Indian anti-corruption laws at the cross-roads

In the coming months, India is expected to bring into force two key pieces of legislation aimed at strengthening its anti-corruption framework: (i) the Prevention of Corruption (Amendment) Bill, 2013 (the “PCA Bill”); and (ii) the Whistle Blowers Protection Act 2011 (the “WBPA”). The PCA Bill, expected to be debated in the Indian Parliament later this year, would amend the existing Prevention of Corruption Act 1988 (“PCA 1988”), bringing it in line with the requirements of the United Nations Convention against Corruption (“UNCAC”).1 Since it was enacted, the PCA 1988 has served as the primary law regulating public corruption in India. The PCA Bill modifies the definitions of taking a bribe; habitual offenders; and abetting the offense of taking a bribe (paying a bribe is not explicitly criminalized under the PCA 1988). Also in this issue: 9 Brazil Further Regulates Its Anti-Corruption Framework 15 SEC Brings First-of-ItsKind Enforcement Action for Agreement that Interferes with Whistleblowing Click here for an index of all FCPA Update articles If there are additional individuals within your organization who would like to receive FCPA Update, please email [email protected] or [email protected] FCPA Update 1 April 2015 Volume 6 Number 9 Continued on page 2 www.debevoise.com FCPA Update 2 April 2015 Volume 6 Number 9 The PCA Bill also proposes the attachment and forfeiture of property procured by corruption, and effects changes to penalties for corrupt behavior. The WBPA was passed by the Indian Parliament on February 21, 2014, and it received the President of India’s assent on May 9, 2014. Despite this history, the Act has not yet come into force because a number of national security and sovereign power issues are yet to be resolved.2 Press reports suggest the WBPA will come into force towards the end of the year. When it comes into force, the WBPA will provide enhanced powers to the Indian authorities to protect whistleblowers who report instances of corruption by public servants. The WBPA hopes to align India’s position on anti-corruption law with those of the United States, the United Kingdom, and Canada, which have long provided legal safeguards against retaliatory behavior against whistleblowers.3 While both pieces of legislation aim to strengthen Indian law relating to corruption, critics have pointed out a number of shortcomings of the laws as currently drafted. Prevention of Corruption (Amendment) Bill The PCA 1988 has been the primary law in India regulating public corruption. It applies to corruption in government and public sector businesses and targets public servants who receive bribes in any form. It does not expressly prohibit the giving of bribes, but instead criminalizes the bribe giver as an abettor to the bribe receiver’s criminal conduct. Given this feature, the law does not match the requirements of UNCAC, which India ratified in May 2011. Hence, Parliament introduced the PCA Bill in August 2013. The key PCA Bill provisions make changes as follows: • Giving a bribe would become a specific offense. The distinction between a coerced bribe giver (someone forced to give a bribe under some kind of pressure), and a collusive bribe giver (someone giving a bribe on his or her own volition) will fall away under the new law. • “Passive bribery” (which includes the solicitation and acceptance of bribe by a public servant through intermediaries) would be made an offense. • Assets obtained through bribery would be subject to seizure by the Government. • Liability will be applied to commercial organizations whose employees bribe public servants. This is probably the most important change. Indian Anti-Corruption Laws at the Cross-Roads Continued from page 1 2. See Garga Chatterjee, “Truth Versus National Security in Land of Satyamev Jayate,” DNA India (Jan. 9, 2015), http://www.dnaindia.com/ analysis/column-truth-versus-national-security-in-land-of-satyamev-jayate-2050968. 