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Tuesday
Sep252018

Kunal Gupta: India criminalizes corporate bribery, but creates defenses

India’s anti-bribery and anti-corruption regime recently went through a massive change with the enactment of the 2018 Prevention of Corruption (Amendment) Act, 2018. What is the impact of the so-called Amendment Act and what measures should companies put in place to ensure compliance?

The Amendment Act is prospective in nature and takes effect from the date it received presidential assent, July 26, 2018. Companies doing business in India don't need to retrospectively assess their compliance and will only be regulated by these provisions prospectively.

Offense of giving bribes. In the earlier version of the PCA, bribe giving was merely an indirect offense and punishable as abetment. The offense of giving a bribe was hinged upon the bribe taker being prosecuted and punished. However, with the Amendment Act, giving or promising to give a bribe or "undue advantage" to a public servant is now a distinct offense. This means the number of prosecutions and convictions would increase and companies need to watch out for a likely rise in enforcement activity.

Where a person is compelled to give an undue advantage, they won't be prosecuted if they report the matter within seven days from the date of giving the undue advantage. This provision therefore allows for a defense in cases where a person is coerced into giving a bribe to a public official.

Offense of bribery by commercial organizations. Prior to the Amendment Act, the PCA lacked any provision about the liability of commercial organizations for acts of bribery. However, the amended PCA creates the offense of bribery by commercial organizations and provides that a commercial organization shall be punishable if any person associated with such commercial organization bribes a public servant. This means the legislation now explicitly targets companies and, in the absence of an affirmative defense, companies will be penalized for paying bribes.

The capacity in which the person performs services for the organization is immaterial. So if an Indian subsidiary of a multinational corporation commits bribery, the parent company may also be held liable for the offense. In India, any commercial organization has to engage multiple third parties -- sometimes very small “mom and pop shops” -- who then interact with public officials to secure licenses or approvals. Because of the Amendment Act, the way they perform their services now becomes extremely relevant.

The amended PCA also provides a defense to commercial organizations accused of bribery.An organization than can satisfactorily prove it had adequate procedures to prevent bribery will have a valid defense. No guidelines have yet been formulated defining what “adequate procedures” would entail. But assuming this provision was inspired by the UK Bribery Act, then it will help bring Indian companies to the same level as their global counterparts.

Liability of management. The Amendment Act’s most significant change for company management is the creation of a specific offense where officials of a commercial organization may also be penalized. By introducing such a provision, it is likely that the law enforcement authorities will come down heavy on personnel involved while also prosecuting the organization for acts of bribery.

This translates into the need to conduct management focused compliance training. D&O liability insurance will also likely have higher premiums. This is also a strong reminder to set the tone at the top and ensure that a zero tolerance approach to bribery and corruption is clearly communicated.

* * *

What do these changes mean for a global chief compliance officer with significant operations in India? Here are some immediate next steps:

  • Update internal policies for consistency with with the changed legislative requirements.
  • Re-train key management personnel. With heightened focus on the liability of personnel, companies need to ensure that management knows when to say "no."
  • Ensure that the third parties are not only complying in form but in substance as well. An organization's compliance systems should be geared to address third party risks.
  • Revisit the whistleblower hotline and SOPs around the handling of complaints and tips. If a payment is made under duress, it is important for the company to discover and report it in a timely manner.
  • Revisit compliance infrastructure to ensure that adequate procedures, in line with the changed legislative requirements, are put in place.

____

Kunal Gupta, pictured above, is partner and head of the white collar investigations practice at Cyril Amarchand Mangaldas in India. He is regularly involved in assisting clients with multi-jurisdiction investigations in Asia. He can be reached here.

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