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Sherbir Panag: Catching companies that bribe

On the flip side, the new Bill is a step in the right direction. It should help ensure that commercial organisations start taking anti-corruption and anti-bribery compliance a lot more seriously

Sherbir Panag 

Sherbir Panag

India's principal 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 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 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 start taking and 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.



The author is a Mumbai-based legal consultant

First Published: Sat, October 19 2013. 21:46 IST
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