3. See, e.g., False Claims Act, 31 U.S.C. §§ 3729-33 (2012); Whistleblower Protection Act of 1989, 5 U.S.C. § 1201 et seq. (2012); Public Interest Disclosure Act, Ch. 23 1998 2 July 1998 (Eng.); Public Servants Disclosure Protection Act, 2005 (Can.). Continued on page 3 www.debevoise.com FCPA Update 3 April 2015 Volume 6 Number 9 Indian Anti-Corruption Laws at the Cross-Roads Continued from page 2 Continued on page 4 While the PCA Bill addresses many important aspects of corruption in India, critics note that several shortcomings remain: • Prosecution of corruption will still require government approval, which causes delay and raises the risk of political interference. • The PCA Bill removes the immunity previously given to bribe givers who provide evidence in corruption matters. This may dissuade bribe givers from assisting as prosecution witnesses. Corporate Liability As noted, the PCA Bill will usher in large changes in how commercial organizations are treated through the establishment of a corporate offense for bribing public officials (the “Corporate Liability Provisions”).4 Sections 8 through 10 of the PCA Bill make “commercial organizations”5 culpable for their employees’ acts. Section 9, clearly and explicitly influenced by the so-called “corporate offence” of the United Kingdom’s Bribery Act 2010 (“Bribery Act”), provides that a commercial organization will be found guilty and punishable with a fine if any person associated with the organization promises or gives financial or any other advantage to a public servant for obtaining or receiving business or an advantage in the conduct of the business for such organization. As with the Bribery Act, commercial organizations have a defense if they can prove they have had “adequate procedures” in place to prevent bribery.6 However, unlike the law in the United Kingdom, there is no provision for the government to give guidance on what constitutes “adequate procedures,” and it remains to be seen whether any will be forthcoming. “[U]nlike the [U.K. Bribery Act], there is no provision for the government to give guidance on what constitutes ‘adequate procedures,’ and it remains to be seen whether any will be forthcoming.” 4. Prevention of Corruption (Amendment) Bill, 2013 (India), proposed new section 9. 5. See id. § 9(3). 6. See id. § 9(1). www.debevoise.com FCPA Update 4 April 2015 Volume 6 Number 9 7. See id. § 10(1). 8. Law Commission of India, The Prevention of Corruption (Amendment) Bill, 2013, Report No. 254 (Feb. 12, 2015). 9. See Prevention of Corruption (Amendment) Bill, proposed new section 1.6. 10. See id. § 1.8. Furthermore, Section 10 of the PCA Bill provides that if any organization has been found guilty under Section 9, “every person” in charge of and responsible for the conduct of the business of the organization at the time of the offense shall be deemed to be guilty of the offense unless they can prove that the offense was committed without their knowledge or that they had exercised “all due diligence” to prevent the commission of the offense.7 It is unclear how the potential offender under Section 10(1) of the PCA Bill can satisfy the “all due diligence” standard to escape culpability. The standard is an amorphous one and overlaps with the “adequate procedures” standard imposed on corporations. It is also unclear what “every person” means. This lack of clarity creates a significant risk of broad individual criminal liability and concomitant duties to perform diligence on an individual level. It should also be noted that since the definition of “commercial organization” extends to corporations outside of India, overseas employees may also be exposed. Another potential issue is the possibility that the Corporate Liability Provisions will apply retrospectively to offenses committed prior to enactment. This potentially exposes employees on an individual level for corporate conduct predating the Act. Recent Anti-Corruption Measures Introduced by theNew Government The WBPA and PCA Bill were both initiatives of the previous Indian government. While the new government of Prime Minister Narendra Modi has generally followed through on the anti-corruption measures introduced by the previous government, it has also sought to put its own stamp on measures. Most significantly, in 2014, shortly after Modi took office, the government decided to submit the PCA Bill to the Law Commission of India for its views. The Law Commission recently published its report8 and criticized the current draft of the PCA Bill for substantially replicating some Bribery Act provisions without accounting for fundamental differences between the Bribery Act and those parts of PCA 1988 that are not expected to be changed by the PCA Bill.9 In particular, while Indian corruption laws apply to public servants only, the Bribery Act applies to public servants and private persons.10 The Indian Law Commission considered it curious that the PCA Bill did not go the extra mile to cover private sector bribery. Further, the Law Commission criticized the Corporate Liability Provisions in the PCA Bill as being overly broad. The Law Commission Continued on page 5 Indian Anti-Corruption Laws at the Cross-Roads Continued from page 3 www.debevoise.com FCPA Update 5 April 2015 Volume 6 Number 9 11. See Pradeep Thakur, “Bill Soon to Criminalize Bribery in Private Sector,” The Times of India (Mar. 2, 2015), http://timesofindia.indiatimes. com/india/Bill-soon-to-criminalize-bribery-in-private-sector/articleshow/46424950.cms. 12. See PTI, “Budget 2015: New Tough and Comprehensive Law on Black Money Proposed Says FM Arun Jaitley,” The Economic Times (Feb. 28, 2015), http://articles.economictimes.indiatimes.com/2015-02-28/news/59612971_1_finance-minister-arun-jaitley-benami-propertyblack-money. 