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Enforcement agencies and corporate liability

Government agencies

What government agencies are principally responsible for the enforcement of civil and criminal laws and regulations applicable to businesses?

The agencies responsible for the enforcement of laws and regulations applicable to businesses are the following:

  • Serious Fraud Investigations Office (SFIO);
  • Central Bureau of Investigation (CBI);
  • Enforcement Directorate (ED);
  • Directorate of Revenue Intelligence (DRI);
  • Competition Commission of India (CCI); and
  • Securities and Exchange Board of India (SEBI).

Scope of agency authority

What is the scope of each agency’s enforcement authority? Can the agencies pursue actions against corporate employees as well as the company itself? Do they typically do this?

The SFIO is a specialist agency for investigating and prosecuting crimes punishable under the Companies Act 2013.

The CBI is a central investigation agency with its headquarters in New Delhi that investigates crimes either that are referred to it by the other states or that violate the Prevention of Corruption Act 1988 (POCA).

The ED enforces two statutes: the Foreign Exchange Management Act 1999 and the Prevention of Money Laundering Act 2002. The civil enforcement arm of the ED investigates cases relating to violations of foreign exchange control laws. The criminal arm of the ED investigates cases relating to money laundering.

The DRI investigates violations of the Customs Act 1962 and is also an intelligence agency.

The CCI enforces the Competition Act 2002, which includes the investigation of cartels and anticompetitive behaviour by companies.

SEBI is India’s securities markets regulator. It investigates and enforces violations of the SEBI Act and subordinate rules and regulations governing the securities market.

Simultaneous investigations

Can multiple government entities simultaneously investigate the same target business? Must they coordinate their investigations? May they share information obtained from the target and on what terms?

Yes, multiple government agencies regularly investigate a target business together. Their investigations may not be coordinated, but there are increasing instances of coordinated action and information sharing. The terms of such cooperation are internal to these agencies.

Civil fora

In what fora can civil charges be brought? In what fora can criminal charges be brought?

Civil action may be brought before fora created under the relevant statutes. Criminal cases are brought before ordinary criminal courts.

Corporate criminal liability

Is there a legal concept of corporate criminal liability? How does the government prove that a corporation is criminally liable for the acts of its officers, directors or employees?

Yes, the legal concept of corporate criminal liability exists under Indian law. Certain statutes have provisions for liability in case of a violation by a corporation. In other cases, corporate criminal liability may be imposed under the concept of ‘alter ego’, which means that a corporation is liable for the actions of its directors or key managerial employees.

Bringing charges

Must the government evaluate any particular factors in deciding whether to bring criminal charges against a corporation?

An investigation must be carried out by the investigating agency based solely on facts and circumstances relevant to the allegations and case at hand. The investigation must be independent of political, religious or any other beliefs. Once the investigation is complete, the magistrate or judge must apply settled legal principles and precedents to adjudicate the charges.

Initiation of an investigation

Investigation requirements

What requirements must be met before a government entity can commence a civil or criminal investigation?

There are no formal requirements to be met by a government entity before an investigation can commence. Criminal investigations are based on the registration of a First Information Report (FIR), which is a formal description of the basic facts and reasons for launching an investigation. Civil investigations do not require the registration of an FIR.

Triggering events

What events commonly trigger a government investigation? Do different enforcement entities have different triggering events?

An investigation may be triggered by a variety of events, which could include a formal complaint or a whistle-blower’s report, and will depend on the nature of the violation.

Whistleblowers

What protections are whistle-blowers entitled to?

Whistle-blowers are afforded protection under the Whistleblowers Protection Act 2014. This law provides a mechanism for whistle-blowers to disclose matters of public interest or, generally speaking, the workings of the government. It includes provisions for protecting the identity of the whistle-blower and any witnesses of the subject matter. For private businesses that trade on various stock exchanges, SEBI requires them to set up a formal whistle-blowing mechanism with adequate safeguards against victimisation of whistle-blowers.

Investigation publicity

At what stage will a government entity typically publicly acknowledge an investigation? How may a business under investigation seek anonymity or otherwise protect its reputation?

Currently, there are no provisions in Indian law regarding publicly acknowledging civil investigations. However, criminal investigations commence with the registration of an FIR, and the Supreme Court of India recently ruled that all FIRs must be compulsorily published on the website of the concerned police departments and enforcement agencies unless it is necessary to protect the identity of the victim in case of sexual offences, etc.

