Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Anti-Corruption volume discussing topics including enforcement priorities, compliance programmes and individual vs corporate culpability within key jurisdictions worldwide.
GTDT: What are the key developments related to anti-corruption regulation and investigations in the past year in your jurisdiction, and what lessons can compliance professionals learn from them?
Aditya Vikram Bhat: In a significant development, India’s primary anti-corruption legislation, the Prevention of Corruption Act 1988 (PCA) was amended to introduce several changes.
Among the key changes, giving bribes to a public servant is now a direct offence. Prior to the amendment, the PCA primarily criminalised the receipt of bribes by a public servant, and a bribe giver could be penalised under the PCA only for abetment of the offence committed by the bribe recipient. However, following the amendment, the act of giving any undue advantage to another person (directly or through a third party) to induce or reward any public servant to improperly perform any public duty, is an offence by itself. The term undue advantage includes any gratification (other than legal remuneration) and is not limited to pecuniary gratification or gratification capable of estimation in monetary terms. Exceptions have been included for persons who are compelled to give an undue advantage, provided they report doing this to the authorities within seven days; and for persons who offer or give a bribe after informing the authorities (in order to assist the authorities in an investigation against the bribe recipient). However, the amendments have done away with the immunity previously available under section 24 of the PCA for a bribe giver who provided a statement during a corruption trial against a bribe receiver.
The amendments have introduced clarity on offences by public servants. The PCA now provides that a public servant obtaining, accepting or attempting to obtain any undue advantage will be held guilty, if the act is done with the intent to perform or cause the performance of public duty improperly or dishonestly; as a reward for improper or dishonest performance of any public duty; or for inducing another public servant to improperly or dishonestly perform a public duty. It has been further clarified that obtaining, accepting or attempting to obtain an undue advantage will itself constitute an offence by a public servant, even if the performance of public duty is not improper. Therefore, receipt of facilitation payments for routine acts would continue to be an offence for a public servant under the PCA.
The amendments also address offences by commercial organisations. India already recognised the principle of corporate criminal liability; however, the amendments expressly provide that under the PCA, a commercial organisation (which includes foreign entities conducting business in India) will be liable to a fine, if any person associated with it provides or offers any undue advantage to induce or reward any public servant intended at obtaining or retaining business or advantage in the conduct of business, for that commercial organisation. A person is considered to be associated with a commercial organisation if he or she provides services for or on behalf of it (and this is a question of fact, and may include an employee, agent or subsidiary). An employee is presumed to have performed services for a commercial organisation unless the contrary can be proved. The amendment has also introduced an ‘adequate procedures’ defence for commercial organisations. However, the government has not yet issued guidelines regarding the compliance measures that have to be undertaken to benefit from this defence.
In another key change, vicarious liability of directors and senior management has also received attention. The Supreme Court of India had previously held that there is no vicarious criminal liability of senior management or directors for offences committed by a company unless a statute specifically provides for it, and that the acts of a company cannot be attributed and imputed to persons (including directors) automatically. Further, it had held that an individual can be accused (along with the company) only if there is sufficient evidence of his or her active role coupled with criminal intent. The recent amendments to the PCA have now incorporated vicarious criminal liability as a statutory provision, which states that if any offence is committed by a commercial organisation with the consent or connivance of any of its directors, managers, secretaries and any other officers, then these persons will also be liable to imprisonment and fine.
Following the amendments the government has been given powers to attach or confiscate any money or property that has been procured by means of an offence under the PCA.
Finally, the offences listed under sections 7 to 14 of the PCA (including the offence of bribing a public servant, whether by an individual or a commercial organisation) have been included as predicate offences under the Prevention of Money Laundering Act 2002 (PMLA) therefore proceeds from these offences have been brought within the ambit of Indian anti-money laundering laws.
In another important development, India has recently enacted the Fugitive Economic Offenders Act 2018 (FOEA), which targets fugitive economic offenders against whom an arrest warrant has been issued for certain predicate economic offences involving 1 billion rupees and who have either left the country to avoid criminal prosecution or are abroad and refuse to return to face criminal prosecution. Predicate offences under the FEOA include cheating and counterfeiting under the Indian Penal Code 1860, offences under the PCA, PMLA, corporate fraud under the Companies Act and tax evasion. The FEOA provides far-reaching powers for immediate confiscation of all properties of any abscondee, which is intended to act as a strong deterrent against any desertion from the country.
There is also greater intelligence sharing between departments of the government that may have access to different pieces of information on the same transaction or entity.
For compliance professionals, these changes are indicative of the intent of Indian authorities to pursue corruption cases against corporates as well as high-profile individuals, and are intended to arm the authorities with additional (and more effective tools) to be able to do so. Often, even ‘innocent’ parties to a transaction or a structure that is being investigated for violation of anti-corruption or anti-money laundering laws are subjected to a rigorous inquiry to establish lack of knowledge or intent. Equally, assets that may be tainted by association with proceeds of crime may be attached even in the hands of innocent parties. Therefore, compliance professionals need to be mindful of these factors while advising clients in context of transactions as well as legal proceedings.
