Complying with anti-corruption laws and regulations in India is essential for businesses to maintain ethical practices, uphold their reputation, and avoid legal consequences. The primary law governing anti-corruption in India is the Prevention of Corruption Act, 1988. Here are steps to help your business comply with anti-corruption laws and regulations: Establish a Code of Conduct and Anti-Corruption Policy: Develop a comprehensive code of conduct and anti-corruption policy that clearly outlines your organization's commitment to ethical behavior, zero-tolerance for corruption, and the consequences of violations. Implement Anti-Corruption Training: Provide anti-corruption training to employees, agents, and partners to educate them about anti-corruption laws, regulations, and your company's policies. Due Diligence on Business Partners: Conduct thorough due diligence on potential business partners, vendors, and suppliers to ensure they have a clean record and do not engage in corrupt practices. Third-Party Audits and Monitoring: Implement a monitoring and auditing system to detect and prevent corrupt practices within your organization and among business partners. Whistleblower Mechanism: Establish a confidential whistleblower mechanism that allows employees and stakeholders to report any suspected corrupt activities without fear of retaliation. Gifts and Entertainment: Establish clear guidelines regarding gifts, entertainment, and hospitality offered to government officials, clients, or business partners. Ensure these are within legal limits and disclosed transparently. Avoid Facilitation Payments: Refrain from making facilitation payments, often referred to as "grease payments," to expedite routine government processes. These payments are illegal under Indian law. Political Contributions: If your business makes political contributions, ensure they are transparent, legal, and made in accordance with applicable laws. Financial Controls and Record-Keeping: Maintain robust financial controls and accurate record-keeping to prevent embezzlement or bribery. Regularly review financial statements and transactions. Government Contracts and Bidding: When participating in government contracts or bidding processes, ensure full compliance with procurement rules, ethics, and anti-corruption requirements. Reporting: Report any instances of corruption, bribery, or unethical behavior to the appropriate authorities, as required by law. Seek Legal Advice: Consult with legal experts or compliance professionals who are knowledgeable about Indian anti-corruption laws to ensure that your business practices align with current regulations. Compliance with International Laws: If your business operates internationally, be aware of and comply with international anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, as these may apply to your activities. Regular Review and Updates: Regularly review and update your anti-corruption policies and procedures to ensure they remain effective and aligned with changing laws and regulations. Cooperation with Authorities: If you become aware of corruption-related issues within your organization, cooperate fully with law enforcement agencies and regulatory authorities during investigations. Compliance with anti-corruption laws is crucial to maintaining the integrity of your business and avoiding legal and reputational risks. It is advisable to consult with legal experts who specialize in anti-corruption and compliance matters to tailor your compliance program to your specific business needs.

Dear client, Introduction- The Indian economy is characterised by the presence of a ‘big’ government – the Indian political structure encompasses central and state governments, as well as various local self-governance structures. This means that a single business entity may be subject to a number of central, state, and local regulations including: requiring approvals and registration to commence and operate its business; compliance; periodic reporting and inspections; and the exercise of individual discretion by government officials at various levels. Additionally, there is a preponderance of government-owned enterprises across various sectors including financial services and infrastructure. The interactions with the government (in its various forms) and government-owned enterprises are unavoidable for entities looking to do business in India. Indian laws and regulations often provide for considerable discretion in the hands of government agencies and personnel, and this can make interacting with the government a subjective and time-consuming exercise. While Indian anti-corruption laws are fairly stringent, corruption is not uncommon in India. However, recent years have been marked with a growing public dissatisfaction over corruption and its cost to the Indian economy. Over the past several years, there has been strong public sentiment against corruption, and high-profile instances of corruption have become key political issues. India’s rank has improved one place to 85 (from 86 in last two years) amongst 180 countries in the Corruption Perceptions Index (‘CPI’) as reported by Transparency International. The incumbent Indian government has also taken a hard-line stance on corruption issues and has prompted the introduction of several legislative measures aimed at tackling corruption in India as described herein. Most importantly, the past few years have seen a change in attitude of enforcement agencies, which have started enforcing anti-corruption laws aggressively in India against the perpetrators of corrupt practices as well as their advisors, auditors and other agents who either support or ignore the existence of such practices, and have been supported in their efforts by the judiciary (which has taken an active role in monitoring corruption cases) and civil society. 