OperationalbribesIn asurvey of International Attitudes to Corruption 2013 conducted by Control Risks,76 per cent of Indian businesses think of request for operational bribes as oneof their two “significant concerns”. This shows the difficulty in getting work donein the Indian market.
Operational bribes are normally facilitation payments or smallbribes linked with supporting the smooth running of the business. Examples comprisedemands by tax investigators and handling brokers, officials processing licencerequests, offers by customs officers to accelerate the clearance of goods via customs,and police officers frightening false fines. These payments many a times carrythe implicit concerns that non-payment may effect in difficulties for thebusiness.Internationalattitudes to facilitation payments are revising, with companies going under growinginspection from the UK Bribery Act, the US Corrupt Practices Act (FCPA), andAustralia’s anti-bribery regulation. While facilitation remittance may not be acrime in some jurisdictions, there is an expanding crackdown on such actions.India also has an program of legislative reform for corruption and briberywhich comprises the Companies Act (2013) which will force higher level ofcorporate governance. In addition there is the pending Prevention of Corruption(Amendment) Bill 2013 which will make it simple to convict companies payingbribes, as well as the receiver of the bribes.Companiesneed to have a comprehensive policy to tackle this matter.
Companies also needto add clauses in contracts with consultants and subcontractors expressing thatthey will not pay bribes for the organisation. But this can be hard. Expert guidancefrom specialists such as customs house representative may be part of the solution,as long as these do not work as bribe-paying outsiders.
As per thereport published by Control Risks on “International Business Attitudes toCorruption: Focus on India – Survey 2013”, organisations may have to acceptdelays – instead of bribes – as an expense for the business, expecting that launchinga policy of resistance will over time minimize the likelihood of demands forbribes. Resisting such ‘systemic’ bribery demands will be possible according tothe report of The Control Risks.Paymentsto commercial agents and other intermediariesNumerousorganizations are educated on entering the Indian market that services of privateagent will be needed and 10 per cent is expected to be paid of the agreement value.
This remains a barrier, mainly for companies that may be running with a sizableamount of outsiders across various parts of the business. There is no definite ruleto determine what level of commission is suitable. The key question to focus iswhether the payment is appropriate for the kind of services provided. Forexample, a commission of 10 per cent is likely to be considered excessive on a hugemulti-million-dollar contract.Makingsure that the company has robust due diligence process in place for all outsidersit works with, benchmark clauses related to anti-bribery in all contracts andregular reviewing of relationships to ensure compliance are some of the strategieswhich can be used to reduce the risk in this area.The riskof being asked directly for a bribe to get business has reduced in India thanksto some big corruption prosecutions. Companies do need to be familiarized with moresubtle variations of bribery comprising being demanded to make a charitabledonation to a particular cause or sponsor a particular activity assisted by thedecision maker granting a contract.
To make sure high standards of corporategovernance are maintained, the company needs at least to ensure that allsponsorships and donations are made public and that the receivers have a valid socialpurpose and publish their accounts. There should be no expectation of futurebusiness resulting from the sponsorship or donation.Resolutionof legal issuesIn those authoritieswhere there is an evidence of bribery within the legal system in order to impactthe result of commercial disputes companies are suggested to address this issueupfront in their legal contracts. By mentioning an external court ofarbitration in agreements and contracts, companies can reduce the legal risksinvolved. There is no need for Companies to be aware that decision of legal mattersin India can take time and think of arbitration external to the court system asan option.Preventionis better than cureAccordingto Control Risks 2013 Survey, only 27 per cent of companies have anti-corruptiontraining for all.
Comprehensive policies on corruption and bribery need to be strengthenedthrough regular training for all staff. Also, staff working in risky areas suchas senior management and sales need to have more exhaustive training whichoutlines specific situations and how to tackle them. The relevance of trainingshould be reinforced from the top down so all employees understand the criticalnesswith which corruption and bribery issues are addressed by the company.Awhistle-blower mechanism which permits staff to confidentially raise issues aboutcorruption and bribery is another important tool that can be used by companiesto help stop problems before they occur.
Indian Government initiatives to helpcombat bribery and corruptionPreventionof money launderingVarious IndianGovernments have publicized the Prevention of Central Vigilance Act, 2003,Money Laundering Act, 2002, Right to Information Act, 2005, etc. as a discouragementto persons who may plan to involve inacts of bribery. The Prevention of Money Laundering Act, 2002 applies to allpersons and may result to prosecution under the Indian Penal Code, 1860. Otherthan these central legislations, different States Legislatures have formedanti-corruption ombudsman organisations, known as Uplokayukts and Lokayukts,for examination of administrative activities taken by or on behalf of the stategovernments or some local and public authorities.TheSupreme Court of IndiaThehighest judicial forum of India is Supreme Court of India.
