Corruption has been seen as an immoral and unethical practice since biblical times. But, while the Bible condemned corrupt practices, ironically Chanakya in his teachings considered corruption as a sign of positive ambition.1 However, there can be no doubt that in modern business and commerce, corruption has a devastating and crippling effect. According to the Transparency International Corruption Perception Index, India is ranked 76 out of 167 nations. These statistics do not help India’s image as a destination for ease of doing business.
The growth of anti-corruption law can be traced through a number of milestone events that have led to the current state of the law, which has most recently been expanded by the entry into force in December 2005 of the sweeping United Nations International Convention against Corruption (UNAC). Spurred on by a growing number of high-profile enforcement actions, investigative reporting and broad media coverage, ongoing scrutiny by non-governmental organisations and the appearance of a new cottage industry of anti-corruption compliance programmes in multinational corporations, anti-corruption law and practice is rapidly coming of age.
While countries have for long had laws to punish their own corrupt officials and those who pay them bribes, national laws prohibiting a country’s own citizens and corporations from bribing public officials of other nations are a new phenomenon, less than a generation old.
The US Foreign Corrupt Practices Act (FCPA) was the first anti-corruption law that rigorously pursued cross border bribery. For more than 25 years, the United States was the only country in the world that through the extra territorial reach of its FCPA, rigorously investigated bribes paid outside of its own borders.
It was surpassed by The UK Bribery Act enacted by the UK government in 2010 and is arguably the most radical extra-territorial anti-graft law to date. This law was put into place by the UK Parliament after a demand from the Organization for Economic Cooperation and Development (OECD) in 2007 that the UK offer some explanation for its failure to abide by its OECD Anti-Bribery Convention obligations.
The United Kingdom has in 2010 enacted the robust United Kingdom Bribery Act (UKBA), that has created a new anti-corruption compliance regime which is even more powerful than the FCPA in many respects. Failure to adhere to anti-bribery compliance obligations based on these and other new anti-corruption laws can result in substantial and potentially debilitating fines being imposed against companies and their aids.
Both legislation and the business response to anti-corruption are now intensifying. On 11th May 2016, The Law Society of England and Wales; The Institute of Chartered Accountants in England and Wales, The Society of Trust and Estate Practitioners; The Law Society of Northern Ireland; The Law Society of Scotland; The International Federation of Accountants; The Association of Chartered Certified Accountants; The Chartered Institute of Public Finance and Accountancy; The Institute of Chartered Accountants of Scotland; Chartered Accountants Ireland, The Chartered Institute of Management Accountants; The Association of Taxation Technicians; The Association of International Accountants; The Chartered Institute of Taxation; The International Association of Book-Keepers; The Institute of Certified Bookkeepers; The Institute of Financial Accountants; UK200; The Association of Accounting Technicians issued the Anti-Corruption Statement by Professional Bodies – deploring corruption and the significant harm it causes. The statement acknowledges that criminals seek to abuse the services provided by Professional service providers such as Chartered Accountants to launder the proceeds of corruption and we are committed to ensuring the professionals are armed with the tools to thwart this abuse.2
Chartered accountants, either in business or in the profession, have to be well informed of the latest developments to ensure that they play a meaningful role in the prevention of corruption in the organisations which they serve.
THE PREVENTION OF CORRUPTION ACT 1988 (POCA)
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’). Apart from the risk of criminal prosecution under POCA, there is also the risk of being blacklisted, debarred and subject to investigation for anti-competitive practices.
Sections 8, 9 and 10 of the POCA are applicable to arrest the supply side of corruption namely: Taking gratification, in order, by corrupt or illegal means, to influence public servant (Sec.8), Taking gratification for exercise of personal influence with public servant (Sec.9), Punishment for abetment by public servant of offences defined in Section 8 or 9 (Sec.10). Section 11 criminalises various acts of public servants and middlemen seeking to influence public servants.
In the case of H. Naginchand Kincha vs. Superintendent of Police Central Bureau of Investigation 3, the Karnataka High Court has clearly held that the words occurring at section 8 of the Act “Whoever accepts or obtains, or agrees to accept, or attempts to obtain, from any person, for himself or for any other person, any gratification…………”
covers the persons other than the public servants contemplated by definition clause (c) of section 2 of the Act and that does not require much elaboration.4
Unlike laws in some other jurisdictions, POCA makes no distinction between an illegal gratification and a facilitation payment. A payment is legal or illegal. This treatment applies to other laws and regulations in India as well.
