Bribery and Compliance in India: Know the Challenge and Prepare for It
Today I welcome Sherbir Panag, for another post in my series of country discussions, where we will address Bribery and Anti-Bribery Compliance in India. As a forward, this was an interesting engagement, as it provided me with a opportunity to ask questions pertaining to the procurement environment in India, as I experienced it during my own work in the field.
RB: Hello Sherbir, thank you for joining me in today’s interview, as we try to share some of the issues confronting employees and corporations who are either working in India or trying to enter the market. But first, perhaps you can share some of your background:
SP: Hi Richard thank you for the opportunity to discuss compliance and procurement challenges in India. It is a pleasure to be here today.
I am an attorney with MZM Legal, with a focus on business crime, compliance and investigations. I lead my firm’s Criminal Compliance practice where our principal focus is on assisting companies with bribery and other criminal misconduct challenges of India. The scope of my practice besides Indian anti corruption laws, includes working with foreign lawyers on aspects of the U.S. FCPA, UK Bribery Act, German administrative law and other foreign legislation / mechanisms that prevent foreign bribery.
My firm is a member of the Roxin Alliance – an international association of white collar crime lawyers. I am intrinsically involved in all projects of the Roxin Alliance including their working group commitments to the World Bank GFLJD, and I co-head the Alliance’s Administrative Sanctions practice group.
RB: So, lets first address the internal market. What is the current enforcement environment in India with respect to anti-corruption laws, and has that changed in recent years?
SP: The enforcement environment has dynamically changed over the last 3-4 years in India as a powerful social coalition of proactive media houses and civil society has ensured that fighting corruption remains a mainstream issue. Law enforcement authorities and the political establishment see themselves being under greater scrutiny, which has impacted the perception against corruption and the enforcement numbers positively.
The higher judiciary in India has also played an important role in keeping law enforcement on track against corruption. The Supreme Court has resorted to day to day monitoring of certain high profile corruption cases, while also taking suo moto cognizance of matters and reprimanding the executive on its failure to prevent corruption or institute anti corruption initiatives.
Further, reports of foreign law enforcement action with respect to foreign bribery in India has forced the Indian authorities to take up these matters in India as well. The recent example being the AgustaWestland case where an Italian investigation, reported by the Indian press resulted in India commencing an investigation and subsequently terminating a Euro 556 Million contract, while AgustaWestland’s corruption case is still ongoing.
While empirical data is far from being ideal at the moment, one can reasonably say that the enforcement climate of ‘no enforcement’ or ‘compromised enforcement’ has seen a positive dent.
RB: Do you see a focus on individuals, corporations, or both?
SP: The focus of law enforcement in India has been primarily on individuals. Even in cases involving corporations, the corporation being an accused aside – the authorities have seeked to determine the individuals behind the corporate veil. This slightly traditional prosecution approach stems from the fact that corporate criminal liability has only recently been recognized by the Supreme Court of India.
Legislative changes have been proposed to enhance the liability of companies in corruption related offences, which would bring companies into a potentially greater spotlight with law enforcement authorities. The Prevention of Corruption (Amendment) Bill, 2013 seeks to establish a substantive offence for bribery by a commercial organisation, and also provides 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. The Bill concurrently establishes a compliance defence, which would be a first in India.
RB: Do you think that the enforcement resources are sufficient to promote and enforce current regulations? In other words, are the laws “on-the-books” but unlikely to be aggressively enforced? Again, here I speak of internal bribery as well as enforcing corruption laws governing overseas conduct.
SP: Richard, when it comes to anti corruption enforcement India takes a beating owing to a multitude of factors chief among them being the lack of political will in my view. Appointments to anti corruption enforcement bodies have a high degree of political involvement, which is coupled with insufficient resources in the hands of our authorities in terms of both manpower and technology. Furthermore, enforcement is impacted by these very enforcement authorities being compromised by the same means, which they are to investigate and prevent. This problem is further compounded by inordinate delays in our justice dispensation mechanism which is widely taken advantage of, and the legislative hindrance that the Prevention of Corruption Act, 1988 poses in the form of requiring ‘sanction to prosecute’ high ranking officials.