The Supreme Court isthe protector of the Constitution of India and the federal court. The SecondGeneration (2G) telecom spectrum case is a sample of the Supreme Court ofIndia’s part in minimizing the corruption in India.The caseinvolved the Government using a ‘first come first served’ method, instead of acompetitive tender. This method resulted grants to successful companies worth billionsof dollars and resulted in charges of fraud and corruption against the ministerand other officials.
TheSupreme Court struck down all licences issued under this regulation and heldthat an auction/competitive tender structure is the best practice for the stateto adopt when distributing public or natural resources. As a result of the abandoningof licenses, big Indian corporates and their foreign JV partners have incurred hugelosses.The resulthas sent a strong message to foreign investors related to legal environment inIndia and should lead to greater degree of probity in the coming years.
TheCentral Bureau of InvestigationThe foremostinvestigating police agency in India is The Central Bureau of Investigation(CBI). The CBI plays an important role in the prevention of corruption.TheAnti-Corruption Division of the CBI has worked on cases against ministers,chief ministers, secretaries to government, senior executives of banks,officers of the All India services, financial institutions and public sectorundertakings in various cases of corruption.CBI also workscases of corruption and fraud perpetrated by public servants of all CentralPublic Sector Undertakings, Central Government Departments and CentralFinancial Institutions.
The Supreme Court of India and different High Courtshave been managing the CBI to investigate into several corrupt practices. TheSupreme Court of India has recently directed the CBI to investigate issues suchas the coal tenement allocation and the Commonwealth Games project financingand has been observing the development of these high profile cases on a regularbasis.Internationallegislative initiativesIn 2011,after India signed the United Nations Convention against Corruption, the IndianGovernment moved to execute a strong anti-corruption legal framework. This includedthe introduction of a series of new bills, comprising (i) the PublicProcurement Bill 2012, (ii) the Prevention of Bribery of Foreign PublicOfficials and Officials of Public International Organisations Bill, 2011, (iii)the Whistle Blowers Protection Bill 2011 and (iv) Lok Pal Bill 2012 as well asthe minor changes to existing laws to add bribery in the private sector as apunishable offence.IntegritypactTransparencyInternational developed a tool called The Integrity Pact (IP) to support businesses,governments and civil society to fight corruption in the field of public dealings.IP initiates mutual contractual rights and obligations to mitigate the highcost and distortionary effects of corruption in public contracting.ManyIndian government authorities at Centre and the State level have to embrace theIP recommended by Transparency International while engaging with privateparties.
IP is also embraced and suggested by the Central Vigilance Commission.It is assumed that approximately 50 central Public Sector Undertakings (PSUs)have selected the IP in their procurement procedure. IP has formed a mechanismto bring in transparency to remove corruption in public contracting in future.Companies which are planning to commence business in India can use IP to recognizeprojects and partners which are obeying with its standards as one riskmitigation strategy. SummaryWaysto mitigate risk for companiesCompanies planningto do business in India might want to examine the techniques used byinternational companies in the market to reduce their risk. These include:· Setting the tone from the top. Companymanagement leads by example; by placing and actively encouraging a “zerotolerance policy”.· Choosing comprehensive strategies and techniquesthat set out the conduct anticipated from employees and outsider contractors.
The strategies should recommend escalation procedures, expenses, conflicts ofinterest, gifts and hospitality, utilization of outsiders to gain business,monitoring, whistle-blowing and analyze procedure and disciplinary sanctionsfor any violation.· Presents and courtesy standards frequentlypose difficulties due to different cultural practices. In India business courtesyand presents are widely accepted and even anticipated. Company strategies needto explain the policy, create an approval procedure and the limits allowed to presents,recreation, hospitality and travel. There should be procedures in place to monitorall presents, recreation, hospitality and travel by employee and/or client.
· Creation of a procedure for employees thatexplains and stops facilitation payments.· Strengthening the procedures viasystematic training and transmission.· Drafting and executing strong financialcontrols with requisite checks and balances by various stakeholders comprising complianceor legal teams. Such structure should tackle dealings in cash and control politicaland humanitarian donations.· Managing periodic risk evaluation.Compliance instabilities should form an fundamental part of such assessment.
The risk evaluation should notify the growth of monitoring schemes, strategies andprocedures, training and running processes.· Managing a gap evaluation of current policiescompared with relevant legislation, laws and advise and make required improvements.· Initiating a whistleblowers mechanismwhereby employees can make confidential reports on issues related to briberyand corruption.· Minimizing reliance on outsidercontractors and assuring that standard clauses related to the payment of bribesare mentioned in all contracts. All outsiders should be reviewed regularly, subjectto thorough due diligence.
· Assuring thorough due diligence is conductedon all joint venture partners before any relationship is established.· Have an rational system in place for examiningsuspicious acts of bribery and corruption by employees. This might comprise instructionson information collection, assuring all required documents and electronic dataare maintained, self-reporting and termination procedures.