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PROPOSED AMENDMENTS TO INDIAN ANTI-CORRUPTION LEGISLATION – WHAT DOES IT MEAN FOR COMPANIES?

proposed amendmentsSrijoy Das (partner and head of Anti-Corruption and Compliance at Archer & Angel) and Tarumoy Chaudhuri (Associate at Archer & Angel) discuss the potential impact of the Prevention of Corruption (Amendment) Bill 2013 on corporations operating in India.


SPEED READ

The Prevention of Corruption (Amendment) Bill 2013 will introduce amendments to the existing Prevention of Corruption Act 1988. These amendments aim to tackle corruption in India by introducing a more comprehensive definition of bribery, eliminating existing protections given to bribe givers, and by seeking to criminalise corporate management for the acts of a company. If the new Bill is introduced, companies operating in India will need to keep a closer eye on their employees in their dealing with Government officials.

COMMENTARY

It is open season for Indian politicians attempting to claim credit for various anti-corruption measures taken in India in the last couple of years. While it’s commonly known that there is a strong anti-corruption drive in India, most don’t know the specifics of what is being done and the measures that are proposed.

The main legislation in India to combat corruption is the Prevention of Corruption Act (POCA), which was enacted in 1988. The POCA has always had some drawbacks – the biggest problem has been the escape route offered to bribe-givers who effectively turn on the bribe-taker and are then immune from punishment.

Recently, amendments have been proposed to the POCA via the Prevention of Corruption (Amendment) Bill 2013. While these amendments are still awaiting approval of the Parliament, it is important to understand the implications of the amendments on the anti-corruption landscape going forward, and most importantly, how it will impact companies doing business in India – whether foreign companies, their subsidiaries, joint ventures, or Indian entities.

Comprehensive Definition of Bribery

Presently, the POCA focuses more on the bribe takers by making it an offence for public servants to take gratification other than legal remuneration in respect of an official act. The definition of this offence under the POCA is proposed to be replaced with a more comprehensive provision. This is being done in order to cover all aspects of passive bribery, including solicitation and acceptance of bribes through intermediaries.

Impact on Companies

The Bill specifically addresses offences relating to ‘commercial organisations’ bribing public servants, which would include Indian as well as foreign companies carrying on business in India. The company would be fined if any person associated with it promises or gives a financial or other advantage to a public servant. However, the company can defend itself by proving that it had put in place adequate safeguards to prevent such conduct being undertaken by the persons associated with it. This would entail having specific clauses emphasising anti-corruption practices and a strict code of ethics in all service contracts with third party consultants and employment contracts with staff.

If an employee of the company bribes a public servant, it would create a rebuttable presumption that the employee was acting on behalf of the company and therefore, the company would be fined, notwithstanding any separate prosecution against the employee.

In addition to fines being imposed on the company, all persons who are in charge of the conduct of business of the company would be deemed guilty of the offence, punishable by imprisonment for a minimum of three years in addition to a fine. Further, if the investigations reveal that the bribery was carried out with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer, then they are also liable to be prosecuted accordingly.

No Protection to Bribe Givers

The present day POCA indirectly punishes the offence of giving bribes by stating that it is abetment of the offence of bribe taking by public servants. There is also a provision which exempts bribe givers from prosecution for statements made by them in a proceeding against a public servant. The Bill proposes to take away this protection by omitting the said provision and introducing a more detailed provision related to the offence of giving bribes. These steps were taken in order to tackle consensual bribery where the bribe giver could avoid prosecution by agreeing to give a statement against the bribe taker once the bribery transaction came to light.

Issues with the Bill

Media reports state that the Central Board of Investigation (“CBI”), the main criminal investigating agency in India, has opposed this amendment on the grounds that it would be difficult to execute ‘trap cases’, which are designed on the basis of the demand for money made by the public servant and a written complaint by the victim. These cases form a substantial chunk of the cases in which charge sheets are filed by the CBI’s Anti-Corruption Division (“ACD”). However, the CBI hasn’t come up with a concrete alternative proposal.

Attachment and Forfeiture of Property

A new chapter on attachment and forfeiture of property has been introduced in the Bill because the POCA does not presently provide for the confiscation of a bribe or the proceeds of bribery. The order for attachment of the property can be given by a special judge based on an application by the investigating officer after giving a ‘show cause notice’ to the person whose money or other property is being attached.

What should companies do?

Companies will need to keep check on the actions taken by their employees when dealing with Government officials. If an employee of a commercial organisation is caught paying a bribe, the commercial organisation will most likely be fined and every person in charge for the conduct of business of the commercial organisation shall be deemed to be guilty of the offence. This would mean that the directors, CEO and other top level management may be deemed to be guilty of the offence. It is proposed that the onus of proving that the offence was committed without the person’s knowledge be placed on the accused.

Companies should plan to conduct regular audits focussing on anti-corruption activities in high risk areas such as obtaining new licenses, periodic inspections, renewal of licenses and so on. Large cash advances to employees or even multiple smaller amounts (which are just below the tax limits) given to employees within a short period for getting the same work done should be identified and investigated.

For more information, please contact Srijoy Das at sdas@archerangel.com and Tarumoy Chaudhuri at tchaudhuri@archerangel.com

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The views expressed in this article represent those of the author and not Bright Line Law.

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