Enforcement is not ideal but it is yet to be devoid of not having a deterrence impact all together. The Indian legal system is provisionally sound to deal with corruption when the need arises and the question for companies really is, whether in the cross winds of media trials, whistleblowers and enhanced public scrutiny – they would like to the object of this system working?
As for preventing foreign bribery – as of date it does not constitute an offence in India. As India has signed and ratified the UN Convention Against Corruption, in compliance of which a bill is pending in the Indian parliament since 2011 namely the Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, which seeks to criminalize foreign bribery.
RB: Sherbir, so here is where you can really provide some assistance to those who look to the Indian market for growth. What advice would you give them in terms of how to conduct business with respect to corruption risk? I ask this in two parts, first, what do they need to do before entering the market to steer clear of corruption, and for those already in the market, what do they need to do to maintain anti-bribery ethics and compliance?
SP: The corruption risk in India is very real and apparent, and businesses must attempt to constructively address this risk and not “just go with the flow”. I say this as many a times I have seen foreign companies resign themselves to the fact that bribery is a cost that they have to incorporate into their India operation, thereby making no genuine efforts to prevent it. This resignation at times accrues greater liability for business as it breeds a culture of using bribes as the easier way out. Let me emphatically state that business in India is possible without bribery. Easy – no, possible – yes; and this gap can be bridged by a determined organization.
Enforcement of laws preventing foreign bribery have helped create a certain degree of universality in compliance policy, the devil however is with the on ground challenge. Addressing the bribery issue outside a mere policy framework mandates that an anti corruption strategy for India focuses on ‘knowing the challenge and preparing for it’ and ‘avoiding avenues of bribery’.
Knowing the challenge and preparing for it: The bribery challenge in India is one that in the course of business you are likely to regularly encounter as opposed to as an exception. Therefore, understanding the challenge in the Indian context and accordingly responding to it is imperative.
Firstly, there are no good bribes or bad bribes. Once a reputation as a bribe payer is established, my experience has been that the company is regularly flocked to by public servants from diverse backgrounds demanding bribes for simple tasks or at times for no tasks at all, but just in case there is a future task. Word spreads fast and the scale of bribery multiples even faster, with the company then being required to provide lavish gifts during festivals, an increase in the bribe amount every year or even a bonus bribe for loyalty.
Companies which choose to believe that small bribes or facilitation money thus are acceptable should take a step back to determine its impact, and should also view it in the context of the organizational culture they are building. While operating in a country which has a cultural disposition to bribery due to the unfortunate ground reality, you would not want that culture to be given sanction in the organization as well.
Secondly, compliance policies and procedures need to address elements of Indian law and ground realties specifically. For example, under Indian law specific threshold limits are prescribed in Indian Rupees for the gifts, entertainment and hospitality that public servants may receive. Now if a company’s gift policy is listed in USD terms there could be a high possibility of violation due to currency rate fluctuations inadvertently if not more blatantly by getting the value wrong all together. Another example is third party agent due diligence forms which use the word ‘company’ for the third party; while majority of third parties / agents are organized as sole proprietorships and partnerships – thereby allowing them to make incorrect disclosure to the foreign company.
These are small examples of minor mistakes having greater repercussions for businesses operating in India, hence it being important to localize compliance.
Thirdly, is creating a response framework to when there is a bribery log jam. Merely communicating to employees to refuse bribe payments, does not necessarily solve the problem at hand. There is no easy way to address this issue and it varies from case to case, but companies – among others do have available to them the option of reporting the matter to the Anti Corruption Bureau of the concerned state or where they find an arbitrary decision being given by a public servant due to bribery or the lack thereof approach the concerned High Court via writ jurisdiction. Pros and cons aside, it is helpful to know and communicate to the rank and file, that options do exist.
