Business Standard

India ill-prepared to fight corruption

The arrest of a senior executive of a public sector bank on bribery charges puts the spotlight on a more effective whistle-blower policy and stricter anti-graft laws

Ishita Ayan Dutt & Sudipto Dey 

A noted corporate lawyer recently got a call from two large Japanese companies. Their perception was one can't do business in India without bribing their way through, and needed a presentation on how to do business in the country. "Their primary concern was how to deal with bribery," said the lawyer.

Though India has a slew of laws and regulations to deal with and fraud (see chart), there is always a question on their effectiveness to deter or deal with instances of graft. The Prevention of Act, 1988, is the crux of India's anti-graft policy. However the biggest fallacy of the Act is that it doesn't address the bribe-giver. "A bribe-giver can turn approver and escape prosecution. This encourages bribery," says N G Khaitan, Partner, Khaitan & Co and President, Indian Council of Arbitration. Traditionally, the giver of has been viewed as a victim and, therefore, not culpable or criminally liable. Legal experts point out that the lack of supply-side culpability has been a big deterrence to effectiveness of any anti-graft legislation in India. Further, delays in prosecution, long drawn process for asset recovery of a convicted taker, inadequate whistle-blower protection, need for state or central government sanction to initiate prosecution against officers, and limited jurisdiction of chief vigilance officers add to the complexities. Currently, bribery of foreign officials is not a crime under Indian law. However, a new Bill awaiting Parliamentary approval, The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisation Bill, 2011, as and when passed, will make giving bribes to public officials a criminal offence, entailing imprisonment of up to seven years, among other penal provisions.



Lack of civil forfeiture to seize assets of bribe-giver and the inability to recover the "graft money" weakens the Indian anti-graft regulatory regime, said Anand S Dayal, Partner, Koura & Company, a Delhi-based law firm. A recent amendment in the Prevention of Act is aimed at plugging the loophole relating to supply-side culpability.

Two key changes proposed in the Prevention of (amendment) Bill, 2013, - now with a Parliamentary Standing Committee - allows the giver to get prosecuted (along with the taker), and makes it easy to attach property of a taker. However, legal experts point out that India needs a wide array of enabling regulations and legislation including (People's Ombudsman), stronger whistle-blower protection, making bribing foreign officials an offence, promoting e-procurement of public goods, among others.

India Inc seems to be waking up to the need for stronger internal controls to check and detect instances of graft and fraud. Many companies have whistle-blower policies in place, even though it's not mandatory in India. For instance, FMCG major HUL has a dedicated email address for reporting such complaints. Alternatively, employees can also send written communication to the company. The company secretary is the designated officer for effective implementation of the policy. All cases registered under the Code of Business Principles and the whistle-blower policy of the company is reported to the committee of executive directors and is subject to review by the audit committee.

Tata Steel has had a whistle -blower policy since 2005, which is an extension of the Tata Code of Conduct, which requires every employee to report to the management any violation of the code. Under the policy, each employee has an assured access to the ethics counsellor/chairman of the Audit Committee.

But having a policy doesn't necessarily ensure implementation. Satyam had a whistle blower policy way back in 2005.

However, according to Confederation of Indian Industry Director-General, Chandrajit Banerjee, the new Companies Act, 2013, would strengthen the concept of whistle-blowing among corporate India.

"The new law mandates every listed company and such other companies as would be prescribed (such as deposit taking companies and public interest entities) to establish a whistle-blowing policy, with direct access to audit committee chairman in certain cases. Further, independent directors would also be obligated to ensure that the company has an adequate and functional vigil mechanism and to ensure that there is no victimisation of the whistle-blower," he pointed out.

While Sebi has been recommending such a policy for listed companies, Banerjee said that the new provisions would have a far-reaching impact on governance by facilitating early detecting of malfeasance by improving the access to communication channels and reach the people the matter.

