Opinion

Lobbying needs strong regulation

Ramesh K. Vaidyanathan | Updated on December 16, 2012 Published on December 16, 2012

Lobbying could lead to situations like Coalgate and 2G, in the absence of laws as in the US and the UK.



For the UPA government that was desperate for some light at the end of the nervous parliamentary vote tunnel, the news brought no cheer.

Walmart, the big daddy of international multi-brand retail, disclosed to the US authorities that it has spent nearly Rs 120 crore since 2008 on lobbying activities, including entry into the fast-growing Indian retail market.

The development came close on the heels of internal investigations ordered by the company into alleged illegal payments made by their Indian arm and the related suspension of some members of the company’s senior management in India. The Mexican corruption allegations earlier didn’t help either.

The Government of India and several corporate honchos have been quick to lambast the naiveté of people confusing legitimate issue advocacy for corruption.

In the specific case of Walm-art, they have also made the argument that the filing of the mandatory disclosure report by the company with the US Senate doesn’t say that the money has been spent in India or exclusively for its India plan.

LOBBYING AND BRIBERY

While the Government resisted the demand for an enquiry for some time, it had to finally relent for fear of risking the passage of crucial legislation in Parliament.

How is lobbying different from bribery, if at all? Simply put, a briber wants to circumvent the law. A lobbyist wants to change it.

The fact that laws affect everyone supposedly makes lobbying more legitimate, since the lobbyist isn’t typically asking for special treatment the way a briber does. While no one can quarrel with that, in the present scenario, the power of the lobbyist is arguably far greater than the power of the briber.

A powerful lobbyist can get laws changed even if there’s no public consensus to do so, and yet those laws still apply to everyone. This is not to suggest that the opening up of the multi-brand retail sector in India to foreign investment is a case in point.

In the unique Indian socio-political context, I really wonder whether there is any real difference in impact between lobbying and bribing.

Is there a difference between my bribing an excise official in Gujarat so that I can smuggle a bottle of alcohol into the State or my contributing money to the ruling party and then cajoling it into lifting prohibition in the State? In my view, the test has to be whether the concerned officials expected to act in public interest are using their office for private gain.

In its landmark judgment cancelling 2G licences granted by the Government, the Supreme Court came down heavily on ‘behind the door’ persuasion on policy making activities. Coal-gate underscored the same malady. The recent scams in India prove that when large business interests and corporations become involved, the tenuous balance between legitimate and illegitimate lobbying activities may be quickly lost.

Transparency International (TI) has often pointed out that relationships between law-makers and interest groups walk a fine ethical line that separates participatory democracy from state capture.

As per TI, even when allowed by law, lobbying can become distortive if disproportionate levels of influence exist — by companies, associations, organisations and individuals. Businesses with extensive funds to back their lobbying activities and close relationships with lawmakers can gain disproportionate access to the policy-making process in ways that are unavailable to the common citizen.

When safeguards for transparency and accountability are limited, as in our country, this can lead to illegal, undue and unfair influence in the country’s policies and politics. After all, it was not long ago that the level of influence exercised by a lobbyist in New Delhi over ministerial portfolio allocation and the media shocked the conscience of the nation.

So, what can be done?

COMPARISON OF LAWS

In the US, companies are required to disclose the issues and expenditures associated with lobbying on a quarterly basis. Apart from the Foreign Corrupt Practices Act, the Lobbying and Disclosure Act, 1995 aims at bringing accountability to the federal lobbying practices in the US.

The laws were amended substantially by the Honest Leadership and Open Government Act of 2007. Under these provisions, lobbyists were required to register with the clerk of the House of Representatives and the Secretary of the Senate.

Similarly, section 7 of the UK Bribery Act, 2010 creates an offence applicable to relevant commercial organisations if a person associated with that organisation bribes another person intending to obtain or retain business for that organisation, or to obtain an advantage in the conduct of business for the organisation. This offence is widely drawn, as an associated person is any person who performs services for or on behalf of the organisation. Determination of whether a person is an associated person under the Act will be by reference to all relevant circumstances.

Walmart’s lobbying activities in India will be primarily tested in terms of the existing law, i.e., the Prevention of Corruption Act, 1988.

As per Section 7 of that law, any public servant who obtains or agrees to accept any gratification other than legal remuneration, as a motive or reward for doing or forbearing to do any official act in the exercise of his official functions shall be punishable.

The reluctance of the Indian lawmakers to rein in the lobbyists is hardly surprising. India has had its own challenges in legislating on a somewhat related topic, i.e., political contributions by companies.

But for the repeated prodding from an exasperated judiciary, the lawmakers would have gladly let things be as they were. Prior to the enactment of the Companies Act in 1956, there was no statutory provision relating to donations to political parties.

Even after the law was enacted, companies and politicians found ingenious ways such as advertisement in party souvenirs and newspapers, channelling donations through dealers and distributors, etc.

After a series of amendments over the years, section 293-A of the Companies Act now permits donations up to 5 per cent of the average net profits for the last three financial years, with the prior sanction of the Board of Directors.

There is also an enabling provision under section 29B of the Representation of the People Act, 1951.

India must look to legitimise and regulate lobbying activities through appropriate legislation. While we can certainly draw inspiration from the legislations in other developed economies, we will do well to tailor them to the Indian realities.

(The author is Partner, Advaya Legal, Mumbai.)

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Published on December 16, 2012
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