As in many rapidly developing economies, the opportunities from great wealth creation bring accompanying challenges. When doing business in India one of the challenges is around the issue of bribery and corruption.
India does have existing anti-corruption legislation such as the Prevention of Corruption Act (“PC Act”) 1988, the Indian Penal Code (“IPC”) 1960, Prevention of Money Laundering Act, 2002, Right to Information Act, 2005, and the Central Vigilance Act, 2003 to name a few. In an endeavour to promote good governance, India has taken a number of initiatives towards containing corruption including the amendments proposed to the PC Act (Proposed amendments as per PC (Amendment) Bill 2013 and recommendations of Standing Committee and Law Commission on Bill). These amendments, such as a new corporate offence of giving a bribe to a public official to gain a business advantage and a new strict liability offence of management participation in corporate offending, could impact private and public sector alike.
For UK companies looking to do business in India or any other international market, it is important to note that UK organisations operating in foreign markets such as India could be liable for prosecution in the UK if they are accused of engaging in corrupt practices, as defined by the Bribery Act 2010 (‘the Act’).
The Act was passed into law on 8 April 2010 and came into effect on 1 July 2011. While bribery has been illegal for a long time in the UK, the broad definition of bribery and the global reach of this legislation makes it one of the more stringent anti-bribery laws in the developed world.
The overarching precept of the Act is that a commercial organisation must understand and document the risks it faces and take appropriate steps to address them. Any bribery prevention procedures should be proportionate to those risks.
The Act sets out four key offences, which are outlined below.
- Active bribery – offering, promising or giving a bribe.
- Passive bribery – requesting, agreeing to receive or accepting a bribe.
- Bribery of a foreign public official – in order to obtain or retain business or an advantage in the conduct of business.
- Failure of commercial organisations to prevent bribery – liability is triggered by an “associated person” acting for, or on behalf of, the organisation paying the bribe. An “associated person” might be an employee, a subsidiary entity or an agent. The possible defence is that the commercial organisation had ‘adequate procedures’ in place to prevent such conduct.
WHAT ARE THE PENALTIES?
Commercial organisations – an unlimited fine (set at the court’s discretion).
- Individuals – up to 10 years’ imprisonment, an unlimited fine (set at the court’s discretion), or both.
- Public contractors – possible debarment from public contracts.
While not stipulated in the Act, collateral consequences for a commercial organisation could involve severe reputational damage through negative press coverage, as well as disruption of business. Conviction can lead to organisations being placed on blacklists and restricting their abilities to tender for certain types of project. In the case of individuals, consequences could involve disciplinary actions and/or termination of employment.
WAYS TO MITIGATE RISK FOR UK BUSINESSES
Most countries around the world have anti-bribery legislation of some kind. The importance of a comprehensive bribery risk assessment is underpinned by all the authoritative guidance on anti-bribery procedures. To help commercial organisations of all sizes and sectors to understand the sort of procedures they can put in place to prevent bribery, the adequate procedures guidance containing the six core principles has been issued by the Ministry of Justice (‘MOJ’). These principles as summarized below are not prescriptive and there is no one-size-fits-all situation.
“A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They are also clear, practical, accessible, effectively implemented and enforced. “
Based on what is right and adequate for your organisation, you should establish tailored procedures to mitigate bribery and corruption risks, and guide ethical conduct and decision-making.
Top – level commitment
“The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable.”
Establishing the ‘tone from the top’ is important. The top-level management should devote appropriate time to anti-bribery compliance issues, and commit adequate resources to ensure the effectiveness of its anti-bribery programs and controls. The organisation’s anti-bribery stance, such as ‘zero tolerance’ to bribery should be well communicated to both internal and external stakeholders.
“The commercial organisation assesses the nature and extent of its exposure to potential external and internal risks of bribery on its behalf by persons associated with it. The assessment is periodic, informed and documented.”
Examples of the more common areas of vulnerability could include, company operations in high risk locations (e.g. countries with higher perceived or actual level of corruption), higher risks attributable to particular sectors, peculiar type of transactions (e.g. licenses, public procurement, gifts/hospitality/entertainment) or business opportunities (e.g. those requiring high level of involvement of intermediaries). The risk assessment should examine a variety of such internal and external factors, and assess the areas of highest risk in terms of potential exposure to bribery.
“Due diligence is firmly established as an element of corporate good governance and it is envisaged that due diligence related to bribery prevention will often form part of a wider due diligence framework. The purpose of this Principle is to encourage commercial organisations to put in place due diligence procedures that adequately inform the application of proportionate measures designed to prevent persons associated with them from bribing on their behalf.”
Bribes may be paid indirectly, via third parties, including sales agents/distributors, local representatives, and joint venture/business partners. Companies should undertake due diligence of third parties proportionate to the risks identified, and design procedures to prevent bribes being paid on the company’s behalf.
Communication (including training)
“The commercial organisation seeks to ensure that bribery prevention policies and procedures are embedded and understood throughout the organisation through internal and external communication, including training that is proportionate to the risks it faces.”
Communication of company’s core values and supporting policies and procedures (e.g. whistleblower/speak up programs, code of ethics or conduct, anti-bribery policies) will strengthen its anti-bribery culture. Training and awareness of organisation’s procedures is also essential to help the stakeholders understand how bribery can arise, when they and the business may be at risk, and to enable them to deal with any related issues.
Monitoring and review
“The commercial organisation monitors and reviews procedures designed to prevent bribery by persons associated with it and makes improvements where necessary.”
Companies should ensure adequate monitoring and reporting procedures to evaluate the effectiveness of its anti-bribery framework. This could include for example, periodic reviews of implementation of anti-policies and procedures, monitoring of third party relationships, audit of high risk transactions and review of internal financial control mechanisms. The reviews might be done in-house or organisations may consider external support.
“…The detail of how organisations might apply these principles, taken as a whole, will vary, but the outcome should always be robust and effective anti-bribery procedures…”