1. Prevention of Corruption Act, 1988- The primary anti-corruption statute in India, the Prevention of Corruption Act, 1988 (‘PCA’) criminalises receipt of any ‘undue advantage’ by ‘public servants’ and the provision of such undue advantage by other persons. The PCA states that an ‘undue advantage’ is any gratification (not limited to being pecuniary in nature or estimable in money) other than the legal remuneration of such public servant. Further, the term ‘public servant’ has a wide definition under the PCA, and includes, inter alia, any person in the service or pay of any government, local authority, statutory corporation, government company, or other body owned or controlled or aided by the government, as well as judges, arbitrators, and employees of institutions receiving state financial aid. The Supreme Court of India has also held that employees of banks – public or private – are considered ‘public servants’ under the PCA.[i] The offences under the PCA, inter alia, include the following: (1) public servants obtaining or attempting to obtain any undue advantage with the intention of, or as a reward for improperly or dishonestly performing or causing performance of public duty either by himself or by another public servant; (2) public servants obtaining any undue advantage without (or for inadequate) consideration from a person concerned in proceedings or business transacted either by the public servant or any other public servant to whom such public servant is a subordinate; and (3) criminal misconduct by a public servant (which includes possession of disproportionate assets). 2. Right to Information Act, 2005- The Right to Information Act, 2005 (‘RTI Act’) allows Indian citizens to obtain information held by any public authority, subject to specified exceptions for national interest, legislative privilege and right to privacy. The information requested by a citizen is required to be provided in a timely manner (within a period ranging from 48 hours (if the life and liberty of any person are involved) to 30 days from receipt of request). Authorities have been set up at the central and state levels to monitor complaints from citizens under the RTI Act (including a refusal of access or a failure to respond). 3. Central Vigilance Commission Act, 2003- The central government constituted the Central Vigilance Commission (‘CVC’) pursuant to the Central Vigilance Commission Act, 2003. The CVC is the government watchdog that is tasked with inquiring into (or commissioning an inquiry into) offences alleged to have been committed under the PCA. Powers and functions of the CVC include, inter alia, exercising superintendence over the Delhi Special Police Establishment for the examination of offences under the PCA, and inquiring or causing an investigation to be made on the recommendation of the central government for offences under the PCA. The CVC has the same powers as a civil court to summon and enforce attendance, receive evidence on affidavits, etc. 4. Companies Act, 2013- The Companies Act, 2013 (‘Companies Act’) is India’s law that governs companies and places a strong emphasis on corporate governance and the prevention of corporate fraud. Under the Companies Act, auditors and cost accountants are mandatorily required to report certain suspected frauds to the central government. Certain types of companies are also mandated to establish a vigilance mechanism for the reporting of concerns. The Companies Act defines the term ‘fraud’ quite broadly, and this could encompass acts of private or commercial bribery. While the laws referred to in the preceding paragraphs relate to corruption involving public servants, the Companies Act is also attracted to cases of private bribery (which does not involve any public servant). Fraud is a criminal offence under the Companies Act and is punishable with imprisonment ranging from six months to 10 years and/or a fine. The Companies Act has also led to the empowerment, and practically the operationalisation, of the Serious Fraud Investigation Office (‘SFIO’), which is empowered to detect, investigate and prosecute white-collar crimes and fraud. The SFIO has broad powers to conduct inspections, discover documents, search and seize evidence, carry out arrests, among others. Besides the SFIO, the Companies Act also establishes the National Financial Regulatory Authority (‘NFRA’), which monitors and enforces compliance with the accounting and auditing standards under the Companies Act. 5. Prevention of Money Laundering Act, 2002- The Prevention of Money Laundering Act, 2002 (‘PMLA’) criminalises ‘money laundering’, which it defines as direct or indirect attempts to indulge in, knowingly assist or become party to, or actually involving in, a process or activity connected