In the wake of numerous scams being unearthed in India over the past decade, the enforcement agencies have been proactive in terms of monitoring compliance under relevant anti-corruption and bribery laws and taking action against violations thereof. For instance, in 2016 the government announced demonetisation of Rs500 and Rs1000 bank notes in its attempt to combat unethical practices such as hoarding black money outside the formal economic system, tax evasion and using illicit or counterfeit cash to fund illegal activities. Consequently, on basis of information received from banks, the tax authorities and other anti-corruption bodies have identified suspicious persons and entities and have started taking action against them.
Further, in 2017 the Ministry of Corporate Affairs voluntarily struck off 224,000 shell companies and imposed restrictions on the usage of their bank accounts and transference of company property. Action was taken to disqualify directors who failed to comply with specific requirements under the Companies Act 2013. The ministry also announced that if any director or other authorised signatory of a struck-off company tried to siphon off money from the company’s bank account, he or she will be punished with a prison term of between six months and 10 years, and where the fraud involved public interest, the minimum prison term will be at least three years and may also involve a fine of up to three times the amount involved. The prime minister's office has also created a special task force to oversee the drive against such defaulting companies with the help of various enforcement agencies.
The Central Vigilance Commission (CVC) has also taken certain proactive actions recently, such as advising all central government departments on quicker disposal of pending corruption cases, launching the ‘VIGEYE’ mobile application to directly interact with citizens on matters of corruption and consolidation of various CVC circulars, guidelines and preventive initiatives in the Vigilance Manual 2017.
In 2016 India ranked 79th out of 176 countries in the Corruption Perception Index published by Transparency International. Further, the legal framework for anti-corruption compliance in India does not yet address all relevant issues. Therefore, companies generally adopt their own procedures and policies to avoid any potential liability.
However, the Institute of Company Secretaries of India has recently formulated the Corporate Anti-bribery Code, which outlines a systematic mechanism that could be voluntarily adopted by companies to prevent bribery in both public and private sectors. The code also prohibits bribery of foreign public officials to obtain or retain business or receive an improper advantage in business (which is otherwise not specifically addressed under the anti-corruption laws).
While the specific procedures implemented by companies to mitigate such risks may vary, the following basic standard practices can be adopted to ensure compliance with the relevant anti-corruption laws:
- implementing a robust code of conduct that includes policies governing the exchange of gifts, business courtesies and hospitality, whistle-blower protection mechanisms and provisions covering compliance with relevant anti-corruption laws (including foreign laws with extraterritorial effect, such as the US Foreign Corrupt Practices Act 1977 and the UK Bribery Act 2010);
- implementing effective, up-to-date book-keeping and record maintenance systems to prevent any illegal gratification from being routed through the company’s accounts;
- accurate and complete preparation and maintenance of all accounts, invoices and other documents relating to payments made by the company;
- conducting appropriate due diligence in relation to third-party dealings (eg, with agents, consultants, advisers and intermediaries) in order to reduce the risk of vicarious liability;
- ensure written agreements with third parties are executed, which clearly identify the work to be performed along with compensation and appropriate language on anti-corruption compliance;
- regular communications and documented training on anti-corruption, bribery and ethics at all levels of the company;
- appropriate oversight and monitoring of anti-corruption policies and programmes; and
- Implementing appropriate disciplinary procedures to address violations of anti-corruption laws and the company’s code of conduct.
