A sullen central excise inspector was/ is more disruptive to a business than a power outage or transporters' strike!
Reference to a central excise inspector is merely symbolic and annotative. The expression shall encompass similar government functionaries who have power over a business and can stop the operations, citing non-observance of some or the other of the myriad rules.
There was and is no escape from currying favour with such petty potentates.
Building durable goodwill carries a cost. In plain English, it would be termed a bribe.
Routine monthly or quarterly payments are like taking vitamins for general health with no particular prophylactic considerations.
However, case-specific concessions, or for taking a fair view of what a business should enjoy in the normal course, are not covered by the routine payments and require specific additional blandishments.
Once, a commissioner of sales tax in Bombay, armed with a prosecution notice to be served on the managing director (MD), bargained that he be given three Fiat cars in different colours! (Mujhe alag alag rung mey teen Fiat gaadi chahiye)
A company executive has the task of dealing with the reality on the road and still gives a quarterly compliance report to the company secretary who, in turn, assures the board of full compliance with the company's anti-bribery policy!
Bribery is multi-headed like the Hydra. So is the definition in the anti-bribery policy which most companies are expected to have.
Bribery
Bribery includes the offer, promise, giving, demand or acceptance of an undue advantage as an inducement for an action which is illegal, unethical or a breach of trust. Bribes often involve payments (or promises of payments) but may also include anything of value - providing lavish/inappropriate gifts, hospitality and entertainment, inside information, or sexual or other favours; offering employment to a relative; underwriting travel expenses; abuse of function; or other significant favours. Bribery includes advantages provided directly as well as indirectly through an intermediary.
There are organisations that solemnly claim that they have zero tolerance for such acts and try to present themselves as bound by some strict policy like the law in the country where the parent is located.
An inspector is a hard nut and would have none of this excuse. Often, the person would give a few examples of companies with the HQ (headquarter) in that very country being clandestine with him/ her.
In the bygone age, cash was the king to meet all types of contingencies.
Cash generation through scrap sale was the accessible ammunition to meet the handouts.
But times have changed. Even the takers have come to realise the risk of dealing with raw cash.
Cryptocurrency is possibly some time away from becoming commonplace, but equally smarter methods are being embraced!
Prior to the 1991 liberalisation, a senior bureaucrat heading a key department in the government that arbitered whether an expansion was substantial in nature or not, and if the said item was reserved for SSI, had a law firm with his spouse as a partner and would seek the payments to be made to the said firm and issue a proper bill.
The officer, being quite well versed in the domain, would issue a legal opinion from the firm on the connected subject so that even if a conscientious internal or external auditor were to question why a payment was made to a law firm, there would be a well-written opinion to excite the professional curiosity of the auditor!
Government officials, with their kith and kin as lawyers, auditors, architects and running an IT service firm, have the flexibility of facilitating the receipt of off-the-record payments.
Other recent examples that have surfaced include investing in a company owned by a close relative as a consideration for disbursement of loans by a banker.
Other ways include taking a property on rent belonging to an official in the government or of a near relative engaging a kith of an official in a consultancy role.
The mystic employed as a key official in a stock exchange occupied the media for some time until a subsequent scandal replaced the TRPs!
Internationally, the provision of lucrative employment to children of politicians or government servants has also been a way to win favours and contracts.
Many global consultancy companies, merchant bankers and banks do this routinely.
The position of an 'independent director' on corporate boards has become a new avenue to demonstrate reciprocity to bankers or bureaucrats for past courtesies extended, attracting little opprobrium, being a statutory requirement.
Politicians have perfected other ways of getting compensated. Acquiring a valuable property at an attractive price is one. A transport contract, job work, supply of labour, lucrative dealerships, and scrap dealings are a few other modes of plugging into a business's supply chain.
Politicians or bureaucrats are not the only ones to feature in such arrangements. Even highly placed judicial officers do!
