Exposing Corporate Corruption & Kickbacks through Investigations

Corruption within an organization bears a striking resemblance to cancer, gradually corroding its very essence. It festers an atmosphere of dishonesty, engendering long-term damage to the organization's reputation and hindering its ability to achieve its goals. Recent times have witnessed an alarming surge in reports exposing unethical practices among certain employees and one such egregious incident resulted in the termination of approximately 38 and 6 employees from two prominent companies, respectively, entangled in a scandalous 'bribe for job' scheme, wherein they have allegedly received kickbacks for an astonishing sum exceeding ₹100 crore. However, these instances of wrongdoing only scratch the surface leaving us to contemplate the existence of numerous other undetected and unreported instances of corruption within our midst. Such revelations emphasize the utmost significance and critical need for unwavering vigilance and resolute actions to eradicate corruption from the very crux of our corporate culture.

In India, at present, there are no specific laws addressing corrupt practices within private organisations concerning their employees. Despite the formulation of a draft bill titled "Prevention of Bribery in Private Sector Act, 2018" which aimed at criminalising kickbacks and promoting robust anti-bribery measures in the private sector, it never saw the light of day. Nevertheless, it is crucial to note that incidents of receiving kickbacks and corruption may still be subject to the provisions outlined in the Indian Penal Code and the Companies Act, 2013.

According to Section 177 (9) and (10) of the Companies Act, 2013, all listed companies are required to establish a Vigil Mechanism. While this mechanism allows the directors and employees to confidentially report any instances of misappropriation, kickbacks, fraud, or unethical acts to the organisation's management, following a prescribed procedure. The mechanism must incorporate sufficient safeguards and guardrails to protect directors and employees from any form of victimisation for utilising this reporting channel.

While these regulations are primarily applicable to listed companies, it is imperative for all establishments to implement an anti-corruption policy that aligns with the aforementioned provisions. One such is a Whistleblower Policy, which should down the procedure for anonymously reporting any instances of corruption or unethical practices within an organisation. However, while drafting such a policy, the company must ensure that it safeguards the interests of the Whistleblower, as well as respect the rights of the individual/delinquent employee against whom the complaint is filed. The Whistleblower Policy will serve as an effective lever to facilitate reporting of corrupt practices in a safe and confidential manner and can be universally adopted across all organisations. Once implemented, having a whistleblower policy will be regarded as a good corporate governance.

Although the Whistleblower Policy can serve as a tool in curbing corrupt practices within an organisation, there is a potential risk of it being exploited as a means of personal vendetta against the organisation's officers or one’s colleagues. Hence, the organisation must exercise utmost caution before taking any action based on complaints received through the whistleblower mechanism.

One of the methods for addressing whistleblower complaints is conducting a thorough investigation into the allegations raised through the whistleblower mechanism. This approach enables the organisation to reach a preliminary conclusion before initiating any further action. Through investigations, the concerns of the complainant are addressed as well as the interests of the individual or delinquent employee are protected.

By implementing such a mechanism, an organisation can demonstrate it’s commitment to upholding principles of fairness and impartiality in addressing issues concerning corruption and fraud. A recommended practice is for the organisation to engage an external investigator(s), thus mitigating the risk of any inherent bias during the investigation process. The inclusion of an external investigator(s) not only assures an objective inquiry but also brings invaluable expertise and competence to the investigations, resulting in cost and time savings for the organisation and its employees.

Organisations must evaluate their existing processes to determine whether they have an effective mechanism in place to combat unethical or corrupt practices within the workplace.

Alongside the implementation of a Whistleblower Policy, the organisation must proactively conduct regular training and sensitisation sessions for all employees, including management and directors. Such sessions should encompass crucial topics, including the identification and reporting of corrupt and unethical practices, helping them understand the consequences that individuals may face by engaging in such acts, both within and beyond the organisation's boundaries.

Regardless of the above-mentioned measure, it is not uncommon for some employees to prioritize their interests over those of their employer. Keeping this in mind, organizations must proactively implement robust internal controls, advanced detection systems, and comprehensive training mechanisms to effectively address and prevent unethical and corrupt practices within the workplace.

In the quest to root out corrupt practices, organisations should adopt a holistic approach to handle corrupt practices and incorporate well-crafted guidelines and procedures into their misconduct and disciplinary policies. Such an approach not only ensures a workplace that remains untainted by corruption and malpractices, but also fosters an environment of trust, transparency, and loyalty among employers and employees alike.  Within this virtuous ecosystem, ethical conduct takes root, flourishing without impediment, while unethical practices find no fertile ground to thrive.

Devaiah KG and Amrutha Ananth are Advocates & Principal Associates at BCP Associates.