore, as per the CrPC, the court conducts a hearing on sentencing after finding the accused guilty. The court, in determining the quantum of sentence, considers circumstances such as the antecedents of the offender, the nature and circumstances of the offence, criminal record, etc. The procedure is no different when it comes to sentencing for commission of offences related to corruption and bribery.
The statutes prescribe minimum sentences for various offences and the court upon finding the accused guilty is required to award a sentence equal to or greater than the minimum sentence prescribed for the commission of the said offence. However, the punishment cannot be more than the maximum sentence contemplated under the statutes for commission of the offence.
Also, the PCA recognises the concept of habitual offenders and prescribes a harsher punishment for such offenders. Punishment for habitual offenders may range from imprisonment for five to ten years, including a fine, the quantum of which is determined on a case-by-case basis.
Until recently, Indian law did not provide for a specific obligation to prevent bribery and influence-peddling. Also, there was no express obligation to maintain an anti-bribery compliance programme by companies. However, amendments made to the PCA in 2018 prescribe corporate entities having compliance procedures, for the purpose of preventing their employees from engaging in any act which may be categorised as corruption or bribery under the PCA.
The PCA also provides that officials and associated persons of companies can be prosecuted for giving bribes to public officials. However, a commercial organisation can espouse a defence that it had adequate procedures in place to prevent its associated persons from undertaking such conduct. In the absence of such procedures, a commercial organisation, irrespective of its size or operations, is vulnerable to liability under the anti-bribery law of India for all the dealings of its officials and associated persons.
Under the PCA, the government of India is required to notify the guidelines for an adequate bribery-prevention procedure and/or compliance programme. However, no such guidelines have been published by the government yet.
The Companies Act, 2013 requires every listed company to establish a vigil mechanism for its directors and employees, to enable them to report legal violations, unethical behaviour or other such concerns, and the Companies Act, 2013 also contemplates the imposition of penalties on companies which fail to comply with that requirement. Evidence of the existence of such an internal vigil mechanism is required to be compulsorily disclosed in the report of the board of directors. Thus, the Companies Act, 2013 encourages employees to red-flag unethical and illegal acts. Additionally, the Companies Act, 2013 requires independent directors to ascertain whether the company has an adequate and functional vigil mechanism as well as ensure that the interests of a person who uses such a mechanism is protected.
The PCA does not mandate any individual to report any instances of bribery and corruption; however, it provides that an individual who has been compelled to give an undue advantage to a public servant can report such an instance to the law-enforcement authority or investigating agency, within a period of seven days from payment of that undue advantage. Further, the PCA also provides for instances where an individual may, after informing the law-enforcement authority or investigating agency, give or promise to give an undue advantage to another person, in order to assist the law-enforcement authority or investigating agency in its investigation.
In addition to the vigil mechanism set out in 6.2 Disclosure of Violations of Anti-bribery and Anti-corruption Provisions, the Companies Act, 2013 requires independent directors to ascertain whether the company has an adequate and functional vigil mechanism as well as ensuring that the interests of persons who use such mechanisms (whistle-blowers) are protected. Also, the SEBI corporate governance rules require companies to establish a functional whistle-blowing mechanism and ensure adequate protection for whistle-blowers.
The Companies Act, 2013 and its allied rules, without being specific as to the nature and extent of the safeguards required, mandates that the vigil mechanism put in place by the company shall ensure adequate safeguards against victimisation of the whistle-blower.
Also, the SEBI corporate governance rules require companies to establish a functional whistle-blowing mechanism and ensure adequate protection for whistle-blowers.
The Whistle Blowers Protection Act, 2014 envisages protective measures for whistle-blowers reporting instances of corruption under the PCA. However, this legislation has not been operationalised and is presently unenforceable.
Indian law only protects whistle-blowers and does not, per se, provide any incentives to them.
There is no enforceable comprehensive national legislation/code for the protection of whistle-blowers in India. Effective whistle-blower protection provisions can be found within internal policies of companies and the SEBI corporate governance guidelines.
The PCA provides for criminal enforcement of the anti-corruption provisions contained therein.
The local police and the Central Bureau of Investigation (CBI) have been entrusted with the investigation and prosecution of offences under the PCA.