The (late) Nagarajan (N) Vittal, a former central vigilance commissioner of India, often referred to the nexus among lala, jhola, babu and neta as the corrosive cause of corruption.
In the unfortunate event of a company being caught in such a transaction, how far would the directors, especially independent directors, be implicated?
The Supreme Court, in the case of Standard Chartered Bank vs director of enforcement (2005) 4 SCC 530, held that a company can act with mens rea and itself be guilty of criminal acts like giving bribes or involvement in an illegal act.
Therefore, reflecting on the directors or making them vicariously responsible is not automatic, as specifically affirmed in Sunil Bharti Mittal vs CBI (AIR 2015 SC 923).
However, if the law has a specific provision to extend the prosecution to individual directors, then the directors stand exposed.
Despite the high level of corruption in the country, the prosecution of the offenders is few and far between. Even those limited cases would be one of political vendetta and not an apolitical and systemic way of approaching corruption in the public sphere.
The Dabhol power project is a classic case of corruption that a few public-spirited associations brought up before the court in 1997. The case was finally disposed of in 2019 by the Supreme Court as neither the state of Maharashtra nor the Union government showed any interest in pursuing it!
A law that is aggressively enforced around the globe for the prosecution of corrupt practices is the Foreign Corrupt Practices Act (FCPA) in the US.
Introduced in 1977, the anti-bribery provisions of the FCPA apply to all US persons and certain foreign issuers of securities.
The amendments made in 1998 extended the anti-bribery provisions of the FCPA to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the US.
The FCPA also requires companies whose securities are listed in the US to meet its accounting provisions.
These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls.
Bribery cases invariably have an accounting dimension since bribes are camouflaged as business expenditures and are shown as legitimate items in the books of accounts.
The bribes also represent the breakdown of the company's internal control checks and corporate governance. Therefore, the US Securities Exchange Commission (SEC) prosecutes such cases in parallel to the department of justice (DoJ).
The principles of federal prosecution provide that prosecutors should recommend or commence federal prosecution if the putative defendant's conduct constitutes a federal offence and the admissible evidence will probably be sufficient to obtain and sustain a conviction.
In many investigations, the prosecutors consider a corporation's pre-indictment conduct, including voluntary disclosure, cooperation, and remediation, in determining whether to seek an indictment or agree to a resolution at that stage without going through a full investigation.
These settlements are deferred prosecution agreements (DPAs), non-prosecution agreements (NPAs) and disinclination and disgorgement.
These are invoked depending on the facts of a case and at the discretion of the prosecutor. The monetary cost of a settlement varies, with differing consequences. The details can get tedious.
The DoJ process may also require the prosecutors to present the case to a grand jury consisting of more than 16 persons. The jury, acting by a majority of at least 12 members, confirms or rejects the indictment.
An essential part of the process before the court is that of plea bargaining. When the prosecution has a strong case, the government may offer the defendant a plea deal to avoid trial and perhaps reduce the exposure to a more lengthy sentence.
Sometimes, as part of a plea agreement, the prosecution will agree not to recommend an enhanced sentence, but it is left to the judge to determine how the defendant will be punished.
If a defendant pleads guilty, there is no trial, but the next step is to prepare for a sentencing hearing.
The data on the right may be quite alarming to anyone from a country outside of the US, especially India, where there are very few known cases of prosecuting a leading corporation or a corporate personality for bribery or a legal violation.
Most cases under the FCPA result in the putative defendants pleading guilty, and the trial would halt.
Some of the leading cases successfully prosecuted under the FCPA are Odebrecht, Goldman Sachs, Siemens, Ericsson, Alstom and Halliburton.
Goldman Sachs is more readily recognised among all of the above. It helped 1MDB, a Malaysian development fund, raise US$6.5bn (billion) from various institutions globally to undertake projects in Malaysia. It earned a fee of US$600mn (million) for its professional services.