13. See Kaushiki Sanyal, “Legislative Brief: The Public Interest Disclosure and Protection to Persons Making the Disclosures Bill, 2010,” PRS Legislative Research (Jan. 24, 2011), 4, http://www.prsindia.org/uploads/media/Public%20Disclosure/Legislative%20Brief%20-%20 Public%20Interest%20Disclosure%20Bil.pdf. 14. See Mehul Srivastava and Andrew MacAskill, “In India, Whistle-Blowers Pay with Their Lives,” Bloomberg Business (Oct. 20, 2011), http:// www.bloomberg.com/bw/magazine/in-india-whistleblowers-pay-with-their-lives-10202011.html. 15. Whistle Blowers Protection Act, 2011 (India), § 3(d). said only those officials of a corporation whose consent or connivance is proved should be held liable under the Corporate Liability Clause, not “every person”. The government is currently assessing the Indian Law Commission’s report and has announced its plans under separate legislation to amend the Indian Penal Code to criminalize private sector bribery.11 The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, 2011, which prohibits the giving and taking of bribes involving foreign public officials outside India is also pending enactment. Finally, on February 28, 2015, the government announced that a new anti-tax evasion law will be introduced in 2015 to tackle the concealment of income and proceeds from tax evasion, known colloquially as “black money.”12 This proposed law could impose on guilty persons prison terms of up to 10 years and fines of up to 300 percent on the taxes due. Whistle Blowers Protection Act India’s Central Vigilance Commission (“CVC”) – its senior anti-corruption vigilance agency – has maintained a whistleblowing program since 2004 to receive and investigate whistleblower reports and tip-offs, but it has received only a few hundred tips annually. The low reporting rate has been attributed in large part to whistleblowers’ fears of retaliation and intimidation:13 in the last decade, there has been a series of violent and deadly reprisals against whistleblowers in India.14 The WBPA affords protections to persons who report a public servant’s conduct to a designated “Competent Authority” in circumstances in which the conduct constitutes either: (a) the attempt or commission of an offense under the PCA 1988; (b) a willful misuse of power or discretion where the Government has suffered demonstrable loss or where the public servant or a third party has made a demonstrable wrongful gain; or (c) a criminal offense attempted or committed by a public servant.15 Continued on page 6 Indian Anti-Corruption Laws at the Cross-Roads Continued from page 4 www.debevoise.com FCPA Update 6 April 2015 Volume 6 Number 9 16. See id. § 11(1)-(3). 17. See id. § 3(b). 18. See id. § 11(2). 19. See id. § 17. See Sanyal, note 13, supra, at 2-3, 5. 20. Whistle Blowers Protection Act, 2011 (India), § 6(3). 21. See id. § 11(5). The WBPA entrusts the Competent Authority with the responsibility to protect whistleblowers from retaliation or “victimization” and empowers it to issue protective and remedial directions.16 The relevant Competent Authority varies on a case-by-case basis and depends on the public servant against whom a whistleblowing report is made.17 In most cases, the Competent Authority will be the CVC (for central government officials) or the relevant State Vigilance Commission (for state government officials), but the Prime Minister, Speaker of the Legislative Assembly, or High Court of India can also be the Competent Authority in certain circumstances. To invoke the protections of the WBPA, a whistleblower needs only to report that they have suffered victimization. The whistleblower does not need to prove such victimization at the time the report is made; rather, the burden of disproving victimization lies on the respondent public authority.18 If the Competent Authority finds there is victimization or the risk of victimization, it may