PREVENTION OF CORRUPTION (AMENDMENT) BILL 2013–2011 TO 2016
After India ratified the United Nations Convention on Anti-Corruption, the Government of India initiated measures to amend POCA to bring it in line with international standards. Materially, these included –
a. Prosecuting private persons as well for offences, b. Providing time-limits for completing trials, c. Attachment of tainted property,
d. Prosecuting the act of offering a bribe.
In 2013, the Amendment Bill was introduced in Parliament, reviewed by the standing committee and Law commission of India.
One of the significant amendments proposed, to widen the scope of the Act beyond bribery of public servants, provides that irrespective of capacity in which the person performs services for or on behalf of the commercial organisation either as an agent, service provider, employee or subsidiary, the liability under POCA would follow. This places an organisation at considerable risk since illegal acts by employees even at the entry level can expose the organisation to prosecution.
The above proposed amendments are corroborated by the WhistleBlowers Protection Act, 2014 and section 177(9) of the Companies Act 2013 which provides for the establishment of a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed.
While the Companies Act, 2013 provides that companies should have a vigil mechanism, the Companies Act does not provide for consequences if a vigil mechanism is in place. In any event, companies may adopt measures provided in international documents like the UNCAC which provides for implementation of preventive anti-corruption policies and practices.
UNCAC provides for liability of legal persons. While commercial organisations and key officers should be prosecuted, there needs to be certainty and clarity in relation to the scope of such provisions. The UNAC further provides for the right of an aggrieved party to seek compensation/ damages for loss caused due to corrupt practices.
In light of the above, most commercial organisations may adopt measures provided in international documents and implement Anti-corruption compliance procedures which would not only be preventive in nature but would also assist in nailing the offender under law and fixing his liability. This would not only reduce the impact of the instance on the organisation by showing the bonafide of the organisation as a whole and bring to book corrupt individuals.
THE UNITEDSTATES FOREIGN CORRUPT PRACTICES ACT OF 1977 (FCPA)
For many years, the FCPA has been the world champion of ethical corporate behaviour on the part of companies registered in, or associated with, the United States (US). The combined determination of the Securities Exchange Commission (SEC) and the Department of Justice (DOJ) requires big business to take rigorous measures to thwart corporate bribery, or face substantial penalties.
The FCPA, which is an US federal law, targets the payment of bribes by businesses linked to the US to foreign government officials. The FCPA’s anti-bribery provisions make it illegal to offer or provide money or anything of value to officials of foreign governments, or foreign political parties, with the intent of obtaining or retaining business. It also requires businesses to keep proper books and records. It also prohibits the payment of bribes indirectly through a third person. For these payments, coverage arises where the payment is made while knowing, that all or a part of the payment will be passed on to a foreign official.
Record penalties for corporate corruption were imposed against Siemens AG when the multi-national company settled FCPA charges with the Department of Justice, the Munich Public Prosecutor’s Office (i.e. in its home country Germany) and the SEC. These included multiple guilty pleas and $1.6 billion in fines and penalties, including $800 million in disgorgement of bribe-tainted profits to the US authorities. This case demonstrates how regulators in different jurisdictions are cooperating with each other more than ever. According to the DOJ, this was the largest monetary sanction ever imposed in an FCPA case.5
As is demonstrated by the Siemens settlement, there is no double-jeopardy defence for offenders, and the same set of facts can give rise to a multitude of prosecutions since the violations generally took place in subsidiaries in remote regions. This is an important factor for local companies, as many Indian corporates are expanding their business operations globally at a rapid rate. They will have to implement stern measures to manage the corruption risk and ensure that management in their remote subsidiaries avoid the payment of bribes or face the wrath of the not just the DOJ and SEC but also local judiciary.The DOJ signalled to companies that it would continue to book corporates on FCPA violations around the globe.