CII came out with a Code of Ethics sometime back to sensitise the industry to follow good business practices. The CII Code could help companies that don't have their own code. The Code contains all relevant aspects, including having a whistle-blower policy covering protection to the whistleblower," Banerjee said.

There is enough reason for India Inc to worry. Earlier this year a survey by Thought Arbitrage Research Institute and the UN Global Compact studying the impact of and fraud on companies found that 43 per cent of businesses that were indicted had either been liquidated or were in the process of getting liquidating their operations. Around 30 per cent of the companies surveyed continued to be in business but at reduced levels. In some listed companies market valuations have significantly fallen with little of or no trading of their stock. Lack of effective enforcement of laws engenders and nurtures both the demand and supply side of corruption, said Kaushik Dutta of Thought Arbitrage Research Institute, one of the authors of the study. Experts pointed out while there is no single solution to curb bribery and corruption, only collective action involving all stakeholders is the way forward.

BATTLING GRAFT

EXISTING ANTI-LAWS

* Prevention of Money Laundering Act, 2002
* Prevention of Act, 1988
* Benami Transactions (Prohibition) Act
* Right to Information Act
* Companies Act, 2013

PROPOSED AMENDMENTS/BILLS

* Prevention of (Amendment) Bill, 2013
* Public Procurement Bill 2012
* Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisation Bill 2011
* Whistleblower Protection Bill
* Lokpal

KEY CHANGES PROPOSED IN ACT

* giver to be prosecuted
* Property liable to be attached for offences uder the Act

TWO ANTI-GRAFT LAWS THAT IMPACT INTERNATIONAL BUSINESSES OPERATING IN INDIA, AND INDIAN BUSINESSES WITH GLOBAL FOOTPRINT - THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT, 1997, (FCPA) & THE UK BRIBERY ACT, 2010

* Both the FCPA and the Bribery Act make it an offence to a foreign public official. Under the Bribery Act, a "foreign public official" includes (i) anyone who holds a foreign legislative or judicial position; (ii) individuals who exercise a public function for a foreign country, territory, public agency or public enterprise or (iii) any official or agent of a public organisation
* The FCPA creates an exemption for facilitation payments, whereas the Bribery Act makes no such exception. The FCPA provides for promotional expenses in so far as it can be demonstrated that they were reasonable and bona-fide expenditure
* For offences committed under the FCPA, an individual can be fined up to $250,000 per violation, and may also be given up to five years imprisonment. A company guilty under the FCPA is liable for a fine of up to $2,000,000 per violation. An individual found to have committed an offence under the Bribery Act is liable to imprisonment of up to 10 years and/or to an unlimited fine. A guilty company is subject to an unlimited fine under Bribery Act

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India ill-prepared to fight corruption

The arrest of a senior executive of a public sector bank on bribery charges puts the spotlight on a more effective whistle-blower policy and stricter anti-graft laws

The arrest of a senior executive of a public sector bank on bribery charges puts the spotlight on a more effective whistle-blower policy and stricter anti-graft laws A noted corporate lawyer recently got a call from two large Japanese companies. Their perception was one can't do business in India without bribing their way through, and needed a presentation on how to do business in the country. "Their primary concern was how to deal with bribery," said the lawyer.

Though India has a slew of laws and regulations to deal with and fraud (see chart), there is always a question on their effectiveness to deter or deal with instances of graft. The Prevention of Act, 1988, is the crux of India's anti-graft policy. However the biggest fallacy of the Act is that it doesn't address the bribe-giver. "A bribe-giver can turn approver and escape prosecution. This encourages bribery," says N G Khaitan, Partner, Khaitan & Co and President, Indian Council of Arbitration. Traditionally, the giver of has been viewed as a victim and, therefore, not culpable or criminally liable. Legal experts point out that the lack of supply-side culpability has been a big deterrence to effectiveness of any anti-graft legislation in India. Further, delays in prosecution, long drawn process for asset recovery of a convicted taker, inadequate whistle-blower protection, need for state or central government sanction to initiate prosecution against officers, and limited jurisdiction of chief vigilance officers add to the complexities. Currently, bribery of foreign officials is not a crime under Indian law. However, a new Bill awaiting Parliamentary approval, The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisation Bill, 2011, as and when passed, will make giving bribes to public officials a criminal offence, entailing imprisonment of up to seven years, among other penal provisions.

