The Central Government in India had introduced the Prevention of Money Laundering Act, 2002 (“PMLA”), to prevent the circulation of laundered money. The Act defines money laundering as any process or activity connected to proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as legitimate property. While the PMLA Act allowed for confiscation and seizure of properties obtained from the laundered money, such actions were still subject to the processes of criminal prosecution. This led to many of the persons accused of money laundering, to flee the jurisdiction of Indian courts to avoid criminal prosecution under PMLA and the consequent confiscation of the properties.

On March 12, 2018, the Indian government introduced the Fugitive Economic Offenders Bill, 2018 (“Bill/Proposed Act”), in the Lok Sabha, after receiving approval from the Cabinet, to address the issue of such economic offenders avoiding criminal prosecution. The Bill defines a ‘fugitive economic offender’ as any individual against whom a warrant for arrest in relation to economic offences, under various statutes, listed in a schedule to the Bill (“Scheduled Offence”) has been issued, on or after the enactment of this Bill, by any Indian court, and who:

  • Has left India to avoid criminal prosecution, or
  • Being abroad refuses to return to India to face criminal prosecution.

Pertinently, in 2015, the definition of proceeds of crime in the PMLA was amended to include property equivalent to proceeds of crime held outside the country.

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Globally, regulatory authorities have developed a keen interest in the pharmaceutical industry. Recent enforcement actions, including the cases of GlaxoSmithKline, Johnson & Johnson, Valeant Pharmaceuticals, Abbott Laboratories etc., have paved the way for regulatory agencies to dig deeper into the malpractices prevalent in the pharmaceutical industry.

Back in 2014, the total pharmaceutical revenues worldwide had exceeded one trillion U.S. dollars for the first time. Increased competition owing to the growing size of the industry has noticeably increased the complexities of operations, sales and marketing, which in turn have led to an alarming spike in malpractices by stakeholders involved at various levels in the industry.

With the growth of the pharmaceutical industry and the unavoidable by-products that result from it, the industry is currently faced with a number of schemes that have been tailored to manipulate and defraud enforcement agencies and the public at large. The present article aims to identify the most common ‘red flags’ and fraudulent schemes that plague the pharmaceutical industry in India. Sufficient awareness about these fraudulent schemes is essential to equip auditors with a more focused and effective audit plan.

Red Flags and Fraudulent Schemes

The Indian pharmaceutical industry is faced with a number of challenges from a compliance point of view. The most prevalent fraudulent schemes in the industry relate to year-end targets, sales returns, etc., which are used as a veil to effectuate concerns around channel stuffing, free of cost products, free samples, fraud.

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Introduction

The battle against financial fraud and malpractices has significantly intensified over recent years. Globally, governments are establishing stricter regulatory frameworks and compliance standards to combat fraud in commercial transactions. A manifestation of such heightened awareness and regulatory action in India is evident under the provisions in relation to the Serious Fraud Investigation Office (SFIO) introduced under the Companies Act, 2013 (the Act) and Rules thereunder. These provisions bring with them implications for companies, which need to be fully understood and preventative steps taken to avoid any suspicion of fraud and consequent arrests. In the following paragraphs, we have analysed key aspects of the newly introduced Rules and the steps that must be taken by corporates to avoid any adversity under the same.

Under the provisions of the Act, the SFIO has been established by the Central Government as a multi-disciplinary office consisting of experts from diverse fields. The SFIO has been empowered to investigate serious cases of ‘fraud’, as defined under the Act. Furthermore, under the recently notified Companies (Arrests in Connection with Investigation by Serious Fraud Investigation Office) Rules, 2017 (the SFIO Rules or Rules), the SFIO has been empowered to arrest any person if believed to be guilty of fraud. The legislative intent behind these provisions and the wide-ranging powers granted to the SFIO is certainly clear. The power of investigation coupled with the power to arrest any person ‘believed to be guilty of fraud’ indeed equips the SFIO with potent powers to combat the menace of corporate fraud, which is deeply entrenched into and plagues our economy.

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Diwali is one of the most anticipated and celebrated festivals in India. It is also a festival of giving gifts, which is often a challenge for compliance professionals who struggle with policies and nuances of law around this time, on giving gifts that might seem like bribes.

Under the Prevention of Corruption Act, 1988 (PCA), the principal anti-bribery and anti-corruption statute in India, giving and receiving any form of pecuniary gratification may imply criminal penalties for both the bribe-giver and the public official. Furthermore, according to the conduct rules of various government departments, government servants are obliged to report receipt of gifts that go beyond prescribed monetary limits..

Gifting per se is not an illegal activity under Indian law. Under the PCA, the determining factor that separates a gift from a bribe is whether the gift was made with an expectation of quid pro quo. Furthermore, it must be clarified that the various conduct rules do not prescribe a de minimis or a minimum monetary threshold up to which a gift is seen as unquestionable. The conduct rules (as may be applicable to different public officials) merely provision for reporting obligations on behalf of the government servant, in cases where the pecuniary value of the gift received exceeds a certain limit.

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One of the key tenets of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability is strengthened not just by efficient management and robust disclosure policies, but also by the creation of systems and processes to detect and address internal instances of fraud and corruption.

Whistleblowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The existence of this class of facilitators is well recognised in the Indian legislative framework. Under section 177(9) of the Companies Act, 2013, it is mandatory for every listed company to establish a vigilant mechanism for directors and employees. Furthermore, the revised clause 49 of the listing agreement mandates that the company must establish a whistleblower mechanism with adequate safeguards against victimisation of whistleblowers.

Whilst immensely beneficial, tipping off/whistleblowing comes with its own set of unique challenges for the company, the alleged wrongdoer as well as whistleblowers themselves. While there is no ‘one size fits all’, certain aspects, as detailed below, should be considered by any company seeking to establish a whistleblower mechanism: Continue Reading Who Can Hear The Whistle Blow? Whistleblowing And Its Impact On Corporate Governance In India

On July 11, 2016, the President of the Queen’s Bench accorded final approval to the second Deferred Prosecution Agreement (DPA) entered into by the Serious Fraud Office of the UK (SFO). Through this short post, we seek to examine the DPA, what such approval of the DPA means and its significance for UK owned/based companies in India (Indco) that are subject to the provisions of the UK Bribery Act, 2010 (UKBA).

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