AUTHORITIES TO INVESTIGATING BRIBERY AND CORRUPTION
The primary regulatory authorities responsible for monitoring and investigating corruption and bribery in India are as follows:
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The Central Vigilance Commission (CVC) |
It is the nodal statutory body that supervises investigation of corruption (under the Prevention of Corruption Act 1988 and the Penal Code 1860) in central government departments, government companies and local government bodies, and among public servants. The CVC can refer cases to either the central vigilance officer of the relevant government department or the Central Bureau of Investigation (CBI) for investigation. |
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The CBI and the Anti-corruption Bureau (ACB) |
They are also investigative authorities for corruption under the Prevention of Corruption Act 1988 and the Penal Code 1860. While the CBI’s jurisdiction covers the central government and union territories, the ACB investigates cases within the states. However, the CBI has recently sought guidance from the Supreme Court regarding the permission required from a state government to conduct an inquiry into an offence relating to the state. |
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The Serious Fraud Investigation Office (SFIO) |
It is set up under the Ministry of Corporate Affairs and investigates the affairs of companies based on an order from the central government:
If a matter is handled by the SFIO, no other investigatory agency is entitled to proceed with a parallel investigation. The Ministry of Corporate Affairs has recently conferred the power of arrest (of any person, including those associated with foreign companies) on the SFIO on the grounds of commission of the offence of corporate fraud under the Companies Act 2013. |
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Lokpal |
It comprises a chairperson and up to eight members, is the nodal ombudsman authority which investigates and prosecutes cases of corruption involving:
Lokpal also has the power of superintendence over the CBI, if it refers any case to CBI. Members of the first Lokpal office have yet to be appointed. Lokayuktas are state-level counterparts of the Lokpal, and certain Indian states have already appointed officers for this position. |
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The Enforcement Directorate |
It is established under the Ministry of Finance to investigate and prosecute cases relating to the Prevention of Money Laundering Act 2002 and the Foreign Exchange Management Act 1999.The Enforcement Directorate also cooperates with foreign countries in matters relating to money laundering and restitution of assets in accordance with their respective local laws. |
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The Income Tax department |
It has been appointed as the authority in cases pertaining to the Benami Transactions (Prohibition) Amendment Act 2016, by virtue of which it can attach and confiscate benami properties |
KEY CORRUPTION AND BRIBERY OFFENCES
The following actions qualify as key corruption and bribery offences under Indian law:
- a public servant taking illegal gratification as a reward or motive for undertaking (or forbearing to undertake) an official act, or for showing (or forbearing to show) any favour or disfavour to any person in the exercise of his or her official functions, or for rendering any service or disservice to any person;
- an individual taking illegal gratification to influence a public servant for the abovementioned actions;
- an individual taking illegal gratification to exercise personal influence over a public servant, to induce such public servant for the abovementioned actions;
- a public servant obtaining a valuable thing without consideration from a person in connection with business dealings with such person;
- a public servant dishonestly or fraudulently misappropriating or converting for personal use any property entrusted to him or her or under his or her control, or any public servant allowing another person to do as such;
- a public servant obtaining a valuable thing or monetary advantage for himself or herself or any other person by corruption, abuse of his or her position of authority or any other illegal means; and
- a public servant holding property or resources disproportionate to his or her known sources of income.
Abetment or attempted abetment of the abovementioned offences may be prosecuted as an offence under the relevant anti-corruption laws.
Actions such as the acceptance of foreign contributions without prior government approval or registration, money laundering, concealment of foreign income and assets, dealing with benami property and committing fraudulent acts against a company are also punishable.
EFFORTS OF THE GOVERNMENT TO COMBAT THE EFFECT OF BRIBERY AND CORRUPTION
- the Lokpal and Lokayukta (Amendment) Act 2016, which primarily requires public servants to declare their assets and liabilities, and those of their spouses and dependent children;
- the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015, which penalises the concealment of foreign income and assets, and any related tax evasion;
- the Benami Transactions (Prohibition) Amendment Act 2016, which empowers the competent authorities to attach and confiscate benami properties (ie, any property which is held by or transferred to or for benefit of a person, and the consideration for which has been provided or paid by another person);
- the Companies (Amendment) Act 2017, by virtue of which the existing penalty provisions for the commission of corporate fraud have been modified. While the relevant provisions have yet to be notified, on enforcement, if any person is guilty of fraud involving an amount less than Rs1 million or 1% of the company turnover (whichever is lower) and which does not involve public interest, such person will be punishable with a maximum five-year prison term, a fine of up to Rs2.5 million or both. For other instances of fraud, the penalty remains the same (ie, six months to 10 years’ imprisonment and a fine of up to three times the amount involved in the offence); and
- the Whistleblowers’ Protection (Amendment) Bill 2015 (pending presidential assent), which aims to prohibit the reporting of corruption-related disclosures (by a whistleblower) if it falls under any of the 10 prescribed categories.
- The Prevention of Corruption (Amendment) Bill , which is pending parliamentary approval, seeks to amend the Prevention of Corruption Act 1988 by:
- setting out specific provisions for the prosecution of bribe givers;
- explicitly bringing commercial organisations within the ambit of the definition of ‘bribe giver’; and
- prescribing a specific time limit for completing trials.