There are designated criminal courts and authorities which are entrusted with the responsibility of adjudicating offences related to corruption. These courts include the special courts constituted especially for the purpose of adjudicating offences under the PCA: the special CBI courts which adjudicate offences relating to corruption, financial frauds, bribery, and the like.
Upon receipt of a complaint relating to an offence under the PCA, the police or the CBI may carry out a preliminary enquiry into the allegations contained in the complaint. In the event that the preliminary enquiry reveals the occurrence of a cognisable offence, the police or the CBI registers an FIR (first information report). Pursuant to the registration of an FIR, the police or the CBI initiate an investigation into the commission of alleged offences and, post conclusion of investigation, either a charge-sheet or a closure report is filed with the competent court.
The guidelines relating to the initiation of an investigation by the police are contained in the governing statute or the rules framed thereunder. In addition, the CrPC acts as a guiding factor. The guidelines for the CBI are contained in the CBI Manual.
The investigation agencies can issue summons in the name of companies or officers, calling upon them to appear before the investigating officer concerned, for the purpose of giving evidence or producing documents that the agency feels are relevant to the investigation.
However, in cases where the agencies have reasons to believe that certain documents or records relating to the commission of an offence under investigation are in the possession of the company and/or its employee and that those documents or records are not forthcoming, it may enter into any building or place believed to contain them and search that building or place and seize any such documents or records found.
Indian law does not accord any legal sanctity to deferred prosecution agreements or non-prosecution agreements. There are no alternative mechanisms for the purposes of resolving criminal trials.
Plea bargaining is recognised under the CrPC. The accused can plead guilty in exchange for concessions by the prosecution on the quantum of penalties. The accused intending to avail himself or herself of the benefit of plea bargaining is required to file an application along with an affidavit, for plea bargaining in the pending trial, containing brief details of the case to which the application relates. The accused also needs to specify the offence(s) with which they are charged, state that they have voluntarily made the application and that they have not previously been convicted by the court in a case in which they had been charged with the same offence.
Subsequent to the filing of the application, the court will issue notice to the public prosecutor, the investigating officer and the victim/complainant, while fixing a date for hearing. On the date fixed for hearing, the court examines the accused in the absence of the other related parties, for the purposes of satisfying itself that the application has been filed voluntarily. The court, upon being satisfied that the application has been filed voluntarily, will grant time to the public prosecutor or the complainant and the accused to work out a mutually satisfactory disposition and thereafter fix the date for further hearing of the case. In cases where a satisfactory disposition has been worked out, the court prepares a report of that disposition and if no such disposition has been worked out, the court will record an observation to that effect and proceed with the trial.
Where a satisfactory disposition of the case has been worked out, the court will dispose of the case by awarding compensation to the victim in accordance with the disposition, hear the parties on the quantum of the punishment, and will then deliver its judgment.
However, offences which affect the socio-economic condition of the country cannot be made subject to plea bargaining. While this has not been judicially tested, it is likely that offences involving bribery and corruption may not be subject to plea bargaining as they are likely to be construed as socio-economic offences.
The CBI is a national agency with police powers across India. Additionally, states also have their own police forces with jurisdiction to investigate offences under the PCA arising within their respective territories.
The CBI is investigating Ms Chanda Kochchar for offences under the PCA. Chanda Kochchar is the former managing director and chief executive officer of ICICI Bank, who is accused of dishonestly sanctioning loans to the Videocon group. More recently, Mr P. Chidambaram, the former finance minister of India, is under investigation under charges of receipt of a bribe under the PCA. He has been accused of misusing his official position as the finance minister to permit foreign investments illegally into entities owned by INX Media in lieu of receiving offshore payments.
In 2016, the Supreme Court of India held, in its decision in CBI v Ramesh Gelli and Others, (2016) 3 SCC 788, that employees of private banks could be held liable for bribery under the PCA because they perform a public function which qualifies them to be treated as "public servants" as defined under the PCA. More recently, the Supreme Court considered Section 17A of the PCA, which was introduced along with the other amendments, in its decision in Yashwant Sinha and Others v CBI, dated 14 November 2019, being Review Petition (Crl.) No 298 of 2019. Section 17A of the PCA provides that a police officer cannot initiate an inquiry into alleged offences by public servants without the requisite government approval. The petitioners had sought the direction of a preliminary inquiry by the court into alleged corruption in the deals involving the sale of Rafale jets which involved some public servants. The Supreme Court observed that, even if an inquiry was directed by the court, it would be a futile exercise in view of Section 17A of the PCA and the absence of the requisite government approval.
