Corruption in any form is dangerous to society as it impedes and retards its growth. Businesses also get affected by the prevailing corruption in the world everywhere. Recently, the UK has brought about the UK Bribery Act 2010 to take the bull of corruption by its horns. Lex Witness gets you the complete story on corruption and what effects this piece of legislation will have on businesses in India.
With the demand for Janlokpal bill attaining a feverish pitch across the country and Anna Hazare’s call being responded to by a wide cross section of this society, right from labourers to the Dabbawalas to eunuchs to prisoners to sadhus, apart from all other, the tone and tenor of public mood has become so loud that its intent and intensity cannot be missed. It appears that the public at large aspires to bid adieu to corruption with such fervor and passion which has not been seen in the recent times. Though some of us may disagree with Anna Hazare’s method, which has been dubbed by many as political blackmailing, yet the intent of his movement to eradicate corruption from the face of the nation cannot be doubted, and that is why his call has reverberated across the country and almost entire India has joined forces with him. As a result, the government is just not out of its wits but is also trying to find one excuse or the other to deal with him and this kind of political pressure tactics.
It is true that we cannot have the kind of violent revolutions as happened in the Arab states of Tunisia, Egypt, Libya, Syria and Yemen as we have a democracy which functions and a Supreme Court which is concerned about liberty, equality and fraternity and leaves no stone unturned to bring justice to people. So thedanger is certainly for the present UPA government which must pay heed to the prevalent public mood otherwise it will go Hosni Mubarak way. All those movements in Arab states have a striking similarity with the one here. Though, the unrest there had its origin in high rate of unemployment, food inflation, corruption, lack of freedom of speech and other political freedoms.
Corruption as a menace is neither new nor the fight against it, yet whatever laws have been enacted to fight it have always found to be in lacking. On July 1 2011 United Kingdom has brought into force a law titled “UK Bribery Act,2010” which intends to fight it out.
The mood world over seems to communicate that enough is enough and now something drastic must be done touproot the menace. In such a situation, it is pertinent to dissect the evil of corruption, its ill effects, the UK Bribery Act 2010 and its implications for FDI in India and on Indian businesses in UK, National Anti-Corruption Strategy, Comparison of Indian prevention of Corruption Act with the UK Bribery Act and many such other issues which can help India in its fight against not just administrative and political corruption but also corporate corruption.
The Act is being hailed as a significant improvement upon the existing anticorruption legislations world over for it introduces some really revolutionary ideas like liability of a commercial organization for its failure to prevent corruption nationally or internationally, by itself or through associates. It came into force on July 1 2011, aiming at curbing the acts of bribery, be it bribing or being bribed, committed within UK or anywhere else in the world, whereby securing or facilitating an advantage in business or otherwise to a person or a commercial organization.
The net effect of the Act is that, all acts of bribery have been made punishable, whether committed locally or globally. It is the bribing of public officials whether national or foreign, to obtain an improper performance of any act whereby to secure an advantage in business or otherwise to a person or a commercial organization. The ultimate responsibility for the prevention of such acts of bribery is upon the commercial organization which has failed to prevent such acts by itself or through associates. Further, it seeks to do away with the overly technical hair splittingabout the capacity in which the associated person bribes. He may be an employee, agent, subsidiary, etc. The only requisite is that his association has to be established with the commercial organization. And for each such failure the commercial organization is liable to be fined. Further, the Act required the UK government to publish guidance regarding procedures which a commercial organisation can put in place to prevent persons associated with it from bribing.
Now the acts of bribery, howsoever sought to be sugar coated or ameliorated through any verbal ingenuity, like “facilitation payments” cannot prevent the wrath of law for the culprit if it fails the test of reasonableness in a given circumstances.
Every Indian company that conducts part of its business in the UK, as well as other companies operating in India through subsidiaries or joint ventures and that have UK operations, should be concerned about the Bribery Act.
The key reason is that the Act introduces a new offence of failure to prevent bribery by a commercial organisation, which provides that a “relevant commercial organisation” (such as a corporation or partnership) is guilty of an offence if a person associated with it (such as an employee or third party agent) bribes another person intending to obtain or retain business or a business advantage for the commercial organisation in question.
