FCPA versus Bribery Act versus PCA

I think India Inc is the cleanest place to do business in. No honestly; I can't recall one reported case of corporate corruption in India this year. Not one. Well actually in November the CBI made several arrests in the bribes for loans case but that's small stuff. Can you recall the last time any large well-known company in India was prosecuted for corruption? I can't!

Now get this - the 2010 list of offenders under USA's Foreign Corrupt Practices Act includes the BAE, Daimler, Alcatel Lucent, Royal Dutch Shell, Noble Corporation. Meanwhile, this year the UK passed its Bribery Act, that is wider in scope and tougher in punishment than even the FCPA. India too has a prevention of corruption act, but it lies unused. Wouldn't it be ironical if a corrupt Indian company escapes Indian law but gets caught by foreign anti-corruption laws? Payaswini Upadhyay tells you why that's an imminent possibility.

In a country where the criminal code is over 150 years old and company and tax laws over 50, the prevention of corruption law enacted in 1988 qualifies as rather young.

The PCA is actually fairly broad and all encompassing. It primarily hits at government officials or public officials who obtain any sort of gratification for anything that they would do which would be rendering some service which is out of turn or getting something done for something which is out of turn or even not doing something that they are supposed to do or delaying a certain approval that they need to get going for somebody. So in that sense, it covers a lot. The focus has obviously been on 'public officials' but there is also an abettment provision whereby any ordinary person who is not a public official or public servant who abetts in public official doing something that he isn't supposed to do, then even that person can be liable under the Prevention of Corruption Act.

And yet in the 22 years of its existence...it has rarely ever been applied!

Akil Hirani, Managing Partner, Majmudar & Co.

There are a number of scams against various political parties and government officials but not enough is probably being undertaken under the PCA per say. I mean the inquiries are being initiated by the CBI and various other parliamentary committees but we don't here about the PCA as much. So we really need to focus on giving the PCA more teeth. We do have a statute and what it takes to enforce it is that you need to get a clearance from a central or a state government body if you need to prosecute a Union or a State Minister. Now this process to get this approval is not very clear and it can take a very long time. So I think we need to clarify these processes by which our government officials could be prosecuted in the first instance

The lack of enforcement means along with government officials and politicians, big business too has escaped the PCA net. But not for long - a fast globalising India Inc could soon find itself in the clutches of American or British law. As did Germany based Siemens, which paid $800 million in 2008 to settle a wide ranging FCPA investigation into bribes paid by Siemens to win infrastructure contracts across the world.

In the last decade America's Foreign Corrupt Practices Act, 1977 has become a force to reckon with for all multinational companies - close to 50 companies were prosecuted, adding up to almost 2 billion in penalties. Its tough to escape the FCPA net as its anti bribery provisions prohibit "US persons" from paying or offering to pay "anything of value" to any "foreign official" with the "corrupt purpose" of obtaining business. "US persons" includes all business entities organised in the United States; all individual US citizens and residents; all companies listed on the US stock exchanges, including foreign issues; and foreign persons acting within the United States.

Philip Urofsky, Partner, Shearman & Sterling LLP

There is extra-territorial jurisdiction over all US companies and all US persons. So it doesn't really matter whether they have done anything in United States. The US would have jurisdiction over their conduct. For a foreign/ Non-US company, then the FCPA requires that there be some act in the United States; not necessarily the payment of the bribe itself but some act in furtherance of the bribe

As Technip discovered, even a bribe paid from a Netherlands bank account to a Swiss bank account came under the FCPA's jurisdiction as it was denominated in u-s dollars.

Philip Urofsky, Partner, Shearman & Sterling LLP

There are a couple of ways how a non-US company can come under the scope of the Act. The first one obviously is that the company comes to the United States, is physically present in the US and does some act in furtherance of the bribery oversees. For instance they come to New York and have a meeting or they fly some place and stop in the US or even if they send a fax or make a phone call into the US, that would be an act in the US. If they use a US bank account to make the bribe or part of the bribe, that would be an act within the US. Now the US government has used a much more aggressive theory in a few cases where a payment made oversees by a wire transfer between two non-US banks but in US dollars will fall within the US jurisdiction because a US dollar transaction will clear through the banking system in the US.

