Priyanka's Blog

February 3, 2010

The [Indian] Prevention of Corruption Act, 1988: A bird’s eyeview

Filed under: Anti Corruption — P S @ 11:52 am

 Scope: Primary legislation dealing with corruption in India

 Offences: Makes it an offence for a public servant to accept, obtain or agree to accept or attempt to obtain any gratification other than legal remuneration as a motive / reward for doing / forbearing to do any official act or for showing favour / disfavour in any official act. Receiving gratification as a motive / reward for purpose of inducing a public servant by corrupt or illegal means or by the exercise of personal influence is equally an offence. The term “gratification” is not restricted to pecuniary gratification or to gratification estimable in money.

 Penalties: Imprisonment for six months, extendable to five years, and / or fine, and / or both


FCPA in a nutshell

Filed under: Anti Corruption — P S @ 11:49 am
Title: Foreign Corrupt Practices Act, 1977 of the United States of America

History: Passed as a result of Congressional hearings addressing corporate slush funds, illegal campaign contributions and international bribery.

Purpose: It is considered as the first aggressive anti-bribery statute among developed nations.

Prohibits: The FCPA prohibits offer, payment, promise or authorization to pay anything of value to any foreign government official for purposes of influencing any act or decision in order to obtain or retain business

Requires: Issuers must make and keep accurate books and records, devise and maintain a system of internal accounting controls.

Jurisdiction: All “issuers”, i.e. corporations that issue securities registered in the United States or who are required to file periodic reports with the Securities & Exchange Commission (SEC); Foreign Companies with ADRs listed on U.S. exchanges, U.S. based private companies; Employees of these entities.

Enforcement: Criminal violations are prosecuted by the U.S. Department of Justice (DOJ); Civil violations are enforced jointly by the SEC and DOJ


FCPA Compliance Challenges for US Companies doing business in India

Filed under: Anti Corruption — P S @ 11:43 am

The past few years have seen a spate of FCPA enforcement actions against US Corporations with imposition of unprecedented fines and penalties of both quantum and value. In 2008, Siemens paid the largest penalty to date – $800 million. U.S. enforcement agencies have also imposed significant penalties against other companies such as Baker Hughes Inc. ($44 million), ABB Ltd. ($10.5 million), Westinghouse Airbrake Technologies Corporation (Wabtec) ($3,00,000), and The Dow Chemical Company ($325,000). The trend is reflective of the increasing focus of U.S. enforcement agencies on corrupt business practices by companies including those operating in India. Given this scenario, multinational companies cannot afford to ignore the FCPA in their India operations.

In October 2009, the Indian media highlighted a letter written by the Indian ambassador to the United States, Ms. Meera Shankar to the Prime Minister’s Office in India where she provided details of US based firms who had allegedly paid bribes to officials in the Central Insecticides Board, Indian Navy, Railways, Maharashtra State Electricity Board and other Government agencies. The ambassador also pointed out to the PMO that it may like to take appropriate action and investigate these cases in India.

Following this media report, actions have been initiated against the wrongdoers in India including inquiries against the errant public servants, companies and their respective representatives. These actions relate to inquiries under the anti-bribery provisions of the Prevention of Corruption Act, 1988 (POC Act), violation of the accurate account requirements under the Companies Act, falsification of accounts under the Indian Penal Code and related proceedings under the Income Tax Act and other applicable statutes.

As a risk mitigation measure, to avoid such prosecutions and penalties being imposed, and to ensure compliance with applicable laws and established norms of good governance, we always urge companies to create and maintain a Code of Ethics in their India operations. We further urge that adequate Compliance based training on the subject be provided to company personnel; especially top management who are the face of the company for the media and law enforcement agencies alike.

Often business communities react sharply to requests for ensuring compliance with anti-bribery statutes on the ground that this affects the way business is usually done in India. It is felt that offering bribes (which sometimes can be as low as Rs. 100 to as high as 8 digit figures) is necessary for their business operations. While moving to a ‘corruption-free’ zone may not be a completely smooth process, it is not impossible and is in fact necessary given the current enforcement atmosphere.

With increasing instances of FCPA scrutiny in the U.S. resulting in prosecutions and fines, we feel that it is imperative for U.S. companies operating in India to recognize what the risks of violations of FCPA provisions can entail for companies operating in India including on the profitability, expansion plans or the very existence of their businesses. To this end, it is key for these companies to (a) understand the scope and applicability of the FCPA to their enterprise, (b) ensure compliance with the provisions of the FCPA and other laws applicable to companies in India including the POC Act, (c) create and constantly bolster their compliance policies and initiatives with a view to insulate themselves from FCPA scrutiny and to otherwise adhere to established norms of good governance. It is key for businesses to understand what they can and cannot do in their dealings with government officials, how they must devise effective due diligence initiatives when considering the acquisition of a business / entity, and the need to codify a Gifts, Travel and Entertainment Policy, among others.

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