It had paid bribes to persons in authority in Malaysia to win the contract and the fund's resources were misused, resulting in a major fraud. Najib Razak, who was the prime minister (PM) during the time, was found to have abused his position and sentenced to a long period in jail.
They were found guilty by the US DoJ and SEC on many counts. Other countries like the UK and Hong Kong have also prosecuted them.
Goldman took the settlement route, pleading guilty. It cumulatively paid over US$5bn as fines to the regulators in which the former chairman of Goldman's Brazil Southeast Asia division, Tim Leissner, was sentenced.
Similar is the case of the Brazilian giant construction company Odebrecht, which confessed to paying bribes to some top government officials to get contracts from Petrobras and for illegal political funding of Dilma Rousseff, who was later removed from office as President of Brazil and impeached.
The company paid fines of over US$2.6bn to US and Swiss authorities and its CEO and grandson of the founder, Marcelo Odebrecht, was sentenced to 19 years in jail for his part.
There are a few examples of the FCPA proceedings being initiated for the offence of bribery committed within India. Some names off the cuff are...
Examples of a listed Indian entity coming under the FCPA's clutches are hard to find. The solitary one appears to be Dr Reddy's Laboratories Ltd. The company has been disclosing in its financial report the fact of the ongoing investigation for the past four years.
(iii) Internal Investigation
The Company received an anonymous complaint in September 2020, alleging that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of US anti-corruption laws, specifically the US Foreign Corrupt Practices Act. The Company disclosed the matter to the US DOJ, and SEC and Securities Exchange Board of India (SEBI). The Company engaged a US law firm to conduct the investigation at the instruction of a committee of the Company's Board of Directors. On 6 July 2021 the Company received a subpoena from the SEC for the production of related documents, which were provided to the SEC.
The company made presentations to the SEC and the DoJ in relation to the investigation with respect to certain countries during the previous fiscal years. It also made a presentation to the SEC and the DoJ in relation to its global compliance framework, including the ongoing enhancement initiatives, during the year ended 31 March 2023. The company is complying with its listing obligations as it relates to updating the regulatory agencies. While the findings from the aforesaid investigations could result in government or regulatory enforcement actions against the Company in the United States and/or foreign jurisdictions, which can lead to civil and criminal sanctions under relevant laws, the outcomes including liabilities are not reasonably ascertainable at this time.
For a company or its promoter in India, who is used to an indulgent and tardy judicial system that can be easily dodged, DoJ will be a nightmare to face.
Along with the ongoing Border–Gavaskar Trophy (BGT) and the upcoming IPL 2025, FCPA may keep the Indian audience glued to the TV at least for the next few months!
(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
Further, gratification offered to regulators and bureaucrats is always illegal in the US, whether in cash or in kind. In India, we can't imagine a major project going through with both bureaucrats and politicians having their palms greased.
Adani, like every other company in India, must have had to pay off pols and babus for winning business. That is wrong, but condonable as an unfortunate cost of doing business in India. What IS wrong, however, is their lying about being under investigation by the FBI. It is a material offence to lie in securities filings that you are not under investigation, whether you are guilty or innocent of what you are being investigated for. Even if they can get by on the bribery charges, there is no way they will get away on the charge of lying to investors without paying a huge fine and possibly being barred from US markets for a long time.
Americans: “Hold my beer.”
The payment of money to settle the allegation in the US is the biggest official corruption scam.
Kettle calling the pot black - that is the way Uncle Saam behaves when it comes to countries that are fast developing like India. Like INC feeling how chaiwala is PM now, the US feels how India dares to compete with developed countries on the world stage? By the way, how does US law apply to India?
ML Foundation is one such entity.
Our media has been bought over by money but for courageous ones like The Wire, Scroll, AltNews and others that have been hounded by Modi/BJP for exposing their crimes.
One could understand if a poor man offered a bribe to feed his family but all these bribers and Bribe takers are very wealthy, politically powerful people.