Additionally, the amendments to the PCA were challenged before the Supreme Court of India in 2018. The matter is currently pending adjudication before the Supreme Court.
Provisions making organisations vicariously liable for offences related to corruption have been brought into the PCA only in 2018. Hence, India has yet to witness an instance of a sanction being imposed on a legal entity under the provisions of the PCA post the 2018 amendments.
With respect to individuals, generally in instances where courts reach a conclusion that an individual is guilty of commission of an offence under the PCA, the courts order the imprisonment of the individual and impose a fine, in terms set by the PCA. The duration of imprisonment may vary, depending on the surrounding circumstances as indicated above. The amount or the value of property which the individual has obtained by committing the offence acts as a guiding factor both for determining the duration of imprisonment and the amount of the fine. Indian courts have not been very forthcoming in imposing hefty fines while sentencing. The situation, however, could now change with the 2018 amendments made to the PCA.
The Law Commission of India, by way of a report, analysed the provisions of the PCA and the recent amendments to it. The report stated that the amendment sought to bring India’s anti-corruption laws in line with international standards and was necessitated by India’s ratification of the United Nations Convention against Corruption. The amendment attempted substantially to replicate the provisions of the UK Bribery Act 2010 (the "UK Act"), which, while well intended, is a misconceived move which can potentially create further confusion and ambiguity. There are several key differences between the PCA and the UK Act; for example, while the UK Act does not draw a distinction between public servants and the private sector in determining the limits of the bribery offence, the PC Act defines bribery offences primarily with respect to public servants performing a public duty.
Further, the government of India is required to provide notification of the guidelines for an adequate bribery-prevention procedure and/or compliance programme to be followed by commercial organisations. However, no such guidelines have been published by the government yet. The absence of any such guidelines leads to considerable uncertainty in respect of what would be seen as "adequate procedures" and also leads to considerable subjectivity in the enforcement of the statute.
The PCA underwent a major overhaul in 2018. The amendments brought about in 2018 are primarily aimed at making the existing provisions of the PCA more stringent and expanding the coverage of the offences already covered thereunder. In view of these changes, no new amendments are presently in pipeline.
That being said, the central government has yet to notify the guidelines for an adequate bribery-prevention procedure and/or compliance programme to be implemented by organisations, as is provided under Section 9(5) of the PCA.
Over the last decade, India has seen anti-corruption legal reform progress in fits and starts, directed mostly towards modernising and improving enforcement on the government anti-bribery front. The last few years have, however, witnessed a spate of large-scale financial frauds and other improper conduct involving prominent Indian companies that were publicly traded or systemically important for debt flows, which eroded shareholder value and exposed the Indian banking system to mounting bad debt. Consequently, corporations have been the focus, in recent years, of increased regulation and enforcement, as regulators tighten norms not just for businesses, but also for auditors, with a view to preventing and detecting financial fraud. In this piece, we highlight some of the key measures and enforcement trends that would be relevant for companies operating in India.
New Disclosure Requirements: Tougher to Keep Investigations Discreet
With effect from the financial year commencing April 2020, auditors of companies (with limited exceptions for closely held "private" companies operating small business, banks and insurers – which are regulated separately – and non-profits) are required to consider, and if necessary report, on whistle-blower complaints received by the company during the year. Previously, auditors were mandated to report on frauds by or on the company. The new requirement, however, essentially requires auditors to consider matters even before the company has investigated and concluded whether any fraud or other misconduct has indeed been committed. Further, the requirement is not restricted to any particular class of whistle-blower complaint and could therefore include financial matters, such as government or commercial bribery, kickbacks, and siphoning of funds, as well as other matters which may not impact the company’s financials or operations.