with the ‘proceeds of crime’ (including its concealment, possession, acquisition or use)[ii] and projecting or claiming such property to be untainted property. Under the PMLA, ‘proceeds of crime’ are defined to mean any property derived or obtained, directly or indirectly, by a person as a result of certain underlying identified crimes (which are considered predicate offences for the application of the PMLA). Legislative changes to the PMLA in 2018 included ‘fraud’ under the Companies Act as one of the predicate offences which would attract the application of the PMLA. As a result, any property derived or obtained pursuant to fraud is considered ‘proceeds of crime’ under the PMLA. Offences under the PCA are also predicate offences under the PMLA. The PMLA provides for the attachment of properties of accused persons (and other parties who are connected with the proceeds of crime) at a preliminary stage of the investigation (and even prior to conviction). Overview of enforcement activity and policy- The past few years have witnessed a stark change in the approach towards enforcement of anti-corruption laws in India. The government has introduced (and strengthened) several laws specifically targeting corruption, and enforcement action on the same has also increased. Law enforcement agencies have also initiated proceedings against various corporate giants and businessmen for defrauding public and private sector banks. Another growing trend is that enforcement agencies have become more sophisticated in unravelling complex corporate or financial structures and have increased their reliance on technological tools. Importantly, government agencies have also shown a willingness to take the assistance of specialists such as private forensic auditors or investigators to help them in this endeavour and provide expertise that they may lack themselves. Indian enforcement agencies have also strengthened their relationships with agencies from other jurisdictions, and we have witnessed far more cooperation and coordination in cross-border enforcement efforts. Perhaps the most welcome change has been an increased appetite among enforcement agencies to aggressively investigate and pursue corruption cases, even against high-profile politicians and powerful bureaucrats. Additionally, enforcement agencies have initiated proceedings against statutory auditors of entities who have been subject to financial fraud. The Ministry of Corporate Affairs, the Securities and Exchange Board of India (‘SEBI’) and the NFRA have been at the forefront of prosecuting audit firms who, while being appointed as statutory auditors of companies in India, have allegedly colluded with the management in perpetrating fraud upon the entity, its shareholders, banks and the public at large. It is interesting to note that as regards the PMLA, the offence of fraud under the Companies Act was introduced as a scheduled offence on April 19, 2018. Pursuant to Article 20 of the Constitution of India, any finding of fraud prior to such period should not trigger the provisions of the PMLA, since Article 20 of the Constitution of India expressly states that no person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence; neither shall they be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. However, this principle in relation to the PMLA proceedings is in the process of being tested at the level of the Supreme Court of India. While the High Court of Karnataka has upheld this principle in light of Article 20 of the Constitution of India in Directorate of Enforcement v. Obulapuram Mining Company Private Limited,[v] the order passed by the High Court of Karnataka has been appealed before the Supreme Court of India, which has passed an interim order[vi] stating that the High Court’s order will not operate as a precedent, pending the conclusion of proceedings before the Supreme Court. Law and policy relating to issues such as facilitation payments and hospitality At the outset, it should be noted that unlike the US Foreign Corrupt Practices Act, the PCA prohibits the payment of ‘facilitation payments’ or ‘grease money’. This has also been clarified by a recently inserted illustration in the PCA itself which states that if a public servant demands money to process a routine application on time, the same would be an offence under the PCA. It is important to recognise that, unlike the Service Rules or the FCRA, the PCA does not provide for any de minimis thresholds for gifts, meals, or hospitality in respect of public servants and the thresholds specified under the Service Rules and the FCRA can, at best, be viewed as guidelines for de minimis amounts, on the assumption that there is no intent to violate the PCA. Moreover, the Supreme Court of India has held that the quantum paid as gratification is immaterial, and that conviction will ultimately depend upon the conduct of the delinquent public official and proof established by the prosecution regarding the acceptance of such illegal gratification.