Following recent reports of bribery allegations involving one of India's largest e-commerce companies, several pressing questions about the country's business environment have dominated the news, and eliminating the environment of corruption has become a sine qua non for the country's development into a $5 trillion economy. Although there is no legal need to disclose violations under the United States Foreign Corrupt Practices Act (FCPA) or the United Kingdom Bribery Act (UKBA), many business organizations do so voluntarily in order to get a faster settlement or avoid punitive fines. Recent amendments in the Prevention of Corruption Act ("PC" Act) in India along with other regulatory changes have also woken up private organisations to strengthen their internal controls, whistleblower handling mechanism and reporting of any integrity issues.
India has slipped to 82nd position in 2021, five places down from 77th rank last year, in a global list that measures business bribery risks. The list by TRACE, an anti-bribery standard setting organisation, measures business bribery risk in 194 countries, territories, and autonomous and semi-autonomous regions. According to this year's data, North Korea, Turkmenistan, Venezuela and Eritrea pose the highest commercial bribery risk, while Denmark, Norway, Finland, Sweden and New Zealand present the lowest. In 2020, India ranked 77 with a score of 45 while this year, the country stood at 82nd position with a score of 44, the data showed. This score is based on four factors -- business interactions with the government, anti-bribery deterrence and enforcement, government and civil service transparency, and capacity for civil society oversight which includes the role of the media.
The rapidly changing regulatory landscape in India and the dynamics of social media has placed greater onus on commercial organisations to have robust internal mechanisms to deal with integrity and corruption related issues. With increased liability and reputational risk for investors and stakeholders, many responsible and progressive organisations are becoming more aware and ramping up their ethics and integrity framework. The focus is shifting from treating complaint-handling as just a grievance redressal and management support function to building smart and intelligent organisations that take informed decisions based on innovative tools of business intelligence and a robust internal investigations mechanism to mitigate risk and losses. Early detection and better management of fraud risks goes a long way in building and propagating an ethical business culture.
In recent years, India has passed at least five legislations specifically supporting efforts towards preventing corporate fraud, malpractice, and misconduct. Regulators are aware of the challenges faced by organizations in curbing fraud and are determined to ensure business is conducted ethically.
The Prevention of Corruption Act of 1988 ("PCA") is India's primary anti-bribery statute. Until 2018, the PCA applied to public employees accepting bribes. The bribe taker was only a co-conspirator. Following a modification to the PCA in 2018 (the "2018 Amendment"), both accepting and providing bribes are separate offenses punishable by three to seven years in jail, a fine, or both. The legal stance takes into account the Indian commercial climate, where a person may be forced to pay a bribe. If they report it to the authorities within seven days, they can escape being prosecuted. The 2018 Amendment also established the notion of commercial organizations being liable for bribery committed by their employees, agents, affiliated third parties, or subsidiaries. Section 9 of the Amended Act now specifically deals with commercial organizations to include all forms of business structures, employees and vendors. This principal approach is certainly in line with global standards of anti-bribery and anti-corruption measures.
If a commercial organization (or persons associated with the commercial organization) gives, or promises to give, any "undue advantage" to a public servant for obtaining or retaining business or an advantage in the conduct of business, the commercial organization (or persons associated with the commercial organization) is subject to a fine under Section 9 of the PCA. If it is proven that the offence was committed with the approval or connivance of a director or officer of the business organization, the director or officer might be prosecuted.
Commercial organizations, for example, are able to argue that they have appropriate processes in place to avoid such corrupt activities. This means that unless a business organization can show an acceptable defense based on "appropriate processes," it will be found responsible for bribery under the PCA. Such 'appropriate processes' must adhere to rules that have yet to be established but would typically entail periodic risk assessments and anti-bribery training for all workers.
Multinational firms' alleged corrupt activities are generally detected through internal controls or by foreign regulators. The majority of offenses, however, remain a struggle for Indian regulators to uncover. Certain adjustments may be beneficial. The PCA does not currently require disclosure. Sections 161 through 165A of the Indian Penal Code ("IPC"), as well as Section 39 of the Code of Criminal Procedure, 1970 ("CrPC") (relating to illegal gratification). The CrPC, which required the revelation of information related to offences punishable under Sections 161 to 165A of the IPC, was repealed by Section 31 of the PCA, among other things. Following that, Section 31 of the PCA was abolished. This leaves a gap that may need to be filled.
Creating ‘smart and intelligent organisations’ is the need of the hour. Businesses should incorporate business intelligence tools, techniques and investigation methodologies to make in-house vigilance more robust and reliable. This is where expert consulting can come to the rescue of those organisations which are either new or have not opened fully to the dynamics of modern integrity management or want to ramp up their existing capabilities. This requires the independent experts to assess and survey the nature and scale of operations, understanding workflows and meeting with relevant employees, assessing the process gaps and leaks, study the trends and patterns to devise a resilient framework of organisational intelligence.
An organisation should not only be ethical, but it should also be seen and perceived to be ethical. For this to happen, all stakeholders must come together and embrace the concept of ‘ethics and integrity management’ as central to the growth and vision of the company.
The writer is Managing Director and Head of Investigations at InteLaw Consulting Private Limited, India’s only consulting company founded and managed by eminent former intelligence and law enforcement experts of the Government of India, including CBI, Police and Central Intelligence, leading industry and subject matter experts from top-tier consulting firms. InteLaw has pioneered the concept of ‘Investigations Consulting’ and ‘Integrity Management’ to create more ethical, smart and intelligent organisations and to help businesses navigate through various risks and challenges. Learn more about how InteLaw can help your business grow ethically and securely, at www.intelawconsulting.com or connect with the author at firstname.lastname@example.org.