Q&A: EY corruption expert explains graft in India

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Luke Balleny
13 April 2011

London - Growing pressure to be seen as successful, particularly among India’s ambitious, young elite, is driving some towards unethical practices, anti-graft expert Arpinder Singh told TrustLaw in a recent interview.

Singh leads EY’s Fraud Investigation and Dispute Services practice in Mumbai. He spoke to TrustLaw about India’s telecoms scandal, why the country has such a poor anti-graft prosecution record, and what Western companies should consider when setting up a joint venture there.

Read the interview by clicking on the questions below:

There’s a belief that corruption has always been a problem in India, but it’s only now with the telecoms scandal that there’s been real uproar. What’s changed?

People forget that the size of the corruption in India wasn’t big enough 10 years back. Scams have always been there...but it’s just now become material in the global sense of the word. We didn’t have the billion dollar scams. Now that people are investing big money, they want their money to be safe, (so) they want to make sure that India fixes this issue around bribery and corruption.

I think the media has become extremely influential in the country. We’re a democracy, so there are no bans, there are no restrictions. There’s also a lot of competition. As a result, suddenly there’s a lot of pull and push to get catchy information. So if you do something wrong and the media gets to know about it, it’ll be published.

Historically, the Indian judiciary system has always been thought of as slow but now a lot of fast-tracking has started happening. I think the Supreme Court judges have come out very strongly against bribery and corruption. There is a lot of judicial advocacy.

There’s huge peer pressure. Everybody wants to buy that fancy car; everyone wants to buy those houses. There’s a huge pressure for everybody to do better as the economy is doing better. Everybody wants to become richer and more prosperous and I think that may also be pushing a lot more unethical practices.

Let’s take the small employee who used to only take the bus, now he wants to have a car. Even at his level, to have a car means he has to do something wrong because his salary can’t justify the car. Right from the junior guy to the top guy who wants to buy five planes - it’s relative but both want something that’s not in their capacity. We are the new rich; we’re not used to this attention, this amount of money.

I would also say that up until now no one’s been punished. Everyone thought that they could get away with it. This (telecoms) case is a most telling case to see how far the enforcement can go. Time will tell.

Since the financial crisis, many business schools around the world have emphasised managerial ethics. Is this something that India’s business schools also teach? Is there a generation of Indians rising through the ranks of companies who are more ethically aware?

My personal point of view is that it’s actually 50-50. You’re right - they’re more educated on ethics, but I think they’ve also become greedier in the sense that there’s a lot more available for them so they’re aspiring for a lot more.

In my parents’ time, my father would buy a house only after retirement from his retirement money. Today, people at the age of 26 to 27 want to buy their first home and they want to buy their first Mercedes. So I think to have all that wealth and still keep your ethics is a slight contradiction.

Has the telecoms scandal been good in the long run for India’s anti-corruption efforts in terms of raising awareness?

Absolutely, I strongly believe that. I think all citizens are tired and don’t want this to continue. It has become a lot more difficult (to be corrupt) than it used to be. If somebody has done something wrong, they’re not respected the way they were and that’s a big thing in India because respect is the one thing you live for.

In terms of domestic corruption, India has both the Prevention of Corruption Act and the Prevention of Money-laundering Act but they haven’t been very successful at stopping corruption. What’s the bottleneck?

I think one is a total lack of enforcement. I’ve never heard of a corporate in India being booked under the Prevention of Corruption Act. The act is also not as strong as the (U.S.) Foreign Corrupt Practices Act or the UK Bribery Act. There are no extra-territorial powers in that sense, there’s no guidance around it. If you look at the (Indian) act, it’s a few pages; it’s really got no meat. If a few big guys end up being punished, you’re setting the tone and suddenly government officials will become more confident about using the Prevention of Corruption Act.

A new bill, the Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisations, has recently been introduced in the lower house of parliament. How likely do you think it is that Indian prosecutors will one day prosecute Indian businessmen who bribe officials in China?

We’ve got to first fix our shop. If you look at that statute, it’s more about foreign officials trying to bribe Indian corporates for Indian business. It’s not so much for Indian companies going to China and bribing somebody in China. I think that’s far, far away. I think the only time (it may happen) is if the Chinese authorities take action against the Indian company and you’re forced to do something in India.

Have you had many enquiries about the UK Bribery Act from Indian companies that carry out business in the UK?

Not right now. I think it should happen. I think a lot of UK companies are looking at training their employees in India around the UK Bribery Act. But are Indian companies currently doing business in the UK afraid of the UK Bribery Act? I don’t think anyone’s made them afraid yet.

Again, I think that comes back to the big fish: Indian companies operating in the U.S. and Indian companies operating in the UK are not that paranoid about the (U.S.) Foreign Corrupt Practices Act or the UK Bribery Act because neither of these statutes have gone after them. There has to be one case as a precedent otherwise it remains theoretical.

For a European or U.S. company looking at forming a joint venture with an Indian company, what would you advise around anti-corruption?

I think people entering joint ventures in India should be extremely careful because we don’t have public databases like you have in the U.S. and UK, so you really can’t do integrity due diligence easily. There’s not too much information in the public domain about companies unless there’s been a criminal complaint or something.

Before they (the U.S. or European company) even do financial due diligence, I think they should do integrity due diligence. Who’s the guy they’re doing business with? What are his connections? How much money does he have? Is he who he claims to be? I think that’s the most important. Because if he’s connected to the politicians, for instance, and tomorrow you want to take your money out, you’ll never manage it.

There could be a dispute, and in India arbitration is very difficult ... It takes so long, it’s very complicated and the Indian client will be much savvier in working the system. Plus he’s sitting in India, so he’s not worried. The UK client or the U.S. client would have to ship people to India all the time and it can become very cumbersome to manage that process.

How is the money being used? Historically, what I’ve seen on the investigation side is that in one year, the money could just disappear, and if the person has done an arbitrage or he’s put the money in the stock market and he loses it, you’ll never get the money back.

I would advise UK companies operating in India to be extremely careful. (But) I think you should not be scared. It’s a risk. If British companies are afraid, they’ll never grow, you have to have that risk appetite.