Anti-Bribery, Anti-Corruption & FCPA: Overview from India Perspective

India is the 79 least corrupt nation out of 175 countries, according to the 2016 Corruption Perceptions Index reported by Transparency International.

With the increase in transnational companies it has become imperative to understand the local laws and the international laws as a step towards anti-bribery and anti-corruption.

I. Anti-Bribery and Anti-Corruption laws - India

In India, the laws which governs corruption matters broadly comprises of:

• The Indian Penal Code, 1860 (IPC);
• The Prevention of Corruption Act, 1988 (POCA):
• The Benami Transactions (Prohibitions) Act, 1988;
• The Prevention of Money Laundering Act, 2002; and
• Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

Indian Penal Code - Relevant Provisions

In 1860, the IPC was enacted and criminalized corruption related offences which includes Dishonest misappropriation of property (Section 403); Criminal Breach of Trust (Section 405 and 406) ; Criminal Breach of Trust by Clerk or Servant (Section 408); Criminal Breach of Trust by Public Servant or by Banker, Merchant of Agent (Section 409).

The Prevention of Corruption Act, 1988

Post-independence, the Prevention of Corruption Act was enacted in 1947 which was replaced by the present POCA in 1988. The object of POCA is to consolidate and amend the law relating to the prevention of corruption and for allied matters

Key Provisions under POCA

Public Duty - It is defined as a 'duty in the discharge of which the State, the public or the community at large has an interest'.

Public Servant - The definition of 'Public Servant' under POCA is wide and includes any person who holds an office by virtue of which he is authorized or required to perform any public duty. Thus any person shall be a Public Servant whether he is appointed by Government or not. In L.K. Advani v. Central Bureau of Investigation it was held by Delhi High Court that the Member of Parliament is a public servant.

Corruption Ingredients- Section 7 to 11 of POCA provides for offences by Public Servant which calls for criminal action under POCA. Public Servant taking gratification other than legal remuneration in respect of an official act. The term 'gratification' is not restricted to pecuniary gratifications or to gratifications estimable in money. Section 8 provides for penal action against any person for taking gratification, by corrupt or illegal means, to influence any Public Servant. Thus the term "Whoever" under this section includes any person even though he/she is not a Public Servant. Section 9 provides for penal action against any person for taking gratification, for exercise of personal influence with public servant. Section 11 provides for penal action against any Public Servant obtaining any valuable thing, without consideration or for an inadequate consideration from person concerned in proceeding or business transacted by such Public Servant.

Criminal Misconduct by Public Servant (Section11) - A Public Servant shall be prosecuted for criminal misconduct under POCA if he is a habitual offender.

The Prevention of Corruption (Amendment) Bill, 2013

The Prevention of Corruption (Amendment) Bill, 2013 was introduced in Parliament in August, 2013 to amend the POCA. The Statement of Objects and Reasons of the Bill stated that it was introduced to bring POCA in tune with the United Nations Convention against Corruption (UNCAC), 2005 which was ratified by India.

Salient Features of the Amended Bill

• Definition of 'Undue Advantage' inserted;

• Laying down time line for speedy trials of corruption cases;

• Restructuring all provisions of acceptance of bribe by a Public Servant under single section;

• Criminalization of the act of giving of bribe;

• Criminal liability for commercial organizations for bribing Public Servant;

• Liability of senior management of commercial entity in case of consent or connivance;

• Intentional enriching and possession of disproportionate assets proof of such illicit enrichment;

• Sanction for initiating investigation against a public servant to be granted by Lokpal or Lokayukta;

• Attachment and forfeiture of property;

• Extending protection of prior sanction of the Competent Authority of appropriate Government to retired government servant and providing for timeline for grating this sanction.

Bribing Foreign Public Officials

India does not criminalise bribery of foreign public officials.

The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, 2011 was introduced in the Parliament to provide a mechanism to deal with bribery among foreign public officials (FPO) and officials of public international organizations (OPIO)

This Bill seeks to empower the Central Government to enter into agreements with other countries for enforcing this law and for exchange of investigative information.