GTDT: What are the key areas of anti-corruption compliance risk on which companies operating in your jurisdiction should focus?
AVB: Assessment of compliance risk and implementation of compliance programmes needs to be a dynamic and ongoing process. Risks can be specific to sectors and geographies and it may not be possible to identify key areas. However, there are a few points worth making:
India has historically been (and continues to be) a country with ‘big government’. Apart from its sovereign functions (law enforcement, taxation, etc), the government and its agencies are significant market players in several facets of corporate life such as banking, infrastructure, telecoms, surface transport, railways and education. To emphasise the point, the role of the government as a market player in these and other sectors is distinct from its sovereign role in regulating these sectors. Therefore, firms in India tend to have frequent interactions with the government in different forms – as a regulator, as a customer, as a vendor or service provider, as a landlord, etc. Often, compliance programmes fail because they do not take into account the full gamut of the company’s interaction with the government, either directly or indirectly. It is important that a complete assessment of all government interaction be put in place to ensure that a compliance programme is robust.
A second aspect is that legislation and case law are rapidly changing the anti-corruption landscape in the country. This trend has existed for the past few years. Companies often fail to update their compliance programmes to conform to changes in the law. For example, in light of recent amendments to the PCA, it is important that compliance officers in companies and multinational organisations update their compliance policies once the government has issued guidelines regarding the compliance measures that have to be taken to benefit from the adequate-procedures defence under the PCA, to ensure that their internal policies are aligned with the prescribed guidelines.
Companies also need to stay abreast of the development of the concepts of corporate criminal liability and vicarious liability of the persons in charge of the affairs of the company in designing and implementing compliance programmes and identifying risks. Further, compliance programmes also need to take into account and address local customs, such the exchange of gifts on festivals or occasional favours – while these may be socially acceptable practices, they may not be strictly consistent with the compliance regimes or anti-corruption laws. Therefore, companies must proactively educate and train employees in this regard.
There is more emphasis on the implementation of whistle-blower mechanisms now. Directors and auditors have the responsibility to report fraud – the definition of which is fairly wide under the Companies Act 2013 and includes instances of corruption. Similarly companies accessing certain debt capital markets are required to implement a whistle-blower mechanism.
“We have seen the Indian authorities take note of settlements entered into by multinational corporations with offshore regulators.”
GTDT: Do you expect the enforcement policies or priorities of anti-corruption authorities in your jurisdiction to change in the near future? If so, how do you think that might affect compliance efforts by companies or impact their business?
AVB: We expect the trend of aggressive and expansive enforcement of anti-corruption laws to continue. Further, in light of recent changes to the PCA, we expect there to be an increased focus on enforcement related to private individuals and corporates. This would mean a focus on robust internal processes and their enforcement, and corporates will have to be mindful that they may be held liable not only for the actions of their employees, but also for the actions of any person performing services for them or on their behalf (including agents and subsidiaries), regardless of the formal relationship with that person. The introduction of an adequate procedure defence under the PCA is also likely to be a critical factor for corporates, as it provides a safe harbour for corporates against unauthorised acts (provided the relevant corporate is in compliance with the guidelines that will be issued by the government in this regard).
GTDT: Have you seen evidence of continuing or increasing cooperation by the enforcement authorities in your jurisdiction with authorities in other countries? If so, how has that affected the implementation or outcomes of their investigations?
AVB: Yes. We have seen the Indian authorities take note of settlements entered into by multinational corporations with offshore regulators such as the US Department of Justice, and open investigations into the Indian businesses of these corporations.
Enforcement agencies appear more willing and able to unravel complex corporate and transactional structures to determine whether a structure, or any part of it, has been used to contravene anti-corruption and anti-money laundering laws. There is also increased willingness to invoke treaty mechanisms to seek information from foreign governments. For example, India is a signatory to the Convention on Mutual Administrative Assistance in Tax Matters, and has agreed to implement the Common Reporting Standard for automatic exchange of tax and financial information. India is part of the first phase of countries implementing this protocol.
These steps are an obvious response to occasions in the recent past where corrupt payments have either been shrouded in complex corporate or transactional structures or have simply been ‘offshored’, or both. This ties in with the larger efforts of the Indian government to target undisclosed income or ‘black money’, including through the enforcement of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015. This Act imposes high penalties for non-disclosure or inaccurate disclosure of foreign income and assets, wilful attempt to evade tax, failure to furnish requisite returns, etc. The enactment of the Fugitive Economic Offenders Act 2018 (as discussed earlier) is also a reaction to recent instances of high-profile persons accused of economic offences parking themselves offshore, allegedly to avoid prosecution in India. Indian authorities have demonstrated an inclination to apply for and pursue requests for the extradition to India of these individuals to face prosecution.