There are three elements of this offence, of which Indian companies should be particularly aware. First, the offence is essentially one of strict liability. The only defence is for the commercial organisation to prove that it had in place “adequate procedures” to prevent bribery. Second, the jurisdictional reach ofthis offence is very wide indeed: it applies not only to businesses that are incorporated in the United Kingdom, but also to foreign businesses that carry on a business, or a part of a business in the UK. Although the relevant provisions have yet to be interpreted by a court, it is possible that carrying on a business through a subsidiary, raising finance or having a branch office in the UK could all be deemed to be “carrying on a business” within the meaning of the Act. Subsidiaries in the UK that are not truly independent of a non-UK (e.g., Indian) parent company or which are controlled through matrix organisations in which non-UK parent entities or affiliates play a role can potentially trigger jurisdiction for the non-UK parent company or even a non-UK (e.g., Indian) sister affiliate. Third, this offence applies to conduct anywhere in the world: a company that is subject to the Act can fall foul of the Act if a person associated with it pays a bribe in India, or, for that matter, in Nigeria, Indonesia, or any other country, and even if the bribery has nothing to do with the company’s UK business.
So what does all of this mean? Imagine an Indian corporation which does business all over the world. It has one subsidiary in the UK and another in Indonesia. There is no relationship between the Indonesian subsidiary and the UK subsidiary. An agent retained by the Indonesian subsidiary pays a bribe to a governmental official in order to help obtain a permit in Indonesia. Subject to the argument that the UK subsidiary is wholly independent of the rest of the corporate enterprise, unless the Indian parent can prove that it has in place adequate procedures to prevent bribery, the Indian parent could be found guilty by a UK court and subject to an unlimited fine for failing to prevent bribery in Indonesia by the Indonesian subsidiary. It is therefore imperative for Indian companies that have any kind of business link to the UK to ensure that they have the necessary procedures in place to prevent bribery, such as a strict policy of zero tolerance and effective due diligence procedures in relation to third party agents.
The effect of the Act on foreign direct investment into India will be that companies subject to the UK Act and looking to invest in India are likely to want to be satisfied that their target investment does not present a bribery risk itself. However, provided that both companies looking to expand existing operations in India, whether by investment in existing operations or through acquisitions, are able to put in place an effective compliance system to minimise the risk that bribes are paid on their behalf, there ought not to be a notable impact on the amount that they are willing to invest. But no mistake can be made here – Indian companies that do not yet have adequate compliance programmes and wish to be considered for acquisitions by companies subject to the UK Act may be in for a rude awakening as acquiring companies will now be looking to see what the costs will be of upgrading the internal controls at potential targets and may be looking to extract price concessions if existing programs are not up to snuff.
The SFO has not given clear indications of particular business sectors on which it will be focusing, and no business sector operating in India, each of which has numerous points of contact with government entities as well as private parties that could form the basis of either public or private bribery charges, should assume that its business model is necessarily low risk. One thing we have learned is that corrupt conduct can surface in any number of contexts, not only to win contracts but for everyday matters such as tax rulings, customs decisions, construction permits, and the like. A sector that does not have significant government customers still may have appreciable enforcement risk.
In terms of allocation of prosecutorial resources, the SFO has stated its intent to focus on prosecuting foreign (i.e., non-UK) corporations that carry on business in the United Kingdom, if it appears that the non-UK corporation has used bribes to obtain business that would otherwise have gone to a UK business. As Richard Alderman, the director of the SFO, has said: “My concern here is fair competition. I want ethical UK businesses to be able to compete on equal terms with businesses whether based in the UK or another country when they do business abroad. I want to be able to support those ethical UK businesses when they find that they are being undermined by companies based elsewhere that use corruption to obtain a competitive advantage.” But again, nothing can be taken for granted; if an appropriate case that falls outside this class of matters arises, it could be the basis for enforcement.