give directions at its discretion to the public servant or public authority against whom the report is made to protect the whistleblower. As a counterbalance, the WBPA safeguards against abuses of process by providing for jail terms and fines for anyone knowingly making false or frivolous reports.19 The WBPA also imposes some measure of finality on whistleblower allegations; the law provides that a Competent Authority shall not investigate any whistleblowing disclosure made seven years after the action complained against is alleged to have taken place.20 Any person who does not comply with CVC directions under the Act could be liable for a penalty of INR30,000, or about $500.21 Critics have highlighted two major drawbacks to the WBPA: • The powers of the Competent Authority are invoked only on the application of the victimized whistleblower. The WBPA does not define “victimization” and does not provide for sanctions for victimization. As a result, there is no deterrent for public servants against victimizing whistleblowers. The effectiveness of the WBPA in protecting against retaliation therefore depends on how the Competent Authority, particularly the CVC, exercises its Continued on page 7 Indian Anti-Corruption Laws at the Cross-Roads Continued from page 5 www.debevoise.com FCPA Update 7 April 2015 Volume 6 Number 9 22. Harish V. Nair, “Poor Show by CVC in Tackling Graft in Govt Depts Upsets Whistleblowers,” India Today (Feb. 23, 2015), http://indiatoday. intoday.in/story/graft-corruption-government-departments-cvc-prashant-bhushan-parivartan-supreme-court-whistleblowerscbi/1/420418.html. 23. Whistle Blowers Protection Act, § 4(6). 24. See id. §§ 5(2) and 7(4). 25. See id. § 5(1)(b). See also id. § 13. 26. See id. § 16. 27. See The Serious Organised Crime and Police Act 2005 (UK), §§ 71-75. discretion in applying directions. Yet under existing law, the CVC has taken action on only a small proportion of cases referred to it.22 • The WBPA does not allow anonymous reporting,23 although it requires that the identity of the whistleblower be kept confidential24 except in circumstances in which the whistleblower himself has already disclosed it to another office or authority when making his report.25 Any person disclosing a whistleblower’s identity without proper approval is liable to imprisonment or a fine.26 Nonetheless, the lack of anonymity is out of step with the whistleblower legislation in the United States, England and Wales, and Canada. The WBPA also does not provide whistleblowers with a monetary incentive for whistleblowing, unlike the United States, but like many other countries. Whistleblowers might also be deterred by the risk of criminal sanction (e.g., for making a false or frivolous report) or civil action (e.g., for defaming a public servant). The WBPA does not exempt them from these liabilities. Finally, the WBPA contains no provision for leniency for whistleblowers who were themselves involved in the corrupt behavior. This is unlike the United Kingdom, which has a leniency policy27 that has been influenced and shaped by the United States Department of Justice’s amnesty regime for whistleblowers. Given these shortcomings, it is unclear to what extent the WBPA will incentivize whistleblowing. Continued on page 8 Indian Anti-Corruption Laws at the Cross-Roads Continued from page 6 “The WBPA does not define ‘victimization’ and does not provide for sanctions for victimization. As a result, there is no deterrent for public servants against victimizing whistleblowers.” www.debevoise.com FCPA Update 8 April 2015 Volume 6 Number 9 Conclusion Overall, the PCA Bill and the WBPA evidence India’s deliberative approach towards tackling corruption. When finally passed into law, they will constitute positive steps in the direction of modernizing India’s anti-corruption laws. They will reinforce the message that organizations should take anti-corruption compliance seriously. For the rest of 2015, the international legal and business communities will wait to see whether the Law Commission’s recommendations on the PCA Bill are adopted and whether criticisms of the WBPA are addressed before enactment. Whatever form the PCA Bill and WBPA finally take, the relevant enforcement authorities in India must be adequately resourced and empowered and must ensure that their independence is safeguarded. If this is achieved, India can legitimately claim to be moving towards a robust anti-corruption regime in line with international best practices. Karolos Seeger Matthew Getz Saqib Alam Sebastian Ko