When juxtaposed with the legal requirement to establish whistle-blower mechanisms, the present law mandates only certain companies – those that are publicly traded, or accept public deposits, or with borrowings exceeding USD7 million – to establish whistle-blower mechanisms. The new auditing standards, however, cover most for-profit operating companies and, essentially, put them in a position where they are better off having in place a well thought-through whistle-blower policy and mechanism to be able to address the new audit requirement effectively.
In a separate development, the Indian capital markets' regulator – the Securities and Exchange Board of India (SEBI) – which oversees publicly traded companies listed on local stock exchanges – recently introduced revised disclosure requirements, under which listed companies will now be required to make public the details of all forensic audits or investigations initiated at those companies. The details that will need to be disclosed include the fact of, and the reasons for, commencing a forensic audit, and, except when such audits are done at the behest of a regulator or a law-enforcement agency, the final report of the forensic audit received by the company and the company management’s responses to that audit. The reason for excepting investigations done at the behest of regulators or law-enforcement agencies is that the existing disclosure requirements require companies in any event to disclose material regulatory actions resulting from such an investigation. While the intent of introducing this new requirement seems to have been to cover matters having an impact on the company’s financials, such as misstatements and misappropriation or siphoning of funds, this intent does not appear to have been reflected in the language of the newly introduced requirement.
Previously, there was no uniform practice amongst listed companies around the disclosure of the details or outcomes of an internal investigation – some companies would disclose material updates from an investigation, prompted by media scrutiny, while others would make disclosures irrespective of media interest, as a matter of good corporate governance. Given, however, that internal investigations – especially where the allegations involve any degree of complexity involving bribery, kickbacks, fund diversion or misappropriation – require the involvement of forensic experts, the SEBI’s diktat essentially entails that listed companies will, more often than not, be bound to disclose to the market the mere existence of an investigation, but at a point when they are not in a position to answer whether the allegations being investigated are founded or otherwise. The (un)timeliness of such mandatory disclosures is bound to cause consternation amongst investors and create reputational concerns for the company, until the resolution of the investigation. With this new requirement, general counsels, audit committees and boards of publicly traded companies would also need to think carefully about how they mandate their advisers to report on internal investigations.
Other questions that these requirements – particularly the requirement to disclose the final report and the company management’s response – leave open are the interplay with the company’s legal rights, such as the constitutional right against self-incrimination and, where the forensic audits are conducted, as is commonly done, under the supervision and direction of the company’s lawyers, the assertion of attorney-client privilege over documents consequently created. These questions will be crucial to resolve, particularly since there is no mechanism in India for corporations to receive credit for self-reporting or co-operation with regulators. Nor is there any co-ordination amongst enforcement agencies which prevents these agencies “piling on” – in fact, in India, it is common for multiple enforcement agencies to open investigations into the same conduct.
While both these new disclosure requirements will impact the optics and considerations around beginning and running internal investigations, what is clear is that Indian regulators are acting first to secure the interests of investors, the rationale of these new requirements being, inter alia, the reduction of information asymmetry between shareholders and company management, and to ensure that shareholders and the public in general are able to benefit from greater transparency in companies’ financial statements. This became a priority for Indian regulators after recent experiences where long-running fraudulent activities and financial mismanagement at prominent Indian businesses (such as at non-bank finance majors, IL&FS and Dewan Housing Finance Corporation) came to light only due to defaults in loan repayments and/or investigative journalism efforts, and were (arguably) not duly flagged by auditors. Among Indian regulators, the SEBI in particular has been spurred by these recent incidents of financial fraud and misconduct into ensuring that the house is in order at publicly traded companies.
It also seems that everyone is getting in on the act, with the Institute of Chartered Accountants of India (ICAI) – the professional self-regulatory body for chartered accountants in India – also producing proposed "Forensic Accounting and Investigation Standards", which will apply to all forensic engagements undertaken by chartered accountants in India.
Corporate Liability for Government Bribery
With these enhanced disclosure requirements being reported, there are now additional considerations for companies when taking reactive measures, such as internal investigations and implementing remedial actions. Companies operating in India would therefore find it worth their while to invest in implementing and strengthening fraud preventive and detection measures, and strengthening internal financial controls and compliance programmes that are tailored to the business’s risk exposure.
