Corporates would need to support the anti-corruption initiatives and also ensure they are not violating or abetting violation of any of the local laws.
India has a stringent legislation in the form of the Prevention of Corruption Act, 1988 to prevent corruption by public servants. Lack of enforcement has drawn the fear away from this Act. There are inordinate delays in prosecution by the Central Bureau of Investigation (CBI. Large pendency of corruption cases in the courts is another factor which weakens the Act, which otherwise could have changed the course of India today.
The magnitude of the recent scams, namely CWG and 2G Telecom, has worsened the situation further.
The recent efforts on anti-corruption at the local and global level on the one hand will create an environment which will reduce the prevalence of corruption in the economy, but at the same time will create challenges for the corporates in complying with the requirements of the new legislation.
The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill 2011 is in the proposal stage and will be soon tabled in the Lok Sabha and the government is in the process to invite suggestions from the public before according approval.
India has recently ratified UN Convention Against Corruption (UNCAC) which would help addressing the problems of black-money and corruption through legislative and administrative measures.
UNCAC is a far-reaching unique tool for developing a comprehensive response to a global corruption. The UNCAC covers many different forms of corruption, such as trading in influence, abuse of power, and various acts of corruption in the private sector.
Indian regulators have started initiating action against corporates and individuals under the Prevention of Corruption Act to tackle with the supply side of corruption.
While such initiatives will help create an ethical and corruption free environment for the country, corporates would need to support the anti-corruption initiatives by creating an ethical environment in their respective organisations and ensure they are not violating or abetting violation of any of the local legislations. An example of such a step is having a mechanism in place for employees to report concerns about unethical behaviour, actual or suspected fraud, or violation of the company's code of conduct or ethics policy and companies safeguards against victimisation of employees who avail of the mechanism, which is voluntary guideline as per the Corporate Governance Voluntary Guidelines issued for listed companies in 2009.
US, UK laws
On the global front there are legislations such as Foreign Corrupt Practices Act, 1977 (FCPA) of the US and the newly enacted UK Bribery Act. The FCPA prohibits US companies, companies listed on the US Stock Exchanges and US citizens from obtaining business or an unfair business advantage by bribing foreign officials and requires companies to maintain accurate books and records and a system of internal controls designed to identify suspect payments.
Payments made through intermediary or third parties such as contractors or consultants are also covered under this legislation. FCPA has been a matter of concern, for US companies in India and Indian companies listed in US, in recent past due to fierce enforcement and prosecution by Department of Justice and Securities and Exchange Commission of US.
Recently the UK Bribery Act 2010 received the Royal Assent. The Act with the objective of regulating bribery and corruption offences committed both in the UK and abroad will come into force on July 1, 2011.The UK Bribery Act applies to UK companies as well as companies that carry on business in the UK and British citizens and persons residing in the UK.
The highlight of the Act is the introduction of an offence of failing to prevent bribery (including bribery by an associated person of the company). The only defence available to companies charged with the offence is to demonstrate that they have “adequate procedures” in place to prevent bribery.
The Act, described as one of the toughest anti-corruption legislation in the world, has six general principals set out in the recently introduced guidance. Anti-bribery and corruption procedures that are proportionate to the specific risks faced by the business;
Senior management should demonstrate their commitment to preventing bribery; the company should perform a regular and comprehensive risk assessment of the nature and extent of its corruption risks; adequate Due Diligence to understand the background and reputation of the parties with whom the company does business; anti-bribery policies should be effectively communicated and embedded in day to day business processes; and appropriate monitoring and review mechanisms to ensure compliance with relevant policies and procedures.
Companies in India will need to take proactive measures appropriate to the size and nature of the business of their respective organisations to prevent bribery and corruption by both their employees and those who act on their behalf.
The UK Bribery Act is a wake-up call for board of directors/senior management of Indian companies having business connections in UK. The Act should be on top of their agenda, before the UK regulators knock on their door and ask some tough questions.
(The authors are Director and Manager respectively with Deloitte Touche Tohmatsu India Private Limited. Views expressed herein are personal.)