Foreign Corrupt Practices

Contents

The Law

The Foreign Contribution (Regulation) Act, 1976

Two More Issues

This briefing aims to outline the relevant legal provisions relating to the prevention of corruption in India

The Law

There are three pieces of legislation that merit attention –

the Prevention of Corruption Act, 1988

the Indian Penal Code (“the Code”)

the Foreign Contribution (Regulation) Act, 1976.

The Prevention of Corruption Act, 1988 and the Code

This Act is primarily aimed at a “public servant” and indirectly affects the source of bribery or corruption through the principle of “abetment”. The Act applies to the whole of India and also covers citizens of India outside India

While not particularly mentioning foreigners, the Act is important for two reasons –

Foreigners, as corporate entities, have varying degrees of participation with their Indian counterparts through joint ventures, collaborations and other associations. In addition, of late, wholly owned subsidiaries, representative and liaison offices have become very common. These corporates will be affected by the Act Foreigners as individuals will become liable under the Act if they commit an offence in India and could be prosecuted without any limitation as to their corporeal presence in India at that time

In either case, ignorance of the law by a foreigner may not be a legal defence, but is a matter that will be taken into consideretion in terms of mitigation of punishment

Section 2(c), (the relevant portion, as emphasised by the writer) defines a “public servant” to mean –

any person in the service or pay of the government or remunerated by the government by fees or commission for the performance of any public duty

any person in the service or pay of a local authority

any person in the service or pay of a corporation established by or under a Central, Provincial or State Act, or an authority or body owned or controlled or aided by the government or a government company (as defined in the Companies Act)

any judge

any arbitrator or other person to whom any cause or matter has been referred for decision or report by a court of justice or by a competent public authority

any person who holds an office by virtue of which he is authorised or required to perform any public duty (meaning any duty in the discharge of which the State [very widely defined], the public or the community at large has an interest)

Readers will immediately see that such an exhaustive definition means that every business will come into regular contact with public servants, which means that a complete understanding of the Act is advisable

Three more sections are particularly vital from the point of view of business and case law

Section 7 relates to the taking by a public servant of gratification other than legal remuneration in respect of an official act

Section 11 relates to the obtaining by a public servant of a valuable thing without consideration from any person concerned in any proceeding or business transacted or about to be transacted by such public servant

With regard to both these sections, section 12 provides that whoever abets any offence under sections 7 or 11, whether that offence is committed in consequence of that abetment or not, will be punishable with imprisonment (for a term which shall not be less than six months but which may extend to five years) and will also be liable to fine – in other words, a bribe-giver would be punished under section 12

Such a person is also liable under section 109 of the Code. A person offering a bribe, whether received or rejected, is guilty under that section of abetment. A person present at the time the abettor offers or pays a bribe shall not be guilty of abetment on the principle of spectator haud particeps (spectator and not a participant)

As is clear from Som Prakash v State of Delhi (AIR 1974 SC 989), bribes paid to get lawful things done quickly are also covered by this Act

With particular reference to corporates, there have been cases where officers are alleged to have indulged in acts causing public servants to abuse their official position whereby the corporate for whom they work has ultimately gained pecuniary advantage as a direct result of the abuse by the public servant. Such a case could fall within section 13(l)(d), read with section 15 (punishment for attempt to commit offence under 13(l)(d)) which reads as follows –

“A public servant is said to commit the offence of criminal misconduct if he (i) by corrupt or illegal means, obtains for himself or for any other person, any valuable thing or pecuniary advantage

The Foreign Contribution (Regulation) Act, 1976

On a slightly different footing, this Act assumes importance for putting direct responsibility on a person making and receiving foreign contributions

The Act applies, inter alia, to associates, branches or subsidiaries outside India of companies or bodies corporate registered or incorporated in India. In other words, it will affect wholly-owned subsidiaries, joint ventures, collaborations and the like

Section 4 provides that no foreign contribution shall be accepted by any –

candidate for election

correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper

judge, government servant or employee of any government corporation (including a government company)

member of any legislature

political party or office-bearer thereof

Foreign contribution means any donation, delivery or transfer made by any foreign source –

of any article, (except a gift for personal use, valued at less than Rs 1000 [roughly US$20])

of any currency, whether Indian or foreign

of any foreign security as defined under the Foreign Exchange Regulation Act, 1976

“Foreign source”, an inclusive definition, is very exhaustive and covers any foreign company, or any other foreign entity, a multinational corporation, a foreign trust or foundation, and a citizen of a foreign country

Very tight disclosure requirements are stipulated when receipts are obtained. There are further regulations affecting acceptance of foreign hospitality

The penalty for someone who accepts or assists in accepting foreign contributions in contravention of the law is imprisonment for a term of up to five years, or a fine – or both

Two More Issues

Unlike the United States, which makes bribery of foreign government officials a criminal offence, India does not have the equivalent of the Foreign Corrupt Practices Act. There are no exceptions for “small-time” expenses under the Indian law as there are under the FCPA

In the controversial Enron-Dabhol Power Corporation Electricity Generation Project with the State Government of Maharashtra, of which Mumbai (formerly Bombay) is the capital city, Enron made a disclosure that it had spent about US$6 million on “educating” Indians about the project. In response government pressure and a public outcry, Enron obtained a clean bill of health from the US Government under the FCPA to the effect that these were bona fide expenses and not sums paid to bribe officials in India to award the project to Enron

Furthermore India, as a member of the IMF, is committed to the revised Madrid Declaration unanimously adopted recently by the IMF. This declaration states that “promoting good governance in all its aspects, including efficiency and accountability of public sector, and tackling corruption are essential elements of a framework within which economies can prosper.” As a major recipient of World Bank funds, India will in future have to ensure that its projects are free from any form of corruption to comply with the conditions upon which the World Bank makes these funds available

In short, all those in positions of authority in India must realise that corruption is bad for business and hurts the countries whose officials give bribes. This form of corruption means that those countries pay more than is necessary for products and services. It also creates a deep-seated public resentment against both the government and the businesses that operate on a dishonest basis