Lack of civil forfeiture to seize assets of bribe-giver and the inability to recover the "graft money" weakens the Indian anti-graft regulatory regime, said Anand S Dayal, Partner, Koura & Company, a Delhi-based law firm. A recent amendment in the Prevention of Act is aimed at plugging the loophole relating to supply-side culpability.

Two key changes proposed in the Prevention of (amendment) Bill, 2013, - now with a Parliamentary Standing Committee - allows the giver to get prosecuted (along with the taker), and makes it easy to attach property of a taker. However, legal experts point out that India needs a wide array of enabling regulations and legislation including (People's Ombudsman), stronger whistle-blower protection, making bribing foreign officials an offence, promoting e-procurement of public goods, among others.

India Inc seems to be waking up to the need for stronger internal controls to check and detect instances of graft and fraud. Many companies have whistle-blower policies in place, even though it's not mandatory in India. For instance, FMCG major HUL has a dedicated email address for reporting such complaints. Alternatively, employees can also send written communication to the company. The company secretary is the designated officer for effective implementation of the policy. All cases registered under the Code of Business Principles and the whistle-blower policy of the company is reported to the committee of executive directors and is subject to review by the audit committee.

Tata Steel has had a whistle -blower policy since 2005, which is an extension of the Tata Code of Conduct, which requires every employee to report to the management any violation of the code. Under the policy, each employee has an assured access to the ethics counsellor/chairman of the Audit Committee.

But having a policy doesn't necessarily ensure implementation. Satyam had a whistle blower policy way back in 2005.

However, according to Confederation of Indian Industry Director-General, Chandrajit Banerjee, the new Companies Act, 2013, would strengthen the concept of whistle-blowing among corporate India.

"The new law mandates every listed company and such other companies as would be prescribed (such as deposit taking companies and public interest entities) to establish a whistle-blowing policy, with direct access to audit committee chairman in certain cases. Further, independent directors would also be obligated to ensure that the company has an adequate and functional vigil mechanism and to ensure that there is no victimisation of the whistle-blower," he pointed out.

While Sebi has been recommending such a policy for listed companies, Banerjee said that the new provisions would have a far-reaching impact on governance by facilitating early detecting of malfeasance by improving the access to communication channels and reach the people the matter.

CII came out with a Code of Ethics sometime back to sensitise the industry to follow good business practices. The CII Code could help companies that don't have their own code. The Code contains all relevant aspects, including having a whistle-blower policy covering protection to the whistleblower," Banerjee said.

There is enough reason for India Inc to worry. Earlier this year a survey by Thought Arbitrage Research Institute and the UN Global Compact studying the impact of and fraud on companies found that 43 per cent of businesses that were indicted had either been liquidated or were in the process of getting liquidating their operations. Around 30 per cent of the companies surveyed continued to be in business but at reduced levels. In some listed companies market valuations have significantly fallen with little of or no trading of their stock. Lack of effective enforcement of laws engenders and nurtures both the demand and supply side of corruption, said Kaushik Dutta of Thought Arbitrage Research Institute, one of the authors of the study. Experts pointed out while there is no single solution to curb bribery and corruption, only collective action involving all stakeholders is the way forward.

