Not Just Old Wine In A New Bottle –Global Companies and the New Fortified Anti Bribery Regime

India’s anti-bribery and anti-corruption (ABAC) regime went through a massive change recently. After years of deliberation, the Indian parliament has enacted the Prevention of Corruption (Amendment) Act, 2018 (Amendment Act), bringing about crucial changes that could really impact the way companies do business in India. Below, we analyse the impact of the recent amendments and explain the measures that companies need to put in place to ensure compliance.

The amendments brought in by the Amendment Act are prospective in nature and take effect from the date the legislation received presidential assent – i.e. July 26, 2018. Hence, companies currently doing business in India need not retrospectively assess their compliance with the requirements introduced by the Amendment Act and shall only be regulated by these provisions prospectively.

Offence of Giving Bribes

The most significant change that the Amendment Act brings about is in the nature of bribery offences. In the earlier avatar of the Prevention of Corruption Act (PCA), giving a bribe was merely an indirect offence, i.e. it was punishable as abetment to the offence of acceptance of bribes by a public official. So, effectively, the offence of giving a bribe was hinged upon the bribe taker being prosecuted and punished. With the Amendment Act, however, giving or promising to give a bribe or ‘undue advantage’ to a public servant is now a distinct offence. This, in our opinion, means that the number of prosecutions and convictions will increase: companies need to watch out for a likely rise in enforcement activity.

However, it is noteworthy that in cases where a person is compelled to give an undue advantage, he shall not be prosecuted if he reports the matter within a period of seven days from the date of giving the undue advantage. This provision, therefore, allows for a defence in cases where a person is coerced into giving a bribe to a public official. The newly created offence of giving of bribe is punishable with imprisonment for a term that may extend to seven years, a fine or both.

Offence of Bribery by Commercial Organisations

Prior to the Amendment Act, the PCA wholly lacked any provision in relation to the the liability of commercial organisations for bribery committed by its employees, agents or other associated third parties. So, in effect, the erstwhile law neither incentivised compliance nor contained a provision providing for corporate criminal liability. However, the Amendment Act has introduced a specific set of provisions regulating the conduct of, and laying down requirements for, commercial organisations carrying on business in India. Section 9 of the amended PCA creates the offence of bribery by commercial organisations and provides that a commercial organisation shall be fined if any person associated with such commercial organisation bribes a public servant. This means that the legislation now explicitly targets companies and in absence of an affirmative defence, companies will be liable for payment of bribes.

Furthermore, the capacity in which the person performs services for or on behalf of the organisation is immaterial and such organisation may be penalised irrespective of whether such person is an employee, agent or subsidiary of such organisation. The corollary is that if an Indian subsidiary of a non-resident multinational corporation commits the offence of bribery, the parent company may also be held liable for the offence.

This provision will have far reaching consequences, adding to the existing compliance burden of multinational corporations operating in India, especially those that are subject to legislations such as the Foreign Corrupt Practices Act (FCPA), UK Bribery Act etc. Also, the legislation for the first time has clearly enshrined liability for acts of agents and associated third parties. In India, any commercial organisation has to engage multiple third parties – sometimes very small “mom and pop shops” for interacting with public officials to secure licences or approvals. With this provision, their service performance and conduct may potentially bring upon a liability for the principal and is very important.

Significantly, for the first time, the amended PCA provides a defence to commercial organisations accused of committing bribery. If the commercial organisation is able to satisfactorily prove that adequate procedures to prevent bribery had been put in place, then it shall be a valid defence. While no guidelines have yet been formulated defining what “adequate procedures” would entail, one cannot help but notice that this provision draws inspiration from the provisions of UKBA. This is significant because it brings Indian companies at the same level as that of their global counterparts.

Liability of Management

The Amendment Act’s most significant change for management personnel of a company is the creation of a specific offence where officials of a commercial organisation may also be penalised with imprisonment between three to seven years along with a fine. By specifically introducing such a provision under the Amendment Act, it is likely that the law enforcement authorities and prosecution will come down heavy on the personnel of the commercial organisation while investigating and prosecuting the commercial organisation for acts of bribery.

This, in turn, translates into the need to conduct management-focussed compliance training and workshops, and likely higher premiums for D&O liability insurance. Furthermore, this provision markedly serves as a strong reminder to set the tone at the top and ensure that a zero-tolerance approach to bribery and corruption is clearly communicated to all employees, agents and other associated third parties performing services for or on behalf of the commercial organisation.

So, with all these changes, what does it mean for a global chief compliance officer with significant operations in India? Our cheat list for immediate next steps is as follows:

  • Update your policies – Companies need to ensure that their internal policies are in line with the changed legislative requirements.
  • Re-train key management personnel – With the focus on liability of management personnel, companies need to ensure that management personnel know when to say ‘no’.
  • Ensure that third parties are not only complying in form but in substance as well. These third parties could bring about a potential liability and compliance systems should be geared to address this risk.
  • Revisit the whistle blower hotline and standard operating procedures around the handling of complaints. If a payment is made under duress, it is important for the company to know of it in time to benefit from the provision under which it can report the bribe and secure an immunity for itself.
  • Revisit your compliance infrastructure – Companies need to ensure that adequate procedures, in line with the changed legislative requirements, are put in place.