The concept of an “associated person” is a means by which criminal liability can be imposed on a commercial organisation (such as a corporation or partnership) under the offence of “failure of commercial organisations to prevent bribery”. The subject of this offence is the commercial organisation, rather than the associated person himself. This is borne out by the fact that Section 7 expressly states that no conviction of the associated person is required in order for the SFO to prosecute for the corporate offence. An associated person means anyone who performs services for or on behalf of the commercial organisation. This could include, for example, the employee of a joint venture partner, or an agent engaged by a PR agency.
This is not to say, of course, that the associated person (who paid the bribe) could not be held liable for bribery. But here there are different jurisdictional hurdles. If the associated person was a UK citizen, or ordinarily resident in the UK, he could be prosecuted for bribery wherever it took place. A non-UK citizen or resident, such as an Indian national, could also be prosecuted for directly committing an offence under the Bribery Act itself if the conductconstituting the bribery actually took place in whole or in part within the territory of the United Kingdom.
However, assuming that the associated person is an individual and an Indian citizen the UK authorities would have jurisdiction to prosecute that person under the Bribery Act itself only if the conduct constituting the bribery actually took place in whole or in part within the territory of the United Kingdom, or if the associated person was ordinarily resident in the UK. One issue that may arise under the Bribery Act, as it has in some contexts under the U.S. Foreign Corrupt Practices Act, is whether persons and entities whose conduct, even though in breach of local anti-bribery regulations, is beyond the jurisdiction of British authorities under the terms of the Bribery Act’s specific terms could nevertheless be prosecuted for aiding or abetting, or conspiring to violate the Bribery Act. Court decisions in the United States have tended to indicate that this kind of aggressive use of aiding, abetting, and conspiracy theories is contrary to legislative intent, but the issue has not yet been definitively settled in the United States or even raised in the United Kingdom. It is an area in which good lawyering will unquestionably play a role. Companies, individuals, and counsel will want to look to the U.K.’s own presumption against extra-territorial enforcement of its criminal laws, expect where explicitly provided by Parliament. It is worth adding in this context that Section 1(1) of the Criminal Law Act 1977 establishes the offence of conspiracy, and Section 1A introduces the offence of conspiracy to commit offences abroad. For Section 1A to apply, however, it is necessary for some part of the conspiracy to have taken place in the United Kingdom. A conspiracy which takes place completely outside the United Kingdom – but which might lead to liability under Section 7 of the Bribery Act for a corporation failing to prevent bribery – would likely not lead to the UK courts having jurisdiction over the associated person that paid the bribe. The general UK statute on aiding and abetting does not state specifically that it is to apply extraterritorially. Section 8 of the Accessories and Abettors Act 1861 provides that “whosoever shall aid, abet, counsel or procure the commission of any indictable offence, whether the same be an offence at common law or by virtue of any act passed or to be passed, shall be liable to be tried, indicted and punished as a principal offender.” The presumption against extra-territorial enforcement of criminal law would counsel against prosecuting aiding and abetting activity not in itself in part touching UK territory. The fact that the language of the Bribery Act other than that pertaining to the corporate offence (Sections 1, 2 and 6) applies to bribery committed wholly overseas only if the individual or company in question is a UK company, a UK citizen or is ordinarily resident in the UK, however, does not by any means let Indian companies and nationals off the hook. In today’s connected world of commerce, the possibility that some aspect of misconduct will be deemed to take place on UK soil is an ever-present risk, and one to which in-house counsel and compliance personnel, as well as companies and business people generally in India, must well attend.
As we all know the worst implication of corruption is that it distorts the rules of the game by directly favouring some over the others in business, education, public services etc. and every conceivable walk of life. It is probably the way to ensure not just prompt service but to get precedence over others to their disadvantage. And the distorted rules of the game act as a barrier to the entry of certain social classes especially the poor social classes.
National Anti-Corruption Strategy (NACS) is a Central Vigilance Commission initiative with a mission to “channelize, integrate the resources and build synergy into the efforts of all stakeholders in society to promote integrity in governance and progressively eliminate corruption from India through effective prevention, detection and punishment of all corrupt activities” has come out with this strategy for embedding integrity into public life. This strategy which is still in a draft form is an initiative for uprooting the menace through a number of measures. It clearly outlines the state of corruption in the country, matter of factly reviews of existing laws on the point, identifies ways and means of addressing political and administrative corruption and aims at a “shift from this punitive approach to a more holistic preventive and participatory approach”.