Evidence gathering and investigative techniques

Covert phase

Is there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?

Yes, there could be a covert phase, depending on the facts of the case. In this phase, the investigator will covertly gather information about the alleged violation and the business or individuals involved. There is no fixed duration for such covert investigation.

What investigative techniques are used during the covert phase?

During the covert phase, an agent may record phone calls or take photographs and video recordings of persons and suspect actions. An agent may also track a person’s business transactions and online activity.

Investigation notification

After a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?

Businesses typically undertake an internal investigation, which could include forensic analysis of the devices of the employees under investigation, and subsequent interviews with employees based on the evidence gathered during the internal investigation. It is advisable to issue an internal memorandum forbidding the destruction of relevant documents and correspondence.

Evidence and materials

Must the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?

There is no statutory requirement to preserve evidence. However, it is a crime to destroy any material that a person knows, or has reason to believe, could be used as evidence.

Providing evidence

During the course of an investigation, what materials - for example, documents, records, recorded communications - can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?

The government may request the disclosure of all relevant documents, records and communications of the target business; providing the information is mandatory. Data protection and privacy laws do not curtail the powers of the government in a criminal or regulatory investigation.

On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?

A request for information may be challenged before a court on the basis of relevance and reasonableness. Corporate documents are not privileged. Advice from an in-house attorney is also not privileged.

Employee testimony

May the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?

No, the government cannot compel testimony or disclosures during an investigation. The law provides safeguards for this purpose. A statement made to a police officer cannot be used as evidence in a court of law. If an officer believes that the statement is useful for his or her case, he or she must present such person before a judge for formal recording of the testimony. Before recording the testimony, the judge must be satisfied that the person making it is doing so voluntarily and not under any duress. The judge is also required to inform the person that whatever he or she says can be used against him or her at trial.

Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?

The decision of an employee to obtain his or her own counsel will depend on the nature of the accusation in an FIR and the facts obtained from a corporation’s internal investigation. An employee may be advised to obtain his or her own counsel if having a common counsel would entail a conflict of interest, or if the corporation would prefer a different line of defence from the employee.

Sharing information

Where the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?

There is no prohibition on sharing information between multiple targets. Such shared material will not remain privileged. If an investigator apprehends such material, it may be used at trial.

Investor notification

At what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?

Since an FIR is a public document, a target should aim to notify investors as soon as it is informed of the commencement of an investigation by the regulator or investigator. Disclosures should contain only necessary and relevant facts, and should not be speculative. The disclosure may include the corporation’s roadmap for dealing with the investigation.

Cooperation

Notification before investigation

Is there a mechanism by which a target business can cooperate with the investigation? Can a target notify the government of potential wrongdoing before a government investigation has started?

There is no standard mechanism by which a target can cooperate with the investigation. While there is a general obligation under the law to report crimes, a specific obligation will depend on the requirements of the statute in question as regards the wrongdoing under investigation. For example, highly regulated corporations such as banking businesses and corporations listed on stock exchanges are required by law to report a wrongdoing. More recently, the POCA, India’s principal domestic anti-bribery law, has prescribed reporting requirements. It is compulsory for a person to report an act of bribery within seven days if that person wishes to later present a defence that he or she was compelled to bribe a public official.

Voluntary disclosure programmes

Do the principal government enforcement entities have formal voluntary disclosure programmes that can qualify a business for amnesty or reduced sanctions?

Voluntary disclosure is not linked to amnesty or reduced sanctions. However, in more modern statutes, such as the Competition Act, there is a provision for leniency in case a corporation makes a full and true disclosure.

Timing of cooperation

Can a target business commence cooperation at any stage of the investigation?

A target business is obliged to cooperate as soon as it is informed of an investigation.

Cooperation requirements

What is a target business generally required to do to fulfil its obligation to cooperate?

There are no prescribed standards for cooperation in a criminal investigation against a business; however, the target is obligated to provide information and evidence required for the investigation, and to present its officers to assist during the investigation.

Employee requirements

When a target business is cooperating, what can it require of its employees? Can it pay attorneys’ fees for its employees? Can the government entity consider whether a business is paying employees’ (or former employees’) attorneys’ fees in evaluating a target’s cooperation?

There is no separate requirement for the cooperation of employees. Employees are not afforded any special protection by law and are required to cooperate as they would in the investigation of an ordinary crime.

