Foreign Corrupt Practices Act: Relevance for India

FCPA and it's relevance for India

Ajay Singha

The Foreign Corrupt Practices Act FCPA is a US legislation which concerns itself with US MNCs operating overseas. The principal objective of FCPA is to prohibit US corporations and their associates from bribing and influencing foreign government officials to further their business interests. The legislation is comprehensive and well thought through leaving little scope for misadventure by creative executives heading corrupt organisations. Private sector and best in league talent is actively engaged by enforcement agencies and NGOs engaged in prevention of corruption. US enforcement agencies and judiciary maintain an upward curve and a good track record of implementing this law, following up on prosecution and imposing penalties very often in the shape of amicable settlements. Heavy penalties wound corrupt organisations financially without destroying their ability to remain profitable, generate wealth and create employment.

There is increased co-ordination between US and Indian authorities to follow up on offenders covered under the US FCPA. The number of defaults by India based US MNCs is much lower as compared to other Asian nations.  China is way ahead of all other nations in the number of infringements and misdemeanours and clearly dominates the 2016 list of infringers. India has meanwhile tightened the screws on corruption and related practices. There was a general feeling of dejavu as the Indian government once again increased the stakes in this cat and mouse game of catching the corrupt.

In 2016 around 27 MNCs paid more than USD 2 Billion in fines. It was the biggest enforcement year both in terms of number of enforcements and the amount paid in reaching settlement. In addition to these 15 individuals settled FCPA charges brought about by SEC the US Securities and Exchange Commission.In 2015 around 11 companies had paid USD 133 Million to resolve FCPA cases.

Novartis paid USD 25 Million to resolve FCPA charges in a case where the company had bribed doctors in China and booked the expenses as travel, entertainment and conferences. Anhauser Busch paid USD 6 Million after impeding a whistle blower who reported the case. They paid bribes through third party representatives in India to make improper payments to government officials. In Indiathey entered into separation agreements to further deter employees from reporting the violations and avoid prosecution.

In 2016 China dominated FCPA violations and resultant prosecution. UNS MNCs GSK, PTC, JP Morgan, General Cables, SciClone, Novartis, Johnson Controls etc. were involved. Novartis paid 150,000 to a Chinese charity to influence a communist party official for favourablyinfluencing a business infringement investigation by Chine government officials. In individual cases John McClung and Richard Hirsch of Roland Berger were fined and sentenced to two years’ probation for bribing Indian officials and others for winning contracts in India. Harris Corp and Cisco went for voluntary disclosure and self-investigation resulting in non-prosecution agreements with DOJ US Department of Justice and SEC.

Increasingly foreign nationals who may not be US citizens are being prosecuted as long as a connection is apparent between their role and the activities of the US MNC. Ignacio Plaza a Chilean, Yuan a Chinese, Dimitri a Russian were successfully prosecuted by US enforcement authorities and paid heavy fines to settle their FCPA violations. Charges against a German CEO of Siemens Argentina were dropped as the connect between him and the US business of the company could not be established. In 2014 one Subramaniam Krishnan of Digi International Inc. USA agreed to pay a fine and settle FCPA charges related to unauthorised travel and entertainment expenses. In 2014 IBM was warned and directed to enhance their FCPA training and awareness programs within the company.

Some big names in global business who have faced prosecution in the last few years have been Eli Lily, Allianz, Marubeni, Oracle, Pfizer, Tyco etc. It is relevant to note that all these companies have significant investments in India and in spite of heavy odds have managed to keep their records clean. In 2016 Cognizant reported conducting internal investigations immediately on suspecting non-compliance in India. They offered full co-operation to US enforcement agencies and the matter is under scrutiny. In 2012 Qualcom paid USD 2 Million fine to the US Security Exchange Commission for settling charges for knowingly maintaining a slush fund in India to pay bribes to Indian officials for their business in India.

US and European MNCs operating in India ramped up their efforts in imparting education to key employees on various provisions of FCPA. The training elaborates on what kind of actions amount to infringement, care is taken to drive home the message that even personal contribution or gifts paid from salaries of an employee or corruption money routed through agents and service providers amounts to a serious infringement. Increasingly the Indian suppliers are sensitised on the subject and warned of immediate suspension of their business with the MNC if any misdemeanour is discovered. 

The world community is still far away from bringing corruption under control but the effort is reflected in the limited number of prosecutions and cases involving India reported under the FCPA laws. Several MNCs in China, other South Asian nations, Africa and Latin America continue to face prosecution under provisions of the FCPA.

If an Indian company gets involved in an FCPA misadventure it must disclose the key features of the investigation while bidding for any US governmental business. MNCs now ask for undertakings of FCPA compliance and a reasonable understanding of the relevant features of FCPA and related legislation. In case a prospective business partner has been subject to an investigation the details need to be fully disclosed before commencing regular business.

In 2008 Siemens paid a USD 800 Million and Halliburton paid USD 600 Million fine to settle their cases. There was little correlation between the huge fine paid and amount bribed thus making it immensely unprofitable for such companies to engage in future bribery and corruption.

Another impact is on senior executives who get embroiled in a FCPA investigation. As global job seekers these executives stand to lose a lot in terms of credibility. This has had a positive impact on top executive talent in India which is ambitious and would not like infringements to be associated with their names. In today’s age of transparency and information exchange the hiring MNCs will invariably come to know of the executive’s involvement in an alleged misdemeanour and refuse promotion or even employment. Voluntarily suppressing information of involvement in FCPA investigations will expose executives to prosecution, dismissal and bleak career perspectives. 

IT MNCs in India must deal with a plethora of challenges for securing Indian government business. Though financially not very profitable government business brings the foreign company in proximity of key decision makers. Land acquisition is crucial for large US MNC projects. This forces companies to interface with a multitude of government agencies with multiple jurisdictional issues. Import and export of IT leads to interaction with Customs and other taxation agencies. This is another area for bribery and corruption. US MNCs employ large number of people spread across locations and the complex employment guidelines and related compliance result in submission of papers at several levels in government agencies. Inspection of imported hardware and permission to import on time without penalties leads to demands and possible infringement of anti-corruption laws.

The US SEC has identified a framework and measures for evaluating cooperation by companies. Self-policing prior to the discovery of a misconduct, including establishing effective compliance procedures can be used to defend prosecution and projected as good intention on part of the defaulting company. Similarly, self-reporting of misconduct when it is discovered, including conducting a thorough review of the nature, extent, origins and consequences of the misconduct can be used to project good intention of the management. Promptly disclosing the misconduct to US regulatory agencies is also an acceptable action for good intention. Appropriately disciplining wrongdoers, improving internal controls to prevent recurrence of the misconduct and appropriately compensating those adversely affected by the investigation are some of the ongoing positive measures undertaken by companies. 

Cooperation with law enforcement authorities and providing all information relevant to the underlying violations can prevent the harshest provisions from being imposed on a defaulter.FCPA enforcement officials often examine what steps the corporation has undertaken in terms of educating their employees and business associates on various FCPA provisions and the implications of default. It is therefore imperative that Indian companies engaged in international business must sensitise senior and mid management on these issues and encourage them to follow sustainable business practices.The author is former Executive Director of the American Chamber of Commerce in India and Honorary Advisor FICCI Rajasthan, India. Views expressed are personal. January 2017