Sponsored: The importance of ABAC (Anti-Bribery and Anti-Corruption) compliance

There is no denying that corruption can erode a country from its core and have a crippling effect on its economy. In the era of globalization, India has struggled with its deep-rooted bureaucracy, which makes it difficult for companies to navigate and to be able to conduct business without having to pay a bribe to public servants to obtain permits, licenses, or for any public procurement. India ranked 86 out of 180 countries in the Corruption Perceptions Index (CPI) published in 2020 by Transparency International.

Although India's “ease of doing business” ranking is at an all-time high, it is common knowledge that MNCs have to go through a web of regulatory compliance to conduct business, which can be intimidating for any international company, unfamiliar with the foreign culture and norms. Coupled with that, the pressure to grow business in an increasingly competitive market, instances of indiscretion or wilful lapses, and a company can quickly find itself facing criminal prosecution. Companies functioning in India with headquarters in the United States or those that are a subsidiary of an American company in India have to follow both countries' regulatory compliance to be on the right side of the law.

Prevention of Corruption Act, 1988:

To tackle corruption, India's Prevention of Corruption Act, 1988 ("PCA"), prosecutes and criminalizes the acceptance of bribes by public servants. The Act, until recently, criminalized only the act of receiving a bribe and not that of giving one. However, the recent amendment of 2018 now also allows the prosecution of bribe-givers under the Act. The PCA, although, does not have jurisdiction to prosecute international public officials or any illegal gratification in transactions that may have taken place overseas.

Under the PCA, a public servant who is prosecuted for receiving a bribe can be imprisoned for up to 3-7 years and/or a fine as determined by the courts. The 2018 amendment also allows the authorities to levy a fine on a commercial organization that is guilty of bribing a public servant. Additionally, if the charges against the commercial organization are proved, the person in charge of the organization, may also be imprisoned for a term of up to 3-7 years. Under the PCA, even an attempt to influence a public servant is an offence.The Act also allows the authorities to attach any tainted property of a public servant, that may have been bought or received as a part of the bribe.

The PCA, along with the Indian Penal Code, 1860 ("IPC"), Prevention of Money Laundering Act, 2002, Right to Information Act, 2005, Whistle Blowers Protection Act, 2011, Companies Act, 2013 and Central Vigilance Commission Act, 2003 works as a consolidated law for India's anti-bribery and corruption legal framework.

Foreign Corrupt Practices Act, 1977:

The U.S. Foreign Corrupt Practices Act of 1977 ("FCPA") makes it unlawful for U.S based companies and individuals to make payments to foreign government officials to assist in obtaining or retaining business. The FCPA applies to any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, to do or omit to do any act in violation of his or her lawful duty or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.

The difference between PCA and FCPA is that the jurisdiction of the FCPA is far more expansive. Under the provisions of the FCPA, foreign firms and persons who cause, directly or through agents, any act of corruption within the United States territory are also covered under the Act. That is, companies operating out of India, but listed under the securities exchange or with their headquarters in the United States, come under the FCPA purview. The FCPA also requires companies listed in the United States to maintain accurate books and records. Inaccurate, incomplete, or misleading information of transactions can be construed as methods to conceal bribes or other unlawful activities and can be punishable under the regulations. Any act of attempted bribery and conspiracy to bribe can also lead to FCPA violations.

The punishments under the FCPA are harsher as compared to those under PCA. Under the FCPA, for each violation, fines can go up to 2 million USD for corporations and up to 250,000 USD for individuals, along with imprisonment for up to five years. In case of any accounting fraud by a corporation, under the FCPA, the fines can go up to a whopping 25 million USD for corporations and up to 5 million USD for individuals, along with up to 20 years of jail time.

Indian companies/subsidiaries fined by the U.S. DoJ:

The last decade has seen the U.S. Department of Justice (DoJ) and the Securities & Exchange Commission (SEC) tighten the noose around companies for India-related bribery and corruption charges. There has been a considerable spike in the number of fines that have been imposed under the FCPA by the DoJ.

Some of the top companies that have fined are: -

(i) Cadbury Limited/Mondelez International- The global snacking business agreed to pay a $13 million penalty for FCPA violations. The DoJ had evidence that the company had made illicit payments to obtain government licenses and approvals for a chocolate factory in Baddi (India).

(ii) Gordon J. Coburn and Steven E. Schwartz-the former Cognizant officials were charged with authorizing $2.5 million in bribe payments to a government official in India.

(iii)Beam Suntory Inc.-The company agreed to pay more than $8 million to resolve charges of violating the FCPA by using third parties to make illicit payments to increase sales orders, process licensing registrations, and acquire non-public data in India.

(iv) Oracle - Oracle agreed to pay a $2 million penalty to settle the SEC's charges for violating FCPA by failing to prevent a subsidiary from secretly setting aside money off its books to make unauthorized payments to phony vendors in India.

(v) Diageo – Diageo agreed to pay more than $16 million to settle the case against them for making $2.7 million in improper payments to government officials in India, Thailand, and South Korea to obtain lucrative sales tax benefits.

(vi) Walmart Inc- The company agreed to pay $144 million to settle the SEC charges and $137 million to pay criminal charges by the DoJ for failing to implement anti-corruption measures in India and for making deals with third-party companies to bribe government officials.

Conclusion:

Given that India has seen some of the worst scandals relating to public procurement in the last decade, resulting in the Supreme Court calling for improved anti-corruption reforms, we still do not have an effective anti-corruption mechanism in place. Even though many India based MNCs/ subsidiaries have been burnt by the hefty fines levied under FCPA that may have led to losses for the company, it is only fair that they are being forced to pay for their questionable practices. Companies that have built their brand and goodwill over decades, run the risk of losing it all in one go by the action of careless employees that may indulge in giving bribes and other corrupt activities. Companies' management needs to ensure that the employees rigorously adhere to the highest integrity and accountability standards. The only way we can guard against any act of bribery and corruption is by having a carefully drafted ABAC policy and by conducting periodical training to create awareness amongst employees.

¹ Transparency International, https://www.transparency.org/en/countries/india

² Doing Business in India, World Bank Group, https://www.doingbusiness.org/en/data/exploreeconomies/india

³ Section 9, PCA

⁴ Section 10, PCA

⁵ Section 9, PCA

⁶ Section 18A, PCA

⁷ (https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act)

⁸ 15 USC §§ 78dd-2(g)(1)(A), 78dd-3(e)(1)(A), 78ff(c)(1)(A)

⁹ 15 USC §§ 78dd-2(g)(2)(A), 78dd-3(e)(2)(A), 78ff(c)(2)(A); 18 USC § 3571(b)

¹0 15 USC § 78ff(a)

¹1 SEC v. Cadbury Limited & Mondelez International (https://www.sec.gov/litigation/admin/2017/34-79753-s.pdf)

¹2 Securities and Exchange Commission v. Gordon J. Coburn and Steven E. Schwartz, Case No. 2:19-cv-5820 (D.N.J. filed February 15, 2019)

¹3 https://www.sec.gov/enforce/34-83575-s

¹4 https://www.sec.gov/news/press-release/2012-2012-158htm

¹5 SEC v. Diageo plc (https://www.sec.gov/litigation/admin/2011/34-64978.pdf)

¹6(https://www.justice.gov/opa/pr/walmart-inc-and-brazil-based-subsidiary-agree-pay-137-million-resolve-foreign-corrupt)

¹7https://www.allianceforintegrity.org/wAssets/docs/publications/Compliance-Bulletin/AfIn_ComplianceBulletin_05.pdf