Corruption Laws and Regulations in India and the United Kingdom

The Author, Jaanvee Sawant, is a 1st-year, BBA.LLB student at Kirit.P Mehta School of Law, NMIMS. She is currently interning with LatestLaws.com.

Abstract

Corruption has been viewed as a decadent and unscrupulous practice since biblical times. Historical events of fraudulent practices and contemporary theories of regulation of economic behaviour might bring to mind a sense of fascination, although, there is no reason to believe that that in contemporary commerce and business, corruption has a crippling and devastating effect. The annual Kroll Global Fraud Report[1] reports that India is among the countries having maximum national incidences of corruption (25%). It also reveals that India reports the highest proportion reporting bribery and corruption (73%) as well as procurement fraud (77%).  In accordance with the Transparency International Corruption Perception Index[2], India is ranked 78 out of 180 nations. Furthermore, the distorted political system in our country hints at where most of the matter takes place. The United Kingdom is the among the top 15 least corrupt country out of 180 countries, in accordance with the 2019 Corruption Perceptions Index reported by Transparency International. In this paper, we scrutinize the law in relation to anticorruption laws, regulatory framework and risks associated with noncompliance, especially with reference to possibility of a change in the passing of the Prevention of Corruption Amendment Act in India, the Bribery Act 2010 in UK and anti-corruption landscape. Furthermore, we also address opportunities for companies to devise compliance and preventive mechanisms. Litigation involves considerable risk and costs (reputational and financial) and hence, it is vital that, in the absence of legislative and regulatory clarity, companies use proactive agencies to address such risks.

Introduction

The term “corruption” is defined by the Transparency International as the exploitation of power or resources for private motives and further believes that, corruption, hampers economic development weakens democracy and erodes trust while further aggravates poverty, disparity, the environmental crisis and polarisation. However, the UN Convention against Corruption (UNCAC)[3] does not impose a single definition. Corruption can be classified into several categories:

• Bribery:

The most widespread type refers to the action of deceitfully persuading someone to act in one’s favour by an incentive. These incentives can be monetary such as fees, loans, taxes, services or gains like donations and gifts.

• Embezzlement

Embezzlement to rob, misappropriate or misdirect assets or funds positioned under one’s authority or in one’s trust. Although, embezzlement need not necessarily involve corruption legally. 

• Fraud

The act of deliberately and untruthfully deceiving someone with the intention of gaining an unlawful and undue advantage (political, economic or otherwise).

• Extortion

The act of harming or impairing, or threatening to harm or impair, indirectly or directly, any property or party to manipulate the actions of a party.

• Facilitation payment

A diminutive payment, also called a “grease” or “speed” imbursement, made to expedite or secure the performance of necessary action or routine to which the receiver has an entitlement which could be legal.

• Collusion

An agreement between two or more parties formulated to obtain an undue purpose, involving influencing inappropriately the actions of some other party.

• Nepotism, patronage and clientelism. In government, it refers to the practice of appointing people directly, at its core it means support given by a patron.

Corruption compliance and anti-bribery along with the mitigation of associated risks persist to be one of the key issues that companies have to face, abroad as well as in domestic markets. Globally, countries are implementing more and novel sophisticated anti-corruption and anti-bribery legislations as well as aggressive enforcement by government regulators. In several countries, enforcement agencies are also progressively cooperating in their struggle opposing corruption. Additionally, introduction of individual criminal liability for bribery linked offences is occurring in more countries.

Legislative and Regulatory Framework in the India

In India, the law regarding corruption is extensively governed by the Prevention of Corruption Act, 1988 (as amended from time to time) (‘POCA’) and the Indian Penal Code, 1860 (‘IPC’). In India, aside from the prosecution machinery and the investigating agencies, there is also the Central Vigilance Commission (‘CVC’), Auditor General (‘CAG’) and the Comptroller who play a significant role due to Public Interest Litigations (‘PILs’). Like, courts have ordered that the CAG should audit public-private-partnership contracts in the infrastructure segment on the basis of accusations of revenue loss to the exchequer. Besides, the risk of criminal prosecution under POCA, there is also the threat of being blacklisted and being subjected to enquiry for anti-competitive practices.

1. The Indian Penal Code and the Prevention of Corruption Act (with the Amendment Act)

India’s legislation related to corrupt practices and corruption consists of a snare of Government regulations and legislations. The IPC criminalised a variety of activities that include public servants accepting proceeds from accepting gifts[4], influencing a public servant through illegal and corrupt means[5] and taking bribes[6]. POCA repealed all these provisions that include Section 161 to Section 165A of the IPC. The POCA was enacted immediately after independence in 1947.