The government is unlikely to evaluate a target’s cooperation on the basis of payment of attorneys’ fees by the employer because attorneys do not play a role in the investigation process.

Why cooperate?

What considerations are relevant to an individual employee’s decision whether to cooperate with a government investigation in this context? What legal protections, if any, does an employee have?

There is no statutory framework governing an individual employee’s decision to cooperate with a government investigation. Refusal to be interviewed could at best be a matter of non-compliance with the internal procedures of a corporation.

Privileged communications

How does cooperation affect the target business’s ability to assert that certain documents and communications are privileged in other contexts, such as related civil litigation?

A target may selectively claim privilege over documents. For example, it may claim privilege over certain documents in one litigation and not make that claim in another. However, courts are permitted by law to take judicial notice of facts reported in other cases. A judge is likely to ignore the assertion of privilege in a case if he or she can obtain the same facts from the judgment in another case.

Resolution

Resolution mechanisms

What mechanisms are available to resolve a government investigation?

The law does not permit resolution, settlement or compounding of serious criminal cases. There are no parallel provisions for deferred prosecution agreements, non-prosecution agreements, etc.

Admission of wrongdoing

Is an admission of wrongdoing by the target business required? Can that admission be used against the target in other contexts, such as related civil litigation?

An admission of wrongdoing can be used against the target in another litigation, unless a statute applies that expressly prohibits this.

Civil penalties

What civil penalties can be imposed on businesses?

Different statutes impose different civil penalties. For example, fines imposed for a civil violation of exchange control regulations could be three times the amount of those imposed for contravention. Certain regulators may also impose non-pecuniary civil penalties. For example, SEBI may prohibit a company from participating in the stock market.

 

Criminal penalties

What criminal penalties can be imposed on businesses?

A corporation can only be fined for criminal action. However, its employees, directors, etc, may also be imprisoned.

Sentencing regime

What is the applicable sentencing regime for businesses?

There are no specific sentencing guidelines for businesses. If a business is found guilty, the quantum of fine is determined by the judge depending on the specific punishment prescribed under the violated law.

Future participation

What does an admission of wrongdoing mean for the business’s future participation in particular ventures or industries?

A business may face the risk of reputational harm and loss of investor confidence. SEBI may prohibit a listed company from participating in the securities market. If the business attempts to undertake contracts with the government, it may face debarment.

UPDATES & TRENDS

Updates & Trends

Updates and trends

India has recently overhauled its primary anti-corruption legislation - the POCA. This is a long-awaited move where Parliament was expected to modernise the law on prohibition of bribery. The amendments also align the POCA more closely with the United Nations Convention against Corruption. The highlights of the new law are as follows:

  • A bribe giver must report the act to the government within seven days if he or she later wishes to present a defence that the bribe was paid under duress.
  • Corporate criminal liability for bribery has been codified. A corporation may, however, present a defence that it had ‘adequate procedures’ in place to prevent bribery. The government has the power to prescribe adequate procedures for corporations.
  • Directors, managers and secretaries of a corporation may be held liable and punished if it is proven that bribes were paid with their consent or connivance.

Indian businesses have recently witnessed increased reporting and enforcement of fraud, particularly in the banking sector. Responding to the situation, the Supreme Court recently ruled that all employees, directors and even auditors of private banks are deemed public officials for the purpose of enforcing the anti-corruption law. This significant change has brought banks under heightened scrutiny of their internal affairs and stricter reporting obligations, both to the regulator and the government’s vigilance department.

In the past decade, several persons suspected of high-profile white-collar crimes have fled the country to avoid arrest and prosecution. Although India has established mutual legal assistance treaties and extradition treaties with most jurisdictions, enforcement of these agreements is often difficult and time-consuming.

In response, Parliament passed the Fugitive Economic Offenders Act 2018. The Act provides for measures to deter fugitive economic offenders from evading the legal process by staying outside the jurisdiction of Indian courts. If any individual is declared a fugitive offender - for example, if he or she does not respond to the summons, warrants for arrest, or both, for a crime exceeding the value of £11 million - the government is authorised to confiscate all properties of that person in India. The Act prohibits (i) a fugitive economic offender from later defending any civil claims against him or her in India; and (ii) any company or partnership from defending a civil claim in India if its director or key managerial person is declared a fugitive economic offender. The Act also empowers the government to seize the properties of a person who is declared a fugitive economic offender.