The Bill criminalizes the following acts:

• Acceptance or solicitation of bribes by FPO and OPIO for acts or omissions in their official capacity;
• Offering or promising to offer a bribe to any FPO and OPIO for obtaining or retaining business;
• Abetment or attempting either of the above acts.

II. U.S. Foreign Corrupt Practices Act, 1977 ("FCPA")

Congress enacted the FCPA in 1977 in response to revelations of wide spread bribery of foreign officials by U.S. companies.

The Act was intended to halt these corrupt practices, create a level playing field for honest businesses and restore public confidence in the integrity of the marketplace. FCPA was amended in 1988 to confirm to the requirements of Anti-Bribery Convention.

FCPA broadly comprises of:

• Anti-Bribery Provisions
• Record-Keeping
• Internal Controls

Anti-Bribery Provisions

FCPA's Anti-Bribery Provisions apply to below mentioned three categories:

a. Issuers - A company is an Issuer under the FCPA if it has a class of securities registered under Section 12 of the Exchange Act or is required to file periodic and other reports with Securities Exchange Commission (SEC) under Section 15(d) of the Exchange Act. Officers, Directors, employees, agents or stockholders acting on behalf of an Issuer (whether U.S. or foreign nations) and any co-conspirators can also be prosecuted under FCPA.

The Issuer Test

• It is listed on a national securities exchange in the United States (either stock or American Depository Receipts); or
• The company's stock trades in the over-the-counter market in United States and the company is required to file SEC reports;

The Issuer must comply both with the anti-bribery provisions and the accounting transparency provisions of the FCPA.

b. Domestic Concerns - A domestic concern is

• Any individual who is a citizen, national or resident of the United States; or

• Any corporation, partnership, association, joint-stock company, business trust, unincorporated organization or sole proprietorship that is organized under the laws of United States or its States, territories, possessions or commonwealths or that has its principal place if business in the United States

• Officers, Directors, employees, agents or stockholders acting on behalf of a Domestic Concern including foreign nationals or companies.

The Foreign Corrupt Practices Act makes it unlawful for a Domestic Concern to pay a bribe either within the United States or in any foreign country. The accounting transparency provisions of the Foreign Corrupt Practices Act only apply to Domestic Concerns that are "Issuers" of securities in the United States.

c. Other Persons - Foreign nationals or entities that either directly or through an agent, engage in act in furtherance of a corrupt payment (or an offer, promise or authorisation to pay) while in the territory of United States.

Foreign Nationals and foreign businesses are liable for violations of the Foreign Corrupt Practices Act if the bribe occurs within the United States or is promoted within the United States.

What Jurisdictional Conduct triggers the Anti-Bribery Provisions?

• The FCPA's anti-bribery provisions can apply to conduct both inside and outside the United States. Issuers and Domestic concerns may be prosecuted for using the U.S. emails or any means or instrumentality of interstate commerce in furtherance of a corrupt payment to a foreign official.

• FCPA defined "interstate commerce" as trade, commerce, transportation or communication among the several States or between any foreign country and any State or between any State and any place or ship outside thereof.

• Those who are not Issuers or Domestic Concerns may be prosecuted under the FCPA, if they directly or through an agent, engage in any act in furtherance of a corrupt payment while in the territory of the U.S., regardless of whether they utilize the U.S. mails or means of instrumentality of interstate commerce.

Key Concepts

Offer, Payment, Promises or Authorisation of Corrupt Payments

A company can be liable under the FCPA not only for making improper payments but also for an Offer, Payment Promises or Authorisation of Corrupt Payments even if its employees or agents do not actually make a payment. In other words, a corrupt act need not succeed in its purpose.

Corruptly

Corruptly means an intent or desire to wrongfully influence the recipient. To violate the FCPA, an offer, promise or authorisation of payment or a payment, to a government official must be made "corruptly".

Wilfully

In order for an individual defendant to be criminally liable under the FCPA< he/she must act "Wilfully".

The term Wilfully is not defined in the FCPA, but it has generally been construed by courts to connote an act committed voluntarily and purposefully and with a bad purpose i.e. to be guilty, a defendant must know generally that his conduct is unlawful.

The Business Purpose Test

The FCPA applies only to payments intended to induce or influence a foreign official to use his or her position "in order to assist in obtaining or retaining business for or with, or directing business to, any person." This requirement is known as the 'business purpose test'.

