Canada: Credible India: Why India's Sweeping Anti-Corruption Reform Is Good For Business

India is a nation of opportunity for Canadian business. Although India is not one of Canada's top ten trading partners, trade in coal, business services, agricultural products, and the aerospace sector have all experienced significant growth in the recent past. The large population of Canadians of Indian heritage, the exchange of significant expatriate communities, a shared language, and an ever-increasing demand for natural resources will inevitably draw Canadian and Indian business interests closer together. India is the world's largest democracy and tenth largest economy by GDP. Despite this, India is renowned for the corruption risks of doing business there, and consequently is associated with high transaction costs and red tape. Existing anti-corruption legislation has been unable to keep corruption in check.

As concerned as foreign investors and businesses may be about corruption risk, Indian citizens and taxpayers have even more at stake. As India rises as a global power, its people are increasingly vocal about the need to fight corruption aggressively. Recent high-profile corruption scandals, combined with the experience of stagnating growth and increased inflation, have encouraged mass public outcry and waves of protests. India's politicians have yielded to that pressure, as January saw the passage into law of the most significant anti-corruption legislation in a generation.

The Lokpal and Lokayuktas Act 2013, commonly known as the "Lokpal Act", had a long and difficult legislative history. First introduced in 1968, decades of political debate and bureaucratic delay have been overcome by public pressure and the success of the populist Aam Aadmi ("Common Man") Party in regional elections in December. The party campaigned on an anti-corruption platform. Its leader, Arvind Kejriwal, is a former acolyte of Anna Hazare, a popular civic campaigner long-known for his advocacy on matters of probity in public office. Mr. Hazare and Mr. Kejriwal have each encouraged similar ideas to the Lokpal Act at the state and national level. The passage of the law is a major political achievement and, if successful, will be a step towards better governance in the world's largest democracy.

The Lokpal Act: Groundbreaking Anti-Corruption Legislation Promises Transparency and Swift Action

The Lokpal Act creates a hybrid judicial-administrative body, known as the "Lokpal" at the federal level, with jurisdiction over corruption cases against members of the Indian Parliament, past and present prime ministers, virtually all civil servants, and management-level officeholders in state-owned corporations. "Lokpal", being an enjambment of the Sanskrit words for "protector" and "people", roughly translates as "ombudsperson". The Lokpal Act does not itself create or define any corruption-related offences, but establishes the machinery to investigate and prosecute allegations under the 1988 Prevention of Corruption Act ("1988 Act").

The Lokpal has the authority to establish a prosecution wing with police-equivalent investigatory powers. It is also empowered to establish and staff a special court to hear those prosecutions. The Lokpal itself is a body of eleven officers drawn from the judiciary and society at large, who are selected by a cross-party committee and are barred from ever holding public office. The Lokpal Act contemplates that the Lokpal will conduct preliminary investigations and hear complaints from the public while overseeing its prosecutorial and judicial wings. In order to maintain independence and transparency, the Lokpal has access directly to the Consolidated Fund of India for its expenses and reports to the public, the Indian Parliament, and the President. No office of its type exists anywhere in the world.

In addition to its oversight functions, the Lokpal Act gives the Lokpal powers to summon persons and have them examined under oath, search premises, detain property, attach assets, and force civil servants to turn over or secure documents and records without explanation. The latter power, at law at least, is unfettered, without exclusions for privacy or even national security. The Lokpal does not have the power to fire a civil servant (although, if the special court convicts a civil servant of a bribery-related offence, he or she is automatically removed from office) but the Lokpal can recommend a suspension or firing of any official under its jurisdiction. This may be just as effective, given the Lokpal's public platform. It cannot be muzzled; like any good ombudsperson, it can be expected to use its profile as a tool of enforcement.

The 1988 Act criminalized, with penalties of incarceration ranging from six months to five years, the taking of "gratification" in order to influence a public servant or outside of the public servant's legal remuneration. It does not criminalize the offering or paying of a bribe, but creates a vaguely-worded offence of "abetting" the bribery.