BATTLING GRAFT

EXISTING ANTI-LAWS

* Prevention of Money Laundering Act, 2002
* Prevention of Act, 1988
* Benami Transactions (Prohibition) Act
* Right to Information Act
* Companies Act, 2013

PROPOSED AMENDMENTS/BILLS

* Prevention of (Amendment) Bill, 2013
* Public Procurement Bill 2012
* Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisation Bill 2011
* Whistleblower Protection Bill
* Lokpal

KEY CHANGES PROPOSED IN ACT

* giver to be prosecuted
* Property liable to be attached for offences uder the Act

TWO ANTI-GRAFT LAWS THAT IMPACT INTERNATIONAL BUSINESSES OPERATING IN INDIA, AND INDIAN BUSINESSES WITH GLOBAL FOOTPRINT - THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT, 1997, (FCPA) & THE UK BRIBERY ACT, 2010

* Both the FCPA and the Bribery Act make it an offence to a foreign public official. Under the Bribery Act, a "foreign public official" includes (i) anyone who holds a foreign legislative or judicial position; (ii) individuals who exercise a public function for a foreign country, territory, public agency or public enterprise or (iii) any official or agent of a public organisation
* The FCPA creates an exemption for facilitation payments, whereas the Bribery Act makes no such exception. The FCPA provides for promotional expenses in so far as it can be demonstrated that they were reasonable and bona-fide expenditure
* For offences committed under the FCPA, an individual can be fined up to $250,000 per violation, and may also be given up to five years imprisonment. A company guilty under the FCPA is liable for a fine of up to $2,000,000 per violation. An individual found to have committed an offence under the Bribery Act is liable to imprisonment of up to 10 years and/or to an unlimited fine. A guilty company is subject to an unlimited fine under Bribery Act
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Business Standard
177 22

India ill-prepared to fight corruption

The arrest of a senior executive of a public sector bank on bribery charges puts the spotlight on a more effective whistle-blower policy and stricter anti-graft laws

A noted corporate lawyer recently got a call from two large Japanese companies. Their perception was one can't do business in India without bribing their way through, and needed a presentation on how to do business in the country. "Their primary concern was how to deal with bribery," said the lawyer.

Though India has a slew of laws and regulations to deal with and fraud (see chart), there is always a question on their effectiveness to deter or deal with instances of graft. The Prevention of Act, 1988, is the crux of India's anti-graft policy. However the biggest fallacy of the Act is that it doesn't address the bribe-giver. "A bribe-giver can turn approver and escape prosecution. This encourages bribery," says N G Khaitan, Partner, Khaitan & Co and President, Indian Council of Arbitration. Traditionally, the giver of has been viewed as a victim and, therefore, not culpable or criminally liable. Legal experts point out that the lack of supply-side culpability has been a big deterrence to effectiveness of any anti-graft legislation in India. Further, delays in prosecution, long drawn process for asset recovery of a convicted taker, inadequate whistle-blower protection, need for state or central government sanction to initiate prosecution against officers, and limited jurisdiction of chief vigilance officers add to the complexities. Currently, bribery of foreign officials is not a crime under Indian law. However, a new Bill awaiting Parliamentary approval, The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisation Bill, 2011, as and when passed, will make giving bribes to public officials a criminal offence, entailing imprisonment of up to seven years, among other penal provisions.

Lack of civil forfeiture to seize assets of bribe-giver and the inability to recover the "graft money" weakens the Indian anti-graft regulatory regime, said Anand S Dayal, Partner, Koura & Company, a Delhi-based law firm. A recent amendment in the Prevention of Act is aimed at plugging the loophole relating to supply-side culpability.

Two key changes proposed in the Prevention of (amendment) Bill, 2013, - now with a Parliamentary Standing Committee - allows the giver to get prosecuted (along with the taker), and makes it easy to attach property of a taker. However, legal experts point out that India needs a wide array of enabling regulations and legislation including (People's Ombudsman), stronger whistle-blower protection, making bribing foreign officials an offence, promoting e-procurement of public goods, among others.

India Inc seems to be waking up to the need for stronger internal controls to check and detect instances of graft and fraud. Many companies have whistle-blower policies in place, even though it's not mandatory in India. For instance, FMCG major HUL has a dedicated email address for reporting such complaints. Alternatively, employees can also send written communication to the company. The company secretary is the designated officer for effective implementation of the policy. All cases registered under the Code of Business Principles and the whistle-blower policy of the company is reported to the committee of executive directors and is subject to review by the audit committee.