FCPA also prohibits bribes in the conduct of business or to gain a business advantage.

Money or Anything of Value

The FCPA prohibits, amongst other things, giving, promising to give, or authorising the giving of 'anything of value' to foreign government officials. FCPA does not define 'anything of value' nor does it contain a minimum threshold for what constitutes a thing of value.

Not-for-Profit entities are not Immune

The FCPA does not exempt not-for-profit entities or charitable contributions. Charitable contributions as a way to funnel bribes to government officials are prohibited.

Third Parties

The FCPA expressly prohibits corrupt payments made through third parties or intermediaries.

Companies when doing business in foreign countries usually retain a local individual or company to help them conduct business such as consultant, broker, agent, distributor or joint venture. Vast majority of reported FCPA cases involved third party intermediaries.

The fact that a bribe is paid by a third party does not eliminate the potential for criminal or civil FCPA liability.

Knowing Standard

The 'Knowing Standard' in FCPA means that a company is equally liable whether an improper payment is made by company's employee or third party.

Ignorance is NOT a Defence

Affirmative Defences

The FCPA's anti-bribery provision contains two affirmative defences:

• That the payment was lawful under the written laws of the foreign country (the "local law" defence)

• That the money was spent as a part of demonstrating a product or performing a contractual obligation (the "reasonable and bona fide business expenditure" defence).

Facilitating or Expediting Payments

The FCPA prohibits offering or providing anything of value to a non-US government official to secure an unfair business advantage, but it provides an exception related to offers or payments provided in exchange for routine government action.

The FCPA states that its anti-bribery prohibition "shall not apply to any facilitating or expediting payment to a foreign official, political party or party official the purpose of which is to expedite or secure the performance of a routine government action.

Extortion or Duress

Situations involving extortion or Duress will not give rise to FCPA liability because a payment made in response to true extortionate demands under imminent threat of physical harm cannot be said to have been made with corrupt intent or for the purpose of obtaining or retaining business.

Economic Coercion

The defence that the payment was demanded on the part of a government official as a price for gaining entry into a market or to obtain a contract - would it be considered as an FCPA violation?

Distinction between extortion and economic coercion was recognised by the Court in United States v. Kozeny.

The Court concluded that although an individual who makes a payment under duress will not be criminally liable under FCPA, a bribe payer who claims payment was demanded as a price for gaining market entry or obtaining a contract cannot argue that he lacked the intent to bribe the official because he made the 'conscious decision' to pay the official.

Parent - Subsidiary Liability

There are two ways in which a parent company may be liable for bribes paid by its subsidiary:

First, a parent may have participated sufficiently in the activity to be directly liable for the conduct.
Second, a parent may be liable for its subsidiary's conduct under traditional agency principles.

FCPA - Accounting Provisions

The accounting provisions consists of two primary components -

• Under the "books and records" provision, issuers must make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect an issuer's transactions and dispositions of an issuer's assets.

• Under the "internal controls" provision, issuers must devise and maintain a system of internal accounting controls sufficient to assure management's control, authority and responsibility over the firm's assets.

Internal Controls Provisions

The payment of bribes often occurs in companies that have weak internal controls environments. Internal controls over financial reporting are the processes used by companies to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements. They include various components, such as:

• A control environment that covers the tone set by the organisation regarding integrity and ethics;
• Risk assessments;
• Control activities that cover policies and procedures designed to ensure that management directives are carried out (e.g. approvals, authorizations, reconciliations and segregation of duties);
• Information and communications;
• Monitoring; and
• Effective compliance program

Steps towards Anti-Bribery, Anti-Corruption & FCPA Compliance

• Adopt a Code of Ethics Policy to demonstrate "zero tolerance" toward bribery, corruption and non-compliance of FCPA.

• Conduct regular trainings for employees to apprise them on the Code of Ethics policy, anti-bribery and FCPA provisions

• Undertake robust, thorough due diligence of third parties before appointing them

• Set up an effective Internal control mechanism.

• Set up hotline for employees to report on red flags and other issues pertaining to Anti-Bribery, Anti-Corruption & FCPA