But the problem with Indian mindset is that it just needs an opportunity to speak out and it will come up with brilliant analysis of the situation, which wouldtheoretically address all the concerns in most idealistic fashion but when it gets down to brass stacks it flops miserably and all the heat created through such efforts just fizzles out. Same is happening this time as the strategy, though a welcome exercise, seems to be going nowhere on the issue of corruption, as it is neither a legislation nor a guideline, but is merely a “strategy” to inculcate “integrity” into Indians by making the process “participatory” and invoking the citizens of the country to contribute in fighting it out. It talks about some elements of UnitedNations Convention Against Corruption (UNCAC), some elements of UK Bribery Act like inclusion of Foreign Public Officials, etc. But the problem remains the same as this strategy, when adopted, would remain in books like directive principles of the state policy which are paid lip service to when occasion arises then later on conveniently forgotten. Therefore it is an apprehension that NACS would also have the same fate as many other strategies that are biting the dust.
The National Anti-Corruption Strategy is aimed at addressing both petty and grand corruption, from both demand and supply side and using both punitive and preventive measures. Petty corruption primarily occurs in the delivery of public services and has the most devastating effects especially on the poor and helpless. Citizens are made to pay bribes for receiving basic services from the state which is rightfully due to them. The best strategy to address this is prevention. This would involve computerisation of all activities involving delivery of public services on a mission mode and adoption of technology to reduce direct interface between the citizens and the public officials. This would minimise discretion, subjective intervention of public authorities and enhance objectivity. The potential of the Unique ID project should be fully exploited for this purpose. This should be coupled with simplification of rules and procedures so as to make them citizen friendly and avoid the need for the citizens to approach public officials for intervention. On the supply side the strategy promotes the involvement of citizens and Civil Society Organisations in keeping vigil through means like social audit on government programmes. Citizens should also be persuaded and convinced to desist from paying bribes through awareness and education campaign. These measures need to be supplemented by punitive action wherein citizens should be empowered to resist and report the demand for bribes through mechanisms like “Anti Bribery HotLines” which should then be followed by prompt action.
To tackle grand corruption, the NACS advocates the adoption and enforcement of code of ethics among members of political parties, legislatures and parliament; avoiding conflict of interest in appointment to public offices which includes ministers and higher bureaucracy. According to NACS disclosure of source of funding and the annual financial statements of the political parties should be made mandatory. Concealment of ill gotten wealth should be made difficult by ensuring traceability and transparency of all transactions and investments through the use of instruments like UID, Benami Act and Anti-Money Laundering provisions. There should be a promotion of transparency, objectivity and merit in selection and appointment to important public offices including the regulatory bodies. Transparent and participative policy making should be in place so as to avoid defective policies which favour a few business interests or which are vulnerable to exploitation by the corrupt. Strengthening the independence and integrity of regulatory bodies coupled with independent evaluation of the performance and effectiveness of regulatory bodies in achieving fair play in regulation of business in their sectors.
The most effective action to prevent grand corruption would be to choke the supply lines of corruption. Therefore to address the supply side of grand corruption the NACS aims at leveraging the dissatisfaction or discomfort of the corporate sector to corruption and encourages the private sector to regulate itself voluntarily to work for a corruption free market based transaction system. On the punitive front creation of a Lokpal, introduction of legislation to recognise the offering of bribes as an offence should act as deterrence and increase the risk of indulging in corrupt practices for the private sector. The ratification of UNCAC by India and the existence of various international instruments to prevent bribery in international business transactions is already putting pressure on the corporate world.
The Lokpal which is being conceived would only be a punitive body. It is a basic fact that corruption can be addressed more effectively and efficiently through preventive means. Ethics has to be built into the very system of governance, work culture and ethos of the public servants as well as citizens. This is just as quality can only be built into a product during production by a quality conscious worker and cannot be enforced externally through inspection. This requires generation of awareness and inculcating the value of ethics in society. A Lokpal may not be able to undertake these measures. That is why since the late eighties most of the developing countries have created some form of Independent Anticorruption Commissions which undertake the three essential activities to root out corruption; punishing the corrupt through an independent investigating and prosecuting agency; carrying out preventive measures in various sectors; and eliciting citizen participation through generation of awareness.