POCA in its relevant tenure [1998 – 2018]

The enactment of POCA in 1998 was to combine all the laws related to the public servants’ offences. Though, POCA only criminalised and prosecuted the action of taking a bribe and not giving. The former Section 7-11 criminalized several acts of public servants and the middlemen fret with corruption as such barring the giver of a bribe and private entities taking bribes. Another imperative aspect about POCA being that it prosecuted only offences related to corruption committed by public servants and public sector. Hence, disbursements made further than that included in a contract, or disbursements made to fraudulently seek contracts in the private sector, were not covered by the ac and could be prosecuted only under IPC

The application of POCA is restricted to the territory of India and it does not have extra-territorial operation unlike other laws. POCA makes no difference between an illegal gratification and a facilitation payment unlike laws in other jurisdictions. A payment is legal or illegal. This treatment is applicable to other laws and regulations in India too. POCA does not acknowledge illegal gratification paid to an official of a public international organisation or foreign government officials, unlike anti-corruption laws in other jurisdictions.

Even though the POCA was applicable only to public servants, extensive interpretation has been carried out by the courts for the term ‘public servant’. Such as, in Central Bureau of Investigation, Bank Securities & Fraud Cell v. Ramesh Gelli & Ors.15[7], the Supreme Court of India declared that the directors and chairman of a private bank would also be included in the expression ‘public servants’ for the function of POCA. Furthermore, POCA does not define the expressions, ‘corrupt practices,’ ‘corruption,’ or ‘bribe’.

A prior sanction of a competent authority[8] is necessary for the prosecution of public servants under the POCA. Receiving such sanction per se has been a hurdle to effective enforcement of the law in the past. Supreme Court observed the submissions of the Attorney General in Dr. Subramanian Swamy v. Dr. Manmohan Singh[9] that sanction was awaited in respect of 126, out of 319 requests.

POCA Amendment Act

Since its outset in the Parliament on August 19, 2013, the POCA Bill brought about various changes based on the Law Commission Report. Subsequently, it was passed by both houses of Parliament and in July, 2018 received the assent of the government which provided for substantial changes to POCA. These changes are discussed further:

• Bribe-giver is liable to be prosecuted

The scope of POCA, as per Section 8 has been extended to cover those who promise to give or give ‘undue advantage’ to an individual with the intent to reward or induce a public servant to perform their ‘public duty’ ‘improperly’. The term ‘improperly’ is undefined with no differentiations being other forms of bribery and facilitation payments, in contravention of the suggestions of the LCI. This is predominantly crucial considering a violation or non-compliance attracts criminal prosecution. Hence, it is important to have objective standards for the term ‘improperly’. In light of the Supreme Court’s ruling along with the need to negate the likelihood of expansion of private entities that are in collaborative projects with state owned enterprises/government, the expression ‘public official’ requires further clarification, although defined in POCA.

 This offence would be punishable with the maximum imprisonment for tenure of seven years and / or fine. The immunity granted in terms of the aforementioned section has now been retracted. Immunity from prosecution has although been granted to those who are compelled to offer such undue advantage[10] provided such individuals report the matter to law enforcement authorities within seven days from the date of the offering.

While retaining the edict of the POCA Bill, the Amendment Act has mainly retained the edict and grants the authority to prosecute commercial organizations. Punishment being that the officer of concerned commercial organization if proven to have conspired to commit the said offence/ or consented would be sentenced to imprisonment for a term for at least three years while being extendable to seven years and also liable to fine.

Chapter IV A to POCA was added to POCA Amendment Act, which grants the authority to attach, administrate or confiscate property and confiscate money soiled by corrupt actions. Taking LCI’s recommendations into consideration, the provisions of The Criminal Law Amendment Ordinance, 1944, is now pertinent to such attachment proceedings. Previously, tainted property could be attached through provisions under laws governing anti-money laundering.

• Time limit for trial

The Bill presently requires trial of offences to be held on a daily basis and endeavour to conclude it in two years. Expediting the process of effective prosecution can certainly be achieved through a time bound trial and furthermore, act as an effective deterrent for habitual offenders. A time bound trial would certainly help accelerate the progression of effective prosecution and would proceed as a formidable deterrent for habitual offenders.

