Time to crack the whip
India has its anti-corruption legislation, but unfortunately enforcement does not seem to have reached the desired levels
By Arpinder Singh, Partner and National Director and Vinay Garodiya, Manager
In India, bribery has been a menace for decades and the authorities have been trying their best to control it.
The issues range from corruption to conflict of interest situations. Though the country has its anti-corruption legislation, the enforcement unfortunately does not seem to have reached the desired levels. However, there is silver lining as well.
Over the years, there have been some important initiatives to combat corruption and bribery. One recent example being the e-initiative by Tata Tea through series of “Jaago re” advertisements. Further, the Right to Information Act has been creating ripples, by putting the fear of the law among politicians and bureaucrats.
According to the World Bank, corrupt practices are robbing the developing nations of as much as $40 billion annually, even a fraction of which can help fund the treatment of over six lakh AIDS patients.
While the Indian authorities are trying hard to grapple with the situation, the UK recently announced a strong legislation against bribery, the ‘UK Bribery Act'.
It signals a fundamental change in the UK's approach to tackling corruption and the authorities have already made significant investment in enforcement capabilities.
This change in approach is underlined by a growing number of high-profile actions taken against companies recently.
With increasing cross-border transactions, M&As (mergers and acquisitions), global expansion by Indian companies and international listings, regulations such as the US' FCPA (Foreign Corrupt Practices Act) and the UK Bribery Act have become extremely relevant for Indian companies.
The FCPA, passed by the US in 1977, has been arguably the most aggressively enforced.
This piece of legislation has led to high-profile cases in which reputations have been severely damaged, fines running to billions of dollars levied and jail terms handed down to senior executives.
Coming to the UK Bribery Act, it is meant to create a more effective legal framework for combating bribery. The Act basically covers four offences:
- Two general offences covering the offering and receiving of a bribe;
- A separate offence of bribing a foreign public official; and
- A new corporate offence of failing to prevent bribery.
With the Bribery Act comes an urgent need for businesses to re-examine their approach to managing bribery risk and to ask whether their current procedures are adequate.
Compliance with the FCPA does not necessarily mean complying with the Bribery Act as well. It goes further in its reach than the FCPA in the following respects:
- It draws no distinction between public sector and private sector bribery, bringing into its remit business-to-business bribery.
- There is no exemption for facilitation or ‘grease' payments. The focus is on the improper action rather than the business nexus.
- It creates two offences, of bribing another (“active offence”) and of being bribed (“passive offence”).
- It introduces a new corporate offence of failure of a commercial organisation to prevent bribery. It is a strict liability offence which includes the activities of third parties acting on a business's behalf. The legislation allows for unlimited fines under this offence. The defence available to corporates is one of having ‘adequate procedures' in place to prevent bribery.
It's time the Indian authorities demonstrated their commitment to rid the menace of bribery.
With the focus increasingly shifting from the West to the East, MNCs will want to get an assurance that India is serious about combating corruption, thereby making the environment conducive for both domestic and multinational companies to do business.
The Central Vigilance Commission (CVC) has been wrestling with the idea of identifying areas where generic solutions to the problems of vigilance administration can be applied across a wide spectrum of government organisations. Initiatives such as e-procurement, e-payment and signing of Integrity Pact have been taken to curb corruption.
As per the CBI's action plan for 2010, it will launch SMS campaigns and distribute posters and pamphlets inviting the public to co-operate in fighting corruption.
Further, the CBI shall have zero tolerance to corruption. As on April 2010, 36 officers from various public sector banks have joined the CBI on secondment basis. They are helping the investigating officers on issues relating to financial transactions.
Along with the various initiatives from the regulators side, it is a responsibility of the corporate sector to examine and evaluate quickly the existing anti-bribery and corruption framework, benchmark it against the international norms, and assess what improvements should be made to avoid contravening the legislation.
The initiatives undertaken by companies to fight against bribery and corruption should also form part of their corporate social responsibility (CSR) activities.
The article was jointly contributed by Arpinder Singh, Partner & National Director, Fraud Investigation & Dispute Services (FIDS), Ernst & Young and Vinay Garodia, Manager (FIDS).
The article was first published in The Hindu Business Line print edition