Tata Steel has had a whistle -blower policy since 2005, which is an extension of the Tata Code of Conduct, which requires every employee to report to the management any violation of the code. Under the policy, each employee has an assured access to the ethics counsellor/chairman of the Audit Committee.

But having a policy doesn't necessarily ensure implementation. Satyam had a whistle blower policy way back in 2005.

However, according to Confederation of Indian Industry Director-General, Chandrajit Banerjee, the new Companies Act, 2013, would strengthen the concept of whistle-blowing among corporate India.

"The new law mandates every listed company and such other companies as would be prescribed (such as deposit taking companies and public interest entities) to establish a whistle-blowing policy, with direct access to audit committee chairman in certain cases. Further, independent directors would also be obligated to ensure that the company has an adequate and functional vigil mechanism and to ensure that there is no victimisation of the whistle-blower," he pointed out.

While Sebi has been recommending such a policy for listed companies, Banerjee said that the new provisions would have a far-reaching impact on governance by facilitating early detecting of malfeasance by improving the access to communication channels and reach the people the matter.

CII came out with a Code of Ethics sometime back to sensitise the industry to follow good business practices. The CII Code could help companies that don't have their own code. The Code contains all relevant aspects, including having a whistle-blower policy covering protection to the whistleblower," Banerjee said.

There is enough reason for India Inc to worry. Earlier this year a survey by Thought Arbitrage Research Institute and the UN Global Compact studying the impact of and fraud on companies found that 43 per cent of businesses that were indicted had either been liquidated or were in the process of getting liquidating their operations. Around 30 per cent of the companies surveyed continued to be in business but at reduced levels. In some listed companies market valuations have significantly fallen with little of or no trading of their stock. Lack of effective enforcement of laws engenders and nurtures both the demand and supply side of corruption, said Kaushik Dutta of Thought Arbitrage Research Institute, one of the authors of the study. Experts pointed out while there is no single solution to curb bribery and corruption, only collective action involving all stakeholders is the way forward.

BATTLING GRAFT

EXISTING ANTI-LAWS

* Prevention of Money Laundering Act, 2002
* Prevention of Act, 1988
* Benami Transactions (Prohibition) Act
* Right to Information Act
* Companies Act, 2013

PROPOSED AMENDMENTS/BILLS

* Prevention of (Amendment) Bill, 2013
* Public Procurement Bill 2012
* Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisation Bill 2011
* Whistleblower Protection Bill
* Lokpal

KEY CHANGES PROPOSED IN ACT

* giver to be prosecuted
* Property liable to be attached for offences uder the Act

TWO ANTI-GRAFT LAWS THAT IMPACT INTERNATIONAL BUSINESSES OPERATING IN INDIA, AND INDIAN BUSINESSES WITH GLOBAL FOOTPRINT - THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT, 1997, (FCPA) & THE UK BRIBERY ACT, 2010

* Both the FCPA and the Bribery Act make it an offence to a foreign public official. Under the Bribery Act, a "foreign public official" includes (i) anyone who holds a foreign legislative or judicial position; (ii) individuals who exercise a public function for a foreign country, territory, public agency or public enterprise or (iii) any official or agent of a public organisation
* The FCPA creates an exemption for facilitation payments, whereas the Bribery Act makes no such exception. The FCPA provides for promotional expenses in so far as it can be demonstrated that they were reasonable and bona-fide expenditure
* For offences committed under the FCPA, an individual can be fined up to $250,000 per violation, and may also be given up to five years imprisonment. A company guilty under the FCPA is liable for a fine of up to $2,000,000 per violation. An individual found to have committed an offence under the Bribery Act is liable to imprisonment of up to 10 years and/or to an unlimited fine. A guilty company is subject to an unlimited fine under Bribery Act

image
Business Standard
177 22