Shortcomings-

The POCA Amendment Act has presently unmitigated the scope of POCA to prosecute commercial organizations and its officials as well as bribe givers. Although, the POCA Amendment Act has failed to bring within its ambit illegal gratification to foreign officials, corrupt practices and among private entities inter se.

POCA Amendment Act has certain terms undefined even after the Standing Committee on Personnel, Public Grievances, Law and Justice in August 2013 had suggested that these essential provisions be defined.

The ambiguity as a result of the dearth of key definitions and magnanimous meanings provided to certain expressions by courts is undoubtedly opposing India’s obligation under the United Nations Convention against Corruption (‘UNCAC’)

To ensure that consultants and employees are adequately knowledgeable about the obligations under the POCA, companies need to introduce guidance notes, compliance programs and manuals as followed in the other developed jurisdictions. Failure to follow through might aggravate liabilities under the POCA.

2. Lobbying

In spite of the lapsed Public Procurement Bill, 2012, various Government departments have procurement rules, which if not abided by may result in prosecution. Regarding public procurement contracts, the Competition Commission of India (‘CCI’ / ‘Competition Commission’) has the authority to scrutinize information suo moto and take cognizance of cases. Lobbying is an issue raised along with corrupt practices which calls for regulatory compliance. Per se, lobbying is not an institution in India like in some European countries or USA and it is not obligatory for Government agencies to consider the viewpoints of the interested parties or stakeholders before making rules and regulations.

Following the Nira Radia controversy[11] led to the introduction of a private Member’s bill in the Lok Sabha, The Disclosures of Lobbying Activities Bill, 2013 but the same lapsed. The bill aimed to regulate lobbying activities and the lobbyist per se. Though, regulation of lobbying activities is anticipated only on the supply-side and an approach like such may not adequately address concerns of constitutional ethics and transparency.

3. Central Vigilance Commission

The CVC was founded in February 1964 on the suggestions of the Santhanam Committee on the deterrence of corruption to recommend and guide the Central Government agencies on the matter of vigilance.[12] Following the promulgation of an ordinance by the President it received statutory status on 25th August, 1998. Legislative actions were initiated after a PIL was filed which sought the intervention of the Supreme Court due to lack of action by the Central Bureau of Investigation in accordance with certain corruption cases[13].

The Central Vigilance Commission Act, 2003 (‘CVC Act’) is an act to inquire about offences allegedly committed under POCA by societies or local authorities owned or substantially controlled by the Government, corporations established under any Central Act, Government companies or public servants of the Central Government.

The function being exercising superintendence over the Delhi Special Police Establishment for the scrutiny of offences under POCA, an investigation on the advice of the Central Government for offences under POCA re-examined the advancement of investigations carried out by the Delhi Special Police Establishment, among others.

4. Whistle Blowers Protection Act

Dealing with complaints, inquiring into and preventing its victimization, in relation to intentional misuse of power or corruption by public servants are what the act seeks to establish.

Legislative and Regulatory Framework in the UK

The Bribery Act 2010[14] is the fundamental bribery and corruption legislation. It criminalizes both the payment and receipt of bribes. In addition to this the private and the public sector are equally liable.

A function would be called “improperly” if:

5. the function is supposed to be carried out in good faith
5. individual does not perform the function impartially, even though he is expected to
5. individual breaches the trust, even after being in a position of trust

The functions falling under the Bribery Act are:

5. public in nature
5. in relation to business
5. performance falls in the course of a person’s employment
5. performance by or on the behalf of a body of individuals.

A commercial organization or a corporate will commit an offence under Section 7 of the act, if a person bribes another person with the intention to retain or obtain the business for the organization or to retain or obtain an edge in the modus operandi of business for the organization. This offense can be committed overseas or in the UK and is of strict liability in nature[15].

Civil Bribery:

There is civil tort to bribery too, which is in relation to the commission offered to agents without the principal’s consent or knowledge. Basically, the payer although being aware of the agency relationship, yet keeps the payment a secret, which leads to a conclusive presumption of corruption. For his principal, bribes and commissions are held on trust by an agent.[16]

1. Facilitation Payments

These are deemed illegal under the act; however, the government of the UK has acknowledged the issues that commercial organizations face in certain sectors in certain parts of the world.  The position as to the facilitation payments being prosecuted is yet uncertain even after the UK Joint Committee has suggested there should be some in lieu of situations in which facilitation payments will be prosecuted, the government made it apparent that it should not be policed in public interest by prosecutorial discretion

2. Compliance Program

Facts and circumstances of the case determine whether the organization has sufficient procedures in place to prevent bribery. Though, the guidance highlights 6 principles[17] of preventing bribery which an organization should consider while drafting an anti-bribery compliance program:

• Reviewing and Monitoring:

Periodical reviewing and monitoring of the anti-bribery policies should be carried out by the organization along with improvements in whichever areas necessary.