For violating anti-bribery provision, FCPA provides that;
- corporations and other business entities are subject to a fine of up to $2 million;
- Individuals, including officers, directors, stockholders, and agents of companies, are subject to a fine of up to
- $250,000 and imprisonment for up to five years.
For violating accounting provision of the FCPA6
- corporations and other business entities are subject to a fine of up to $25 million
- Individuals are subject to a fine of up to $5 million and imprisonment for up to 20 years.
Under the (US) Alternative Fines Act, courts may impose significantly higher fines than those provided by the FCPA—up to twice the benefit that the defendant obtained by making the corrupt payment, as long as the facts supporting the increased fines are included in the indictment and either proved to the jury beyond a reasonable doubt or admitted in a guilty plea proceeding.
The UK Bribery Act 2010
The Bribery Act 2010 expands its territorial applicability beyond the UK through section 6-Active bribery of a foreign official and section 7 Company failing to prevent bribery (corporate offense) (strict liability). Under section 11, the maximum penalties that can be imposed on an individual convicted of an offence u/s. 1, 2 or 6 is an unlimited fine and imprisonment for up to 10 years.
An organisation that can prove it has adequate procedures in place to prevent persons associated with it from bribing will have a defence to the Section 7 offence.
The guidance, provided u/s. 9 of the Act, will help commercial organisations of all sizes and sectors understand what sorts of procedures they can put in place to prevent bribery, as mentioned in section 7.
An organisation could also be liable where someone who performs services for it – like an employee, consultant or agent – pays a bribe specifically to get business, keep business, or gain a business advantage for the organisation. But the organisation will have a full defence for this particular offence, and can avoid prosecution, if the organisation can show it had adequate procedures in place to prevent bribery.
While under the Act there is no need for extensive written documentation or policies. organisations may have proportionate procedures through existing controls over company expenditure, accounting and commercial or agent/consultant contracts for example. In larger organisations, it will be important to ensure that management in charge of the day to day business is fully aware and committed to the objective of preventing bribery. In micro-businesses, it may be enough for simple oral reminders to keystaff about the organisation’s anti-bribery policies. In addition, although parties to a contract are of course free to agree whatever terms are appropriate, the Act does not require you to comply with the anti-bribery procedures of business partners in order to be able to rely on the defence.7
CONCLUSION
The principal problem in the modern corporation is mainly the separation of ownership and control in organisations, the managers have often different motives from the owners, the management often tries to find ways to conceal corrupt practices and/or any setbacks in the company’s performance. They postpone intimating the shareholders, or even to the board, waiting for things to improve. In these cases, transparency and full disclosure in financial reporting are often sacrificed.
Anti-corruption compliance is the new watch-phrase in global boardrooms, and chartered accountants have a responsibility to not only help organisations to develop meaningful and robust anti-corruption controls, but also to understand compliance obligations applicable to them and keep pace with any changes in the bribery risks and compliance mechanisms put in place by multi-national organisations. These mechanisms are intended to prevent the use of accounting practices to generate funds for bribery or to disguise bribery on a company’s books and records.
Violations of record-keeping requirements can provide a separate basis of liability for companies involved in foreign and domestic bribery. It is here that the Chartered Accountant would play an important role, of not just raising the red flag but refusing to sign the accounts until all questionable payments are explained to their satisfaction by the Company.
The role of Chartered Accountants (CAs) has been seen as promoting transparency and fairness. CAs are national-level watchdog. However, CAs are not specialised anti-corruption agencies: on the whole, they are not expressly charged with detecting or investigating corrupt activity, but they have expertise in auditing and reporting the facts. CAs have traditionally undertaken financial audits of organisations’ accounting procedures and financial statements, and compliance audits reviewing the legality of transactions made by the audited body, and it is this vigilance that is relied upon while bringing to task the bribe givers and takers.
Prevention of Corruption Act 1988, focuses on the legal definitions governing corruption, lacks the suggestive guidance of how best to implement in practice financial and other controls which would be effective to prevent corruption, and bring to light any questionable payments.It is through their detailed study of several financial systems adopted by their various clients that CA’s are equipped with the required information and can suggest best practices that may be incorporated by the Government in a Model anti-corruption vigilance mechanism which may serve as a guidance to various organisations, and a yard stick to assess the ethical quotient of any organisation.