[vii] It should be noted that the true test of whether a person shall be prosecuted under any anti-bribery legislation is whether the mens rea to commit an act of corruption or violate any anti-bribery law existed on the date of such payment. Therefore, the receipt of gratification or valuable things (however insignificant their value) by a public servant, which is not within the legal remuneration of the public servant, could potentially attract prosecution under the PCA. In view of the foregoing, the compliance regimes of multinational organisations operating in India must be carefully crafted and customised to the Indian legal framework, and specific legal advice should be obtained in this regard. Key issues relating to investigation and enforcement procedures- 1. Attorney-client privilege- Indian law recognises that communications between an attorney and a client are privileged. It is, however, important that advice on Indian law be sought when evaluating the availability of privilege in the specific facts of every case. In the context of an investigation, we suggest that the company should appoint an Indian law firm to conduct the investigation, and (although this position remains untested as a matter of law) any experts, investigators or auditors should be appointed by the law firm to extend the privilege (to the extent available) to any work product prepared by such experts, investigators, or auditors to assist the lawyers in providing legal advice, especially in anticipation of litigation. 2. Data privacy concerns- Companies are generally permitted under Indian law to collect and review electronic data stored on their servers or electronic equipment (such as laptops or phones) in the context of an investigation, and this right should be specifically reserved by the company in its policy manuals or employee handbooks. The Information Technology Act, 2000 and the rules issued thereunder regulate the collection, storage, use and disclosure of sensitive personal information (‘SPI’), such as passwords, financial information, medical records, biometric information, etc.; therefore, a company should obtain the consent of an employee before accessing or reviewing data from an employee’s personal electronic devices. Recently, the Union government has brought in the Digital Personal Data Protection Act, 2023, which could potentially impact several aspects relating to data privacy. However, at the time of writing this chapter, it is not yet operational, and could evolve further. 3. Reporting- There is no express obligation under Indian law to self-report offences under the PCA. However, a reporting obligation imposed upon auditors may be triggered if the act also qualifies for reporting under the Companies Act, and frauds are required to be disclosed as a part of an auditor’s report. Although the Code of Criminal Procedure, 1973 contains provisions relating to reporting obligations, it remains to be seen whether Indian courts will extend these obligations to offences under the PCA. Proactive self-reporting of the kind available in the US (and related incentives regarding penalty and prosecution) is not currently available in India. 4. Presumptions and exemptions under the PCA- Where the authorities can establish the receipt of gratification or a valuable thing by a public servant, the PCA creates a legal presumption that the receipt was pursuant to an offence under the PCA – the burden of proof is then on the accused to demonstrate that such receipt was not improper. Additionally, legislative changes made to the PCA in 2018 provide immunity to individuals accused of providing gratification, if such individual has been compelled to give such gratification and is willing to report the matter to the law enforcement authority or investigating agency within a period of seven days from the date of giving such gratification. 5. Multiplicity of enforcement proceedings and agencies- From the perspective of commercial organisations, it is important to recognise that multiple agencies with similar powers are often competent to investigate different aspects or facets of a single set of facts. For example, the use of company funds to bribe an official of the central government may constitute related but distinct offences under the PCA, the PMLA and the Companies Act, each of which may be investigated by a different agency. If the company in question is listed, SEBI may also initiate proceedings against the company. SEBI has, in October 2020, mandated (with some exceptions) disclosure of commencement of forensic audits by listed companies, and of the forensic audit report with management comments on conclusion thereof. This is, in addition to the obligation of listed companies to disclose frauds, especially those involving senior management. Therefore, addressing any compliance issues and/or dealing with an investigation requires companies to adopt a nuanced and carefully crafted strategy. 6. Whistle-blowing- Although the legislation protecting whistle-blowers has been enacted by the Indian Parliament, it is still pending notification. SEBI has meanwhile offered a monetary reward of 10% of the monetary sanctions to whistle-blowers in relevant cases, up to a maximum amount of INR 100 million (approximately USD 1.08 million, based on a value of USD 1 = INR 82.74). The Companies (Auditor’s Report) Order, 2020 issued by the Ministry of Corporate Affairs requires disclosure on whether the auditor has considered whistle-blower complaints, if any, received during the year by the relevant company. Should you have any queries, please feel free to contact us!