Introduction
Behind every great fortune there is a crime1
Corruption has been seen as an immoral and unethical practice since biblical times. But, while the Bible condemned corrupt practices2, Chanakya in his teachings considered corruption as a sign of positive ambition.3 Ironically, similar views are echoed by Mario Puzo in The Godfather!4
Historical incidents of corrupt practices and modern theories of regulation of economic behaviour might evoke a sense of fascination, however, there can be no doubt that in modern business and commerce, corruption has a devastating and crippling effect. The annual Kroll Global Fraud Report notes that India has among the highest national incidences of corruption (25%). The same study also notes that India reports the highest proportion reporting procurement fraud (77%) as well as corruption and bribery (73%).5 According to the Transparency International Corruption Perception Index, India is ranked 76 out of 167 nations.6 These statistics do not help India's image as a destination for ease of doing business nor do they provide investors with an assurance of the sanctity of Government contracts.
In this decade, India has witnessed among the worst scandals relating to public procurement resulting in unprecedented judicial orders cancelling procurement contracts.7 While these unprecedented judicial orders galvanised the Government toward framing the Public Procurement Bill, 2012, the same has since lapsed. The Finance Minister had mentioned a new public procurement bill in his Annual Budget Speech in 2015, however, this bill was not introduced.
In India, the law relating to corruption is broadly governed by the Indian Penal Code, 1860 ('IPC') and the Prevention of Corruption Act, 1988 ('POCA'). Proposed amendments to POCA ('Amendment Bill') which provides for supply-side prosecution was introduced in the upper house of Parliament in 2013.8
In India, apart from the investigating agencies and the prosecution machinery, there is also the Comptroller and Auditor General ('CAG') and the Central Vigilance Commission ('CVC') which play an important role due to Public Interest Litigations ('PILs') in India. For instance, courts have directed that the CAG should audit public-private-partnership contracts in the infrastructure sector on the basis of allegations of revenue loss to the exchequer.9
In India, apart from the risk of criminal prosecution under POCA, there is also the risk of being blacklisted10 and subject to investigation for anti-competitive practices. As the law relating to public procurement is pending in Parliament, different Government departments have procurement rules, the contravention of which may result in prosecution. In relation to public procurement contracts, the Competition Commission of India ('CCI' / 'Competition Commission') has the power to examine information suo moto and take cognizance of cases even without a complainant before the CCI.
An issue of regulatory compliance that is often raised along with corrupt practices is one related to lobbying. As such, lobbying is not an institution in India like certain European countries or USA and it is not mandatory for Government agencies ('the Executive') to consider the viewpoints of various stakeholders and interested parties before formulating rules and regulations. Further, generally there is no law which provides for prior consultation with affected persons before rules and regulations are framed by administrative authorities. In certain circumstances, prior consultation may be seen as a mandatory requirement.
A bill was introduced by a Member of Parliament, The Disclosures of Lobbying Activities Bill, 2013 in Lok Sabha in 2013 in the wake of the Nira Radia controversy but the same has since lapsed. This bill sought to regulate lobbying activities and the lobbyist itself. However, regulation of lobbying activities is envisaged only on the supply-side and such an approach may not satisfactorily address concerns of transparency and constitutional ethics.
This body of amorphous laws and regulations, coupled with high risk to directors makes compliance a matter of great significance. In this paper, we examine the regulatory framework and law in relation to anti-corruption laws and risks associated with non-compliance. Additionally, we also address opportunities for companies to design preventive and compliance mechanisms. Litigation entails considerable risk and costs (financial and reputational) and hence, it is imperative that, in the absence of regulatory and legislative clarity, companies take proactive measures to address these risks.
Footnotes
1. The Godfather, Mario Puzo, Signet, 1969.
2. Proverbs 29:4 – A just king gives stability to his nation, but one who demands bribes, destroys it.
3. Chanakya – His Teachings & Advice, Pundit Ashwani Sharma, Jaico Publishing House, 1998:
In the forest, only those trees with curved trunks escape the woodcutter's axe. The trees that stand straight and tall fall to the ground. This only illustrates that it is not too advisable to live in this world as an innocent, modest man.
4. Page 100, Mario Puzo, 1969 – The breaking of such regulations was considered a sign of high-spiritedness, like that shown by a fine racing horse fighting the reins.
5. Global Fraud Report – Vulnerabilities on the Rise, Kroll, 2015- 2016, available at http://anticorruzione.eu/wp-content/uploads/2015/09/Kroll_Global_Fraud_Report_2015low-copia.pdf .
6. Transparency International's Corruption Perception Index available at http://www.transparency.org/cpi2015#results-table .
7. Supreme Court of India cancelled 122 licences which resulted in prosecutions of various companies, politicians and bureaucrats [see Timeline: 2G Scam, Livemint, February 3, 2012, at http:// www.livemint.com/Home-Page/XI7sCDFXoT6KEXawTcPnuK/ 7. Supreme Court of India cancelled 122 licences which resulted in prosecutions of various companies, politicians and bureaucrats [see Timeline: 2G Scam, Livemint, February 3, 2012, at http:// www.livemint.com/Home-Page/XI7sCDFXoT6KEXawTcPnuK/ Timeline-2G-scam.html ] and Indian Supreme Court cancels 214 coal scandal permits, BBC, September 24, 2014, available at http:// www.bbc.com/news/world-asia-india-29339842]
8. Prevention of Corruption Bill, 2013, status as available on PRS Legislative Research, http://www.prsindia.org/billtrack/the-prevention-of-corruption-amendment-bill-2013-2865/ .
9. Delhi High Court ruled that private electricity distribution companies could be subject to CAG Audit – see Nishith Desai Associates Hotline, Direction for CAG audit of DISCOMs quashed private companies can be subject to CAG audit and Nishith Desai Associates Hotline, Supreme Court Private telecom service providers under CAG scanner
10. See for instance, Nishith Desai Associates Hotline on blacklisting, http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/supreme-court-balances-power-to-blacklist-with-principles-of-reasonableness.html.
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