The UK Bribery Act, enacted this year, covers domestic and foreign corruption and has gone a step further. It covers not just bribes made to public officials but bribes made or received in almost any business, commercial, government or regulatory context.

Thomas K. Sprange, Partner, Steptoe & Johnson

Its intent is very much to capture every single conceivable offence. So when you see first three section of the Act, it is very broad because it covers the bribe makers, the bribe takers and it covers anything that could be remotely connected to the UK

The FCPA and Bribery Act maybe wider in scope but Indian law is tougher. For instance both the U-S and the U-K are softer on grease money or facilitation payments whereas in India gratification of all kinds is a crime

Thomas K. Sprange, Partner, Steptoe & Johnson

Facilitation payments are not permitted on the face of the Act. The unofficial position of the SFO here in the UK is that they are unlikely to prosecute a company that pays low level or irregular facilitation payments. However, if the facilitation payments are made on a large scale over a lengthy period of time, then they are likely to get prosecuted.

Philip Urofsky, Partner, Shearman & Sterling LLP

Its an exception that is relatively narrowly drawn and is becoming even narrower as the government has been bringing cases. The statute says that the US will not prosecute you for a payment to an official to obtain a routine governmental action i.e. defined to mean obtaining a permit, getting the police to come when the alarms go off or the fire or getting your telephone hooked up if that's a government action and the idea is that you are paying to get something to which you are entitled. 

Akil Hirani, Managing Partner, Majmudar & Co.

Over here its much more onerous and in fact there is a huge issue when we advise clients in India on FCPA compliance. Because you have this exemption which does not exist under Indian law and if you document facilitation payments that you have made to comply with the FCPA, you may actually be in breach of the PCA and that could put you under more liability in local law parlance than in the International law compliance. So there is a little bit of a dilemma because there are no exemptions available.

All the 3 anti-corruption laws come armed with civil and criminal provisions. But unlike India, both the U-S and UK offer settlement options

Philip Urofsky, Partner, Shearman & Sterling LLP

Any individual or company charged with an FCPA violation may go to trial and forced the government to make its case in front of the judge and the jury and if they are convicted, the penalties will amount to twice the gain and potential imprisonment. But if the company and the individual chooses to try to settle and negotiate with the government, then the government is more than happy to negotiate a settlement.

Corporate culture plays almost no role in India's anti-corruption laws. But both the FCPA and the Bribery Act take into consideration efforts made by the company to prevent corruption. Strong internal controls can mean a lighter rap!

Thomas K. Sprange, Partner, Steptoe & Johnson

If you are a multinational and have a rogue employee who somewhere down the chain has paid a bribe or has been involved in the payment of a bribe, the company can run the defense that they had adequate procedures in place, compliance programmes, training programmes- that kind of things to avoid these things happening and despite their best efforts, there was a bribe paid

In November this year the U-S Department of Justice and the SEC resolved 7 corruption investigations collecting 236 million in disgorgements and fines. Te settlement involved non-US companies located in Switzerland, France, Cayman Islands and Nigeria. The FCPAs success comes from its effort to go after the big boys. An intent that is sorely lacking in India.

Philip Urofsky, Partner, Shearman & Sterling LLP

In the past year, there have been more cases brought against corporations than ever before and more of those cases than ever before have been against non-US companies. So there is a very clear effort by the US government to charge foreign companies when their own governments are not doing so and the penalties have been quite severe. 90% of penalties paid last year have been by non-US companies. So the risk to the non-US companies is growing and it could be very expensive

Akil Hirani, Managing Partner, Majmudar & Co.

The fear is that if an Indian company has a subsidiary or an affiliate or a joint venture and if the Indian company resorts to any corrupt practices in India, then there is a chance that the parent could also be regarded as an associated enterprise of that subsidiary and that subsidiary could be prosecuted in the UK for actions done in India. So companies which are going abroad, especially to the UK and the US, or have presences there already really need to be very clear about the Indian operations and what they doing on the ground in India because if an investigation is launched against them in the UK, then the investigation will also cover their India parent or India arm and if those are found to be not above board for any reasons within the purview of the Bribery Act or the FCPA, then there could be liability for that subsidiary in the US or the UK.

So India Inc beware, the Khakis may let you go but the suits will soon catch up.

In Mumbai, Payaswini Upadhyay