(Shivani Luthra Lohiya and Ishita Soni)
Corruption remains a pressing concern globally, affecting not only individuals but also businesses across various sectors and jurisdictions. This decade has witnessed numerous multi-billion-dollar corruption scandals worldwide, prompting a call for increased transparency and accountability. In India, high-profile cases such as the 2G spectrum scam and the Agusta Westland chopper deal scandal have fueled demands for more robust measures against corruption. This legal update explores how Indian companies are addressing this challenge, focusing particularly on the implications of the Foreign Corrupt Practices Act (“FCPA”) of the United States and the UK Bribery Act (“UKBA”).
Anti-Bribery and Corruption (ABC) Laws in India
India's legal framework, rooted in English law due to its colonial history, addresses corruption through various acts like the Prevention of Corruption Act, 1988, the Indian Penal Code, 1860, and others. As Indian companies engage in cross-border activities, they face the need to comply not only with domestic laws but also with foreign anti-bribery and corruption laws.
Understanding FCPA.
Enacted in 1977 and amended in 1998, the FCPA aims to combat corruption by prohibiting payments to foreign officials for business-related favors. The Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) enforce the FCPA, applying to both domestic and foreign companies. The broad definition of "foreign official" encompasses individuals in various capacities, and the FCPA's reach extends to third-party payments.
The FCPA explicitly forbids any form of payment or offer to foreign officials, covering not only monetary transactions but also gifts, loans, and other improper payments. Intent plays a crucial role, and the act of offering a bribe alone can constitute a violation. The FCPA holds not only the immediate actors but also parent companies liable for the actions of foreign subsidiaries.
Applying to issuers and domestic concerns, the FCPA imposes both civil and criminal penalties. Individual violations can lead to imprisonment, while fines for businesses range from USD 2 million to USD 25 million. Further, wilful violations attract more severe punishment.
Understanding UKBA
The UKBA, which came into effect on July 1, 2011, replaced previous corruption acts. Unlike the FCPA, the UKBA does not precisely define ‘bribery’; instead, it outlines offences related to both active and passive bribery, as well as bribery of foreign public officials. Moreover, the UKBA applies not only to companies but also to individuals connected to the UK.
The UKBA prohibits offering, promising, or giving financial advantages for improper performance and accepting benefits for improper conduct. It also addresses bribery of foreign public officials wherein a mere offer or promise is considered to be sufficient evidence.
In terms of punishment, the UKBA imposes imprisonment for up to 10 years and unlimited fines for individuals and businesses. Businesses can face disqualification from public contracts and directors can be barred. The UKBA's extraterritorial reach is extensive, covering acts even outside the UK.
Differences between FCPA and UKBA
While both acts have extraterritorial reach, the UKBA is often perceived as more stringent. Unlike the FCPA, the UKBA covers bribery involving private individuals and companies, and it does not allow exceptions for facilitation payments. Additionally, the treatment of inaccurate books and records differs, with the FCPA addressing it separately.
Extraterritorial Reach of the FCPA and UKBA to India
The FCPA prohibits bribery involving foreign government officials with the intent of securing or retaining business. The jurisdiction of FCPA extends to companies connected to the United States, including the ones listed on US stock exchanges or engaged in business within the country. The UKBA holds broader applicability, encompassing bribery in both public and private sectors and applying to UK-registered companies and foreign entities conducting business in the UK.
For Indian businesses, compliance with the FCPA and UKBA is crucial to avoid legal consequences and protect corporate reputation. Non-compliance may result in severe penalties, including substantial fines, imprisonment, and harm to brand value and goodwill. Violations can lead to investigations by US and/or UK authorities, potentially causing a loss of business opportunities, strained international relationships, and exclusion from global markets.
While both acts have extraterritorial reach, the UKBA is perceived as having more stringent requirements. Unlike the FCPA, the UKBA addresses bribery involving private individuals and companies, lacks an exception for facilitation payments in its definition of bribery, and deals with a company's failure to maintain accurate books and records through a separate legislation.
Practical precautions and steps
To navigate global anti-bribery laws, specifically FCPA and UKBA, Indian companies must take practical steps to ensure compliance. Companies should implement comprehensive internal compliance programs that include clear policies, procedures, and guidelines to prevent bribery and corruption. Such policies must cover areas such as gifts, hospitality, and entertainment and the companies should also conduct regular training sessions for employees to educate them about the anti-bribery laws, their implications, and the company's commitment to ethical business practices. Moreover, it can institute a system for conducting regular internal audits to assess the effectiveness of the compliance program, identify potential risks, and ensure adherence to anti-corruption regulations.
Companies should perform thorough due diligence on third-party partners, agents, and intermediaries, and also ensure they comply with anti-bribery laws and share the commitment to ethical business conduct. Lastly, companies should maintain accurate and transparent records of all financial transactions, ensuring compliance with the documentation requirements of both the FCPA and the UKBA.
Concluding Remarks
In the absence of a comprehensive Indian law addressing corruption in private and commercial transactions, Indian companies operating globally must tread cautiously. Awareness of local anti-corruption laws is essential, but equal attention should be given to foreign laws like the FCPA and the UKBA. Navigating these intricate legal landscapes is crucial for maintaining ethical business practices and avoiding the legal pitfalls associated with international anti-bribery and corruption regulations.