The Important Changes of the Prevention of Corruption (Amendment) Bill, 2018
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S.NO |
CATEGORY |
AMENDED PROVISIONS |
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1. |
Bribe-Givers |
The Amendment has revised section 8 and has now brought bribe-givers within its ambit, unlike before when their prosecution was confined to abetment. The revised section 8, as captured in the Amendment, holds both natural and legal persons liable for giving bribes. For the latter, the reference is to "commercial organization" which is defined in section 9(3)(a) as (a) a company incorporated in India and that may do business1 in-country or overseas; (b) a foreign company which carries on business in India; (c) an Indian partnership firm or an association of persons formed in India engaged in business in India or overseas; (d) any other partnership or association of persons formed outside India which carries on business in any part of India. 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. Giving a bribe is now an offence, punishable by 7 years imprisonment.2 Section 9(3)(c) clarifies that a person is associated with an organization if they perform a service on its behalf and give or promise to give any "undue advantage"3 so as to obtain or retain either any business or any undue advantage while conducting that business. It would also be fair to infer that the definition makes it clear that favors and gifts will come within its ambit. Commercial organizations and their directors, officers and managers who may have given undue advantage to a public servant, will now be liable for prosecution. Furthermore, even senior officers in organizations will be held accountable and responsible if it is established that their employee or agent has engaged in an act of bribery, with their approval, in order to ostensibly advance the organization's interests. |
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2. |
Criminal misconduct |
Section 13 of PCA described the offence of criminal misconduct by a public official. It covered taking bribe habitually, getting anything free or at a concession, obtaining pecuniary advantage for oneself or for another where no public interest was involved. The erstwhile section 13(1)(d)(iii) penalized an official for enriching a private entity "without any public interest." It is possible this clause contributed to anapathy within the government where officers postponed decisions in order to limit their exposure and minimize any potential future investigations. The Amendment has deleted this clause. The revised section 13 states that criminal misconduct will include only two offences i.e., when a public servant dishonestly or fraudulently misappropriates property entrusted to him or under his control or allows any other person to so misappropriate or intentionally accumulates assets while in office, which are disproportionate to his known sources of income i.e., lawful income. A new element of mens rea has been added which did not exist earlier and is not easy to establish! There is concern, perhaps valid, that the revised clause requires explicit evidence regarding intent of the officer to enrich himself/ herself illicitly. So, any benefit that is not direct and cannot be established as an intentional fraud will not qualify the act as an offence. The pre-amendment position was that there was no need to prove any direct trade-off or bribery, which was very useful while addressing corruption involving senior bureaucrats. |
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3. |
Approval for probe |
A new section, 17A has been introduced which requires that the police cannot initiate a probe of any public official, i.e., those employed as well as those who have retired, without the prior approval of the relevant authority. In the law as its stood before the Amendment, such permission was linked with the designation of the official, limited to protecting high level serving bureaucrats. The key issue with initiating any kind of probes is the timing. Currently, the investigative authority is expected to communicate its decision within 3 months, with possibility to extend by another one month. It is premature to assume whether the decision makers will stick to the stated statutory period, but 120 days to grant an approval to launch a probe is a lot. If time will be wasted or lost in securing approvals, the purpose of bringing in changes to align the law with global developments shall be lost. Of course, it is necessary to protect honest officers and ensure there is no frivolous harassment but, timeliness cannot be overemphasized and delays should not impede investigations. The only exception to the prior approval will be when an official is caught red-handed leading to arrest on the spot. |
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4. |
Trials |
A historical challenge has been enforcement, the duration of trials and the delay in closure of trials leading to punishment for corrupt officers. Now, speedy trial provisions have been inserted. Section 4(5) of the Amendment mandates special judges to hold trials on a day-to-day basis and will be expected to conclude them within 2 years. Extensions are permissible and may be made, but even the extended duration cannot exceed 4 years. But, the revised clause is silent on what happens if the trial is not completed within 4 years. Clearly, an appropriate mechanism to dispense swift justice is critical in the implementation of the Amendment. While the democratic system requires following due process, but the judges who will conduct hearings will have to prioritize and strike a balance to ensure that there is speedy closure in such cases. |
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5. |
Forfeiture of property |
A new chapter, IV-A has been added regarding attachment and forfeiture of property so that any person who has gained any kind of benefit from a corrupt act should not be allowed to retain it.5 Effectively, the new section applies a 1944 ordinance in order to recover! Briefly, the enforcing agency will have to file an application before a "Special Judge" who will be vested with powers to attach the tainted assets. The judge will have to follow the prescription of the Civil Procedure Code. The provisions are wide enough to allow the judge to pass an interim order even without hearing as long as he finds merit in the allegations. A final order, of course, will require that all stakeholders are heard fully and properly. |
With most organizations adopting a zero-tolerance policy towards corruption, it was high time to effect changes to the three-decades old law. The tone, tenor and content of the Amendment are undoubtedly commendable, yet it has come under a fair amount of flak for some of its provisions as critics believe that it shields the offenders more. The legal community too continues to debate and question how a crime can be proved without an investigation. With the Amendment, the government may allow the investigation only after it gets the proof. So, supply of proof is a prerequisite while seeking an approval. Effectively, law makers ought to have considered when such evidence can to be gathered. Many believe it is only by means of a probe. Hence, absent the proof possibly approval will not be given. That should not be the outcome.
The anti-corruption laws do not differentiate between the penalties to be imposed for offences committed by an individual and those committed by a company or organisation; therefore, the relevant penalties apply to both. However, where the penalty for a given offence involves imprisonment and a fine, the courts will impose only the fine on the company or organisation (as the penalty of imprisonment cannot be imposed on a legal person), although persons in charge of the company or responsible for the conduct of its business when the offence was committed may be liable to imprisonment.
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