• Communication:

Via internal and external communication an organization should seek to ensure that its anti-bribery policies are comprehended well and throughout the organization, and if needed implement a training session.

• Due diligence:

In respect of individuals who perform or will perform on or on its behalf, the organization ought to employ a due diligence modus operandi and apply a proportionate approach.

• Risk assessment:

Potential risks of bribery, its nature and scale should be considered by the organization. Moreover, the assessment should be documented, informative and carried out at regular intervals.

• Top-level Commitment:

A culture wherein bribery is not acceptable in any circumstances should be endorsed by the management. The bribery prevention objective has to be backed by the management of the organization and they have to be committed to the cause.

• Proportion:

The intricacy, extent and nature of the organizations activities along with the bribery risks it faces should be met with a proportionate internal modus operandi to prevent bribery.

3. Jurisdiction to prosecute corruption

The Serious Fraud’s Office is the chief prosecutor shouldering the responsibility for the enforcement of the Bribery Act. While determining if to initiate a prosecution (against persons or corporate), it will consider the fact whether the prosecution should be public along with the evidential case against the suspect.

4. Punishments

1. A person in conviction due to the commission of any of the general bribery offences may:

• suffer imprisonment for a tenure of up to 10 years; or/and
• subjection to an unlimited fine

2. A partnership or company that is involved in the commission of any of the general bribery offences will be:

5. liable on indictment on conviction
5. to an unlimited fine
5. to perpetual and automatic debarment from competing for public contracts (The debarment is discretionary rather than mandatory under Section 7 of the Act)

3. Additionally, the Serious Fraud’s Office can use its civil recovery influence to recuperate property obtained from the unlawful conduct without resorting to criminal prosecution.

5. Serious Fraud Office (SFO)

It is concerned with the prosecution, investigation and detection of complex or serious corruption, fraud and bribery in Northern Ireland, Wales and England, and is also the lead agency for investigating complex and large-scale cases of corruption and bribery[18].

In cases of tax fraud and cases not falling into the general category are investigated by the Her Majesty’s Revenue and Customs (a specialist fraud unit of the City of London Police). The National Crime Agency (NCA) can either or co-ordinate with other agencies like the SFO or act itself in terms of bribery and corruption. The SFO Director has the authority to force an entity or individual to provide documentation or information which is implied to have relevance in the issue under enquiry. However, there has been an argument over whether it goes beyond the boundaries of UK. The High Court held that An element of extraterritorial application must be included in section 2 and companies in the UK are hence supposed to furnish material of relevance to an SFO that they have overseas as well, unless they have fail to comply or lack a prudent excuse.[19]

6. Whistle-blowers

in the reasonable belief of the worker making the disclosure, if any disclosure of information reveals, that breach of some other legal obligation or crime, an infraction of the Bribery Act 2010, could easily comprise – is likely to be committed, is being committed or has been committed, or comprises a protected disclosure proviso the worker reasonably believes that the disclosure is in the interest of the community[20]. The person must reveal that in making the disclosure, a reasonable belief existed as to the breach in question or crime. A claim for an award for injury to feelings along with unlimited compensation can be sought if the person has suffered a detriment as a result of making a protected disclosure. A court of appeals declared that public interest companies should prepare themselves for an enquiry from   whistle-blowers before going to a prosecution like the SFO without trailing the professional privilege for the outcome of the investigation and work product.[21]

Conclusion

A structure for the anti-corruption compliance system which sets sufficient modus operandi to preclude an individual from bribery among other offences is provided for by the UK Bribery Act which includes scrutiny and review, comprehension, due diligence, assessment of risk, tone at the higher level and proportionality. Our country needs to pursue this path without any further delay and publish and enforce guidelines as this mechanism can help establish an overarching principle which can cover every anti-corruption matter and help preclude and enforce order. Corruption in India inherently thrives more especially due to the distortions in the political system and hence the POCA seeks to restrict the scale of corruption prevalent in this country. On the other hand, the level of corruption in the UK is extremely low as the Bribery Act among other laws are severely stringent and they have a powerful framework for battling bribery in their home country as well as abroad, and the most importantly the agencies responsible for battling corruption are proficient.