Avoiding avenues of bribery: Businesses should plan out their operations by determining where and how they can limit interaction with government entities. This is no easy exercise and would not have a one size fits all, but is an effort worth undertaking. For example, if a procedure can be e-filed versus filing it physically at a government department; obtaining information through the Right to Information Act, 2005 versus exposure to bribery by sending an employee to a government department; using the right to service legislation / citizens charter in states where applicable versus engaging third parties who are likely to add to a company’s exposure; single window clearance while setting up operations in a special economic zone versus having to deal with a multitude of government departments and agencies. While these examples do not guarantee bribery free business, they considerably reduce the odds of it.
An exercise in bribery avoidance, will also help streamline interaction with government servants where it is unavoidable, thereby allowing them to also understand the company’s firm stand on business ethics. Companies would thus benefit by incorporating into their strategy creative mechanisms of avoiding bribery at an operational level as opposed to a mere policy framework of what to do when the big question is asked.
RB: From my own experience with Indian procurement, and let me share for those who have not experienced this first hand, it is a very complicated process. The Indian rules and regulations governing procurement on a National, Regional and Local level are somewhere between intricate and entirely confusing. The paperwork, for lack of a better word, is massive, and as stated, quite often puzzling. Sherbir, as we all know, this leads to great dependence on third parties to sort out such regulations, and also presents great peril with respect to requests for small bribes to “move things along.” So, what responsibility does India have to make this process as structurally sound as possible, as to reduce the risks for companies outside India to enter the market in a way which is fair and transparent? Also, my reflection here is from my experience up to 2009, so since then, do you think there has been progress?
SP: Richard, the red tape, paperwork and plethora of complex rules and regulations is still very much a reality when it comes to public procurement in India. Incidentally, India’s dismal ranking in the World Bank’s Ease of Doing Business Report took a hit by another two places in 2015. The responsibility for this squarely rests on India if it seeks to continue to attract foreign investment and remain an investment viable economy. The argument for us is not just social and moral, but economic. A major push towards e-governance and consolidating regulatory procedures is necessary and the Finance Minister – Mr Arun Jaitley, while introducing India’s budget on 28th February 2015 has made strong references to help ease doing business in India. But only time will as to how many of these initiatives actually are implemented effectively.
From an on ground perspective, when it comes to public procurement the use of mandatory integrity pacts has helped level the playing field slightly as action for breach of the pact has been swift. The Integrity Pact lays down mandatory no bribe giving / no bribe accepting provisions, the violation of which may result in blacklisting, forfeiture of bid deposits and bank guarantees among others. In January 2014 AgustaWestland had a Euro 550 Million contract with the Ministry of Defence cancelled for violation of the integrity pact, and earlier in 2012 six companies were blacklisted for 10 years in India by the very same Ministry.
Also pending in our Parliament since 2012 is the Public Procurement Bill, 2012 which endeavors to bring about reform in public procurement by mandating publication of all procurement related information at a central portal, establishment of a bidder grievance committee and establishing open competitive bidding as the preferred procurement method.
RB: Thank you for your time today, is there anything else you would like to add?
SP: Thank you for the opportunity to address your readers today Richard, it has truly been an honour.
On a parting note I would like to reiterate that business is no longer as usual in India, and companies that do not respond to these changing times are likely to be impacted adversely. With all our shortcomings and challenges, we remain a rule of law upholding democracy and if one is on the wrong side of the anti bribery law when it is being upheld, the consequences will follow.
Indian employees are also growing increasingly aware of laws that foreign companies are bound by internationally, not just in terms of foreign bribery prevention but whistle-blowing also. Questionable practices are therefore likely to face greater resistance from the workforce as well. The risk of disclosure of misconduct and scrutiny into company actions, stands considerably higher than what it was in the last decade – to which the compliance function must respond. The compliance function thus, needs to depart from a ‘tick the box’ liability reduction model to one that builds a dynamic and determined culture of integrity.