We expect this trend to continue and to result in higher rates of conviction for corruption, money laundering and other economic offences, and consequently we should see a related increase in the disgorgement of proceeds of crime. Offending parties should reconcile themselves to the idea that the days of hiding corruption behind transactional structures and offshoring are probably numbered!
GTDT: Have you seen any recent changes in how the enforcement authorities handle the potential culpability of individuals versus the treatment of corporate entities? How has this affected your advice to compliance professionals managing corruption risks?
AVB: As we mentioned earlier, following the amendment of the PCA, we have seen developments in the law on both corporate criminal liability and the vicarious liability of those in charge of companies’ daily affairs.
Under the PCA, a commercial organisation (which included foreign entities conducting business in India) is now liable to a fine, if any person associated with it provides or offers any undue advantage to induce or reward any public servant intended at obtaining or retaining business or advantage in the conduct of business, for the commercial organisation.
A person is considered to be associated with a commercial organisation if he or she provides services for or on behalf of the commercial organisation – this is a question of fact, and is not merely a consequence of the relationship between the person and the organisation. Therefore, a ‘person associated with the commercial organisation’ may include an employee, agent or subsidiary. It is presumed that an employee has performed services for the commercial organisation unless proven otherwise.
Also as mentioned, with regard to liability of senior management or directors for offences committed by a company, the PCA now clearly states that if any offence is committed by a commercial organisation with the consent or connivance of any of its directors, managers, secretaries and any other officers, then those persons will also be liable to imprisonment and fine.
A major challenge faced by the large companies in the implementation of compliance programmes will lie in monitoring their individual employees, agents, consultants and other intermediaries. We are often called to advise on ring-fencing a company and its management from liability for actions of renegade individuals. This will assume particular importance in relation to the development of the adequate-procedures defence we have discussed already.
“Enforcement agencies have demonstrated both a willingness to request personal data and the technical capability to interrogate it in the course of enforcement actions.”
GTDT: Has there been any new guidance from enforcement authorities in your jurisdiction regarding how they assess the effectiveness of corporate anti-corruption compliance programmes?
AVB: Until recently, the PCA did not include any express safe harbour provisions for corporates, and therefore the authorities did not issue any guidance regarding corporate compliance programmes. However, as discussed, recent amendments to the PCA have introduced an adequate procedures defence for commercial organisations. The language of this provision suggests the government will issue guidelines complied with which will be mandatory for commercial organisations to be able to benefit from this defence. Although there is no indication at present as to when the guidelines will be issued, this is a development that compliance professionals should watch closely.
GTDT: How have developments in laws governing data privacy in your jurisdiction affected companies’ abilities to investigate and deter potential corrupt activities or cooperate with government inquiries?
AVB: Data privacy in India is governed by the Information Technology Act 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the IT Rules), which deal with the collection, storage and disclosure of sensitive personal data or information in India. Sensitive personal data includes passwords, financial information and biometric information.
However, the IT Rules provide that sensitive personal data or information should be shared with government agencies mandated under the law to obtain information (including sensitive personal data or information) for the purpose of verification of identity, or for prevention, detection, investigation including prosecution, and punishment of offences. Once the government agency sends a written request that clearly states the purpose of seeking the information and undertakes not to publish or share the information with another person, the disclosure will be made.
Enforcement agencies have demonstrated both a willingness to request personal data and the technical capability to interrogate it in the course of enforcement actions. They have also started enlisting the help of specialists, such as private forensic auditors.
The Inside Track
What are the critical abilities or experience for an adviser in the anti-corruption area in your jurisdiction?
The anti-corruption landscape in India has seen rapid changes in recent times. India’s primary anti-corruption legislation, the Prevention of Corruption Act 1988, was recently amended to introduce several changes. Keeping abreast of the law is an obvious but critical qualification for an adviser to have.
It is equally important for a compliance adviser to have multidisciplinary knowledge, as a lawyer advising on an anti-corruption investigation can simultaneously require knowledge of civil, criminal and constitutional law. An adviser in an investigation is often required to understand accounting, taxation, technology and commerce.
What issues in your jurisdiction make advising on anti-corruption compliance unique?
There are several factors that make anti-corruption compliance unique in India – it is a big country geographically, with a large and diverse population. It follows a federal system of government with extensive federal state and local governments having wide discretionary powers to legislate and enforce laws on a variety of subjects. The government is also a significant market player in a number of sectors. All of this makes India a complex business and regulatory environment to operate in, and this environment is seen as a breeding ground for corruption. Although laws and enforcement trends are rapidly changing, there has been a historical perception that a certain level of corruption was acceptable, and expected, in India.
What have been the most interesting or challenging anti-corruption matters you have handled recently?
While the details of most of the anti-corruption matters we deal with are confidential, the firm successfully represented Mr Sunil Bharti Mittal before the Supreme Court of India in a petition to quash a prosecution brought against him under the provisions of the Indian Penal Code and Prevention of Corruption Act. The Supreme Court of India in a reported judgment quashed proceedings against Mr Mittal while also clarifying the law on vicarious liability.