On impact on business opportunities in India and abroad of UK Bribery Act 2010
The UK Bribery Act is extra territorial in nature and covers companies incorporated anywhere in the world which carries on business in the UK. Indian entities having business presence in UK are covered by this act and may be prosecuted even if the bribe is paid outside UK directly or indirectly through employees, agents or third parties.
With the recent increase in M&A activities involving Indian entities, there could be inherited liabilities for the acquirer under the UK Bribery Act for the bribes which the acquired/target company may have paid in the past. Indian entities having joint ventures, Investments, Collaboration with entities covered by the UK Bribery act may face the challenges of complying with this Act as else they may have to face the UK regulators.
More and more Indian entities are now going global by exploring business opportunities abroad need to make a paradigm shift in the way these entities have operated in the past, particularly ensuring that they set the ethical culture and tone of the top; perform adequate due diligence while appointment and dealing with agents and intermediaries; perform periodic assessment for corruption risk; and perform training and spread awareness for compliance
The entities covered by the UK Bribery Act will need to take proactive measures appropriate to the size and nature of the business of their respective organisations to prevent bribery and corruption by both their employees and those who act on their behalf, as the only defense available to companies charged with the offence under this Act is to demonstrate that they have “adequate procedures” in place to prevent bribery.
The most striking feature of the UK Bribery Act is that it does not bother itself too much about the definition issues like who is a “Public Servant”, what is a “Public Duty”, as is the problem with POCA, which are used by our ingenious lawyers to interpret to defeat the intent of the law. Instead, unlike POCA, the UK Act simply identifies certain acts, which if resorted to, to influence performance of an act improperly contrary to an expectation test laid out in the act then such act constitute bribery. The only test for charging any transaction as corrupt transaction is its failure to pass expectation test and an act being improperly performed for money or other favour.
The simplicity and to-the-point conceptualization of the corrupt acts described through illustrations is a big plus of the Act and should be emulated by our legislators. Secondly, it does not classify acorrupt act as a corrupt act by a public official or a private person, an act if improperly done, tested on the touchstone of “expectation test” and money or any other advantage, constitutes the act of corruption.
The other most important aspect of this law is it does not seek to distinguish private from public corruption. According to it a corrupt act is a corrupt act whether done by a private person or a public person. This is probably the most important aspect of this law and holds tremendous value for India. As India is gradually privatizing public functions from education to electricity, water supply, housing, etc., which in the coming times would be dominated by the private sector, therefore, seeking to address the corrupt acts of only “Public Servant” is a grossly inadequate measure, hence, India must make suitable legislative changes to criminalize corruption of the private sector and provide for suitable legal mechanisms to fight it out. Like the UK Act, India should simply hold a commercial organization liable for failure to prevent bribery and it would greatly address the issue of corruption in the country.
The UK Bribery Act, 2010 is a brilliant piece of legislation which is simple yet profound in its conceptualization and criminalization of the different forms of corruption be it public, private, domestic, foreign, or done by corporate or NGOs. It should be studied closely to see how effective it is in fighting out the menace of corruption. India must adopt some important aspects from it to conceptualize and criminalize all forms of corruption whether private or public, domestic or foreign, otherwise the words of a Scythian sage, Anacharis, (600 B.C.), on law would hold true “laws are just like spiders’ webs; the small and the feeble may be caught and entangled in them but the rich and mighty pierce through and despise them”. Lastly, the resolve of the British that bribery has no place in British business, at home or abroad, seems to be the inspiration behind UK Bribery Act reflecting the UK’s role in the fight against bribery, paves the way for competitive but fair practice. As it is thought that over time it will have a positive impact on the prospects of UK businesses through enhanced reputation for ethical standards, reduced costs and an international levelplaying field should also be our resolve especially in an environment when winds of change are blowing across nation.
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