Fighting International Corruption in India

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Mayur Joshi
Mayur Joshi
CA Mayur Joshi is award winning fraud examiner and foremost forensic accountant. He is regularly quoted in various news papers and is author of atleast 7 books on Forensic Accounting, Money Laundering and Compliance.

The US FCPA (Foreign Corrupt Practices Act) is important legislation for the United States to combat bribery by US companies in other countries. It prohibits foreign governments from engaging in corrupt practices. The Department of Justice is in charge of enforcing this law. Payments, gifts, or even offers of “anything of value” to a “foreign official” to influence the official or otherwise “getting any illegal benefit” in obtaining, keeping, or directing business are prohibited.

The Foreign Corrupt Practices Act (FCPA) makes it illegal for firms and their executives to bribe foreign officials with personal gifts or money. The FCPA extends to anyone with a connection to the United States who engages in international corruption. The Act also covers any act by U.S. firms, foreign corporations trading securities in the United States, and American nationals, citizens, and residents acting in support of the foreign corrupt practice. Regardless of whether they are physically present in the United States. This is the act’s nationality principle. Those who participate in these actions may risk prison time.

In 1977 Foreign Corrupt Practices Act was adopted. It outlaws the paying of payments to foreign officials to win or retain business. The Publicly traded corporations, officials, agents, etc. covered by FCPA. It can be used to prosecute unlawful activity anywhere in the world. Third-party agents, consultants, distributors, joint-venture partners, and other professionals are examples of agents.

Impact of US FCPA on Indian Companies?

The FCPA’s main goal is to make it illegal for US businesses and their employees, officers, directors, and agents to pay or promise to pay bribes to foreign authorities, political parties, candidates, or their conduits to win or retain business.

Direct Impact of FCPA on India

The FCPA is a law in the United States that aims to stop bribery and corrupt practices in business dealings. If an Indian company or individual engages in corrupt practices while dealing with U.S. companies or in U.S. territory, they can be held accountable under the FCPA. This means they may face legal actions, penalties, and fines imposed by the U.S. government.

Indirect Impact of FCPA on India

Because many Indian companies have business ties with U.S. firms or operate in the U.S., they must follow anti-bribery laws like the FCPA to maintain these relationships. This indirectly pushes Indian companies to improve their anti-corruption practices, making the business environment more ethical and transparent. It encourages companies to adopt fair and legal business practices not only when dealing with the U.S. but in their operations overall, which is beneficial for India’s image in the global business community.

The two-pronged approach of FCPA

It forbids any individual in the United States, a U.S. citizen abroad, or a foreign employee of a US firm from doing activities in furtherance of foreign corrupt payments.

It includes record-keeping and accounting restrictions. Which aims at preventing the creation of off-the-books slush funds to fuel unlawful payments.

The FCPA’s anti-bribery provisions in furtherance of direct or indirect bribery of foreign officials are the topic of the statute.

  • Any person while on US soil is prohibited from doing so
  • An individual from the United States acting entirely outside of the United States or
  • Any person working for a US corporation in a foreign country

On the Corruption Perceptions Index, 2020, India is placed 86th out of 180 countries. As a result, it is moderately susceptible to corrupt business practices. The United States is India’s second-largest supplier of FDI. The EU’s second-largest trading partner is FCPA.  Not only that, but the United States is India’s largest services export market. In fact, American corporations account for the majority of foreign corporations operating in India. The American Chamber of Commerce in India claims that its membership has grown from zero in 1992 to more than 400 today.

Nine of the top 20 IT companies in India are also based in the United States. These American businesses in India account for nearly 37% of the turnover of the top 20 businesses in the country.

When read together, the preceding paragraphs clearly indicate the need to understand the FCPA’s applicability and compliance in India by specific companies.

FCPA Certification Course

Obtaining the Certified FCPA Professional certification from Risk Academy is your key to unlocking a world of opportunities in the realm of anti-corruption and compliance. With FCPA (Foreign Corrupt Practices Act) violations becoming increasingly scrutinized, this certification empowers you with the expertise to navigate complex international business landscapes. It signifies your commitment to ethical business practices, enhancing your career prospects, and ensuring your organization’s integrity.

FCPA Enforcements related to India

The following instances demonstrate its application in the Indian context:

The Wal-Mart Case

Wal-Mart, a US-based corporation, began a global assessment of its policies, practices, and internal controls in March 2011. This is to ensure compliance with the Foreign Corrupt Practices Act (FCPA). The company has discovered further claims of potential FCPA violations. It’s after implementing the worldwide review and improved anti-corruption compliance program. According to news sources, Bharti Wal-Mart, Wal-Mart’s joint venture with India’s Bharti Enterprises, has suspended a few colleagues. They pledged to undertake a full and thorough inquiry as part of the evaluation.

CDM Smith and NHAI Case

The Central Vigilance Commission (CVC) recently discovered a corruption network. It reportedly functioned at the top levels of the National Highway Authority of India (NHAI) and the Directorate General of Central Excise Intelligence (DGCEI). According to the watchdog, US infrastructure firm CDM Smith paid bribes of approximately $1.18 million (Rs 7.5 crore). They bribe the officials to gain contracts and avoid paying service tax.

Mondelez International and Cadbury India Case

In another instance, it was revealed in the press that Mondelez International, a global chocolate and food company, will pay a USD 13 million penalty to the US government. It is for its former subsidiary, Cadbury India. For breaking anti-corruption laws. While obtaining regulatory permissions for the expansion of a business in Himachal Pradesh. Without admitting or rejecting the allegations. Mondelez International agreed to pay a civil penalty of $13 million (about Rs 90 crore). Cadbury India (formerly Mondelez India Foods) hired a consultant accused of bribing government officials and potentially prominent state legislators.  Cadbury India is also accused of violating the Foreign Corrupt Practices Act (FCPA) in India. Which, in 2009, sought “outside aid” in obtaining different permits and licenses. Which was to boost the manufacturing capacity of one of its operations in Baddi, Himachal Pradesh.

The Oracle Case

The SEC charged the California-based computer technology corporation with violating the Foreign Corrupt Practices Act (FCPA). By failing to prevent a subsidiary from surreptitiously putting aside money off the books. Also failing to prevent making unlawful payments to bogus vendors in India. Oracle Corporation agreed to pay the SEC a $2 million civil penalty. Just to resolve FCPA accusations stemming from a bribe-paying slush fund in India.

Beam Suntory Case

The SEC fined Beam Suntory Inc. $8.2 million for unlawful payments made by its Indian affiliate under the Foreign Corrupt Practices Act. Beam paid an Indian official $18,000 to approve a bottling license. A high-ranking executive at Beam’s business unit authorized the bribe. And to conceal it instructed payment through Beam India’s third-party bottler

Stryker Corp. Case

Stryker Corp. agreed to pay the SEC $7.8 million to settle FCPA bookkeeping and internal financial controls violations in India, China, and Kuwait.

The Alere Case

Alere, a healthcare corporation in early 2018 saw the heat of US regulators. After it was accused of bribing Indian officials. The corporation was also ordered to pay $9.2 million in penalties. Adding a Disgorgement of $3.3 million in earnings, and interest of $495,000. Which raised the total penalty amount to $ 13 million.  Through a competitive tender process, Alere India was also awarded a contract to supply malaria testing kits to a local government entity for a national disease control program.

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