Another legislative development that has added to the urgency of having such measures in place are the July 2018 amendments to India’s primary anti-bribery legislation, the Prevention of Corruption Act, 1988 (PCA). The new law, crucially for corporates, now also introduces a UK Bribery Act-style "failure to prevent bribery" offence, where a corporate doing business in India can be held liable for bribery of Indian government officials by "persons associated"’ with it – which includes its employees, agents and subsidiaries – if the bribe was given in connection with its business. Similar to the UK position, it is a defence for the company to have had in place “adequate procedures” to prevent government bribery by persons associated with it. What measures will be considered to be “adequate procedures” must be prescribed by the Indian federal government. While the government has yet to publish guidelines on these adequate procedures, Indian enforcement authorities have already begun charging companies under the new failure to prevent bribery offence.
Follow-On Enforcement Action in India
Indian enforcement authorities have also shown an increased propensity to track, and often come knocking, after the publication of overseas US FCPA and UK Bribery Act settlements relating to improper conduct in India. Citizen activist groups have also shown an appreciable level of activity, in filing suits in Indian courts requesting enforcement action against corporations that are party to such overseas bribery settlements.
For instance, following IT major Cognizant’s FCPA settlement with the US Securities and Exchange Commission (SEC) in February 2019, public-spirited citizens, in early 2020, filed a "public interest" petition before Indian courts demanding an investigation by the Indian federal investigation agency, the Central Bureau of Investigation (CBI), into the facts disclosed in the settlement – that Cognizant allegedly authorised a construction firm to bribe state government officials to obtain building plan approvals for its new office. Indian tax authorities also reportedly sought documents and information related to the alleged bribes from Cognizant and have begun an inquiry into its withdrawal of tax depreciation claims on the office building concerned. Similar enforcement actions were instituted in India after Mondelēz International’s settlement with the SEC in 2017 and Louis Berger International Inc’s deferred prosecution agreement with the US Department of Justice in 2015. Mondelēz had settled in connection with improper payments by a local subsidiary to an agent to procure government approvals for a new chocolate factory. The CBI reportedly co-operated with US authorities in the investigation, and independently opened a criminal case into the same facts. Indian tax authorities were also examining exemptions that had been claimed in relation to the factory, and these tax proceedings were concluded in January 2020 when Mondelēz India paid approximately USD60 million to Indian tax authorities to settle the dispute. Louis Berger International, which had admitted to bribing foreign officials in India and other jurisdictions to obtain construction and project-management contracts also found itself being investigated by the CBI for bribery, the Enforcement Directorate (the Indian federal agency tasked with investigating economic crimes) for money laundering, and local police in the state of Goa for bribery of Goa government officials. India-based employees of Louis Berger International were also arrested in connection with these investigations.
Enhanced Regulation of Foreign Contributions
Foreign persons, including companies, trusts and associations of persons operating in India, should also keep in mind the Foreign Contribution (Regulation) Act, 2010 (FCRA), which regulates the acceptance by non-profit and social work organisations in India of “foreign contributions” from “foreign sources”, unless they register with, or obtain prior approval from, the federal government. The FCRA also prohibits certain classes of government officials, political parties, and candidates for office, as well as certain members of the media establishment, including correspondents, editors, owners and publishers of registered newspapers, news producers and broadcasters, from accepting any such “foreign contributions”. “Foreign contribution” is widely defined to include most articles or things and currency, given by a “foreign source”, which would include multi-nationals operating in India, foreign trusts and foundations, and foreign citizens.
Unlike the Indian anti-bribery law, the PCA, which requires criminal intent, the FCRA imposes a practically blanket bar on prohibited recipients accepting foreign contributions, and givers of such contributions may, inter alia, be liable for the offence of “abetment” or for “assisting” the recipients’ illegal acceptance.
The Indian government is escalating the enforcement regime around the acceptance of foreign contributions, as it seeks to regulate and monitor sources of financing for non-profits operating in the country, and as part of these changes, a wider range of government officials than before now constitute prohibited recipients for foreign contributions. Foreign businesses should hence also be mindful of their practices around gifting, hospitality, sponsorship and political and charitable contributions, while interacting with government or media touchpoints in India.
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