India's Courts have been reluctant to settle, as a matter of common law, that offering a bribe, soliciting a bribe, or paying a bribe are forms of "abetting" bribery. Although a semantic issue, abetment in the legal sense is typically associated with independent conduct that enables the main offence. Altering a company's books and records, or proffering a fraudulent document, for example, fall within the traditional understanding of the types of conduct that "abet" a corrupt act. The special judges appointed under the 1988 Act (who were simply carved out of the ordinary judiciary for the purpose of sitting, on an ad hoc basis, on corruption-related cases) may not have operated with sufficient zeal for the Indian public, but the 1988 Act and its application have created a relatively clear line (for bureaucrats) on what constitutes a bribe.

Bribery Sentencing - Who Will be Targeted?

The Lokpal's special court benefits from more strongly-worded provisions on sentencing in the Lokpal Act. Trials are required to be completed within one year. Life imprisonment is a penal option. Any civil servant convicted of an offence is removed. Conversely, the Lokpal Act also creates an offence for making frivolous, vexatious, or false complaints, and persons convicted under this provision are liable to compensate the civil servant against whom the false complaint was made. This suggests that all allegations of corruption might not be accompanied by instant hostility. These seemingly incongruous ideas shed light on the nature of India's bribery problem, which is no different in this respect from other jurisdictions. The laws fighting corruption must be cognisant of the imbalances of power within corrupt systems and create mechanisms to prevent abuse. Ordinary individuals, to conduct even the simplest interaction with a public official, may have no choice but to pay a bribe. For them, the ultimate con is paying the bribe without the commensurate reward, which is often getting the official to simply do his or her job. Conversely, a civil servant may be pressured into doing or avoiding something by the threat of a groundless prosecution.

The Lokpal will be less concerned with the briber than the recipient in most cases involving ordinary people. However, when a corporation is offering a bribe, the temptation to the public official, who might be lowly paid and otherwise scrupulous, could be too great to resist. In these examples, the Lokpal can be expected to target both briber and recipient.

State-level Anti-corruption Watchdogs On Their Way - But Who is in Charge?

Lokayuktas are the state-level equivalent of the Lokpal, with the same functions and powers directed at state-level officials. (India is a federal state with 28 states and 7 territories). The Lokpal Act makes provision for Lokayuktas to be established in every state within a year of the Lokpal Act coming into force. Some already exist on account of the State's own initiative, but many large states such as Andhra Pradesh, Tamil Nadu, and West Bengal (the locations of Hyderabad, Chennai, and Calcutta (Kolkata), respectively) will benefit from Lokayuktas by the virtue of the Lokpal Act.

Whether the Lokpal Act sufficiently enables the individual states to constitute their Lokayuktas remains to be seen. Moreover, the means by which the public may access the Lokpal and the Lokayuktas has not yet been established (a generous reading of the Lokpal Act gives the Lokpal and the Lokayuktas the authority to create their own means of access through regulation). It is also unclear whether the Lokayuktas themselves are subordinate to the Lokpal, or even under its supervision. Although the central government in India has broad authority and the states are relatively weak, the Act was drafted to avoid appearing to trample the state's natural jurisdiction over its own governance authorities. Nevertheless, in a country as expansive and complex as India, anti-corruption watchdogs at both the central and state level are necessary to even attempt effectiveness.

India's Battle Against Corruption A Step Forward For Justice - and Business

The Lokpal Act, despite its thoroughness and reformist approach, did not go as far as demanded by some, including Mr. Hazare. The power to blacklist corporate payers of bribes was not specifically included in the Lokpal Act. "Blacklisting" refers to a bar on a company from doing business with a government entity in the future. Despite this omission, it is open to the Lokpal and the special court to conclude that the "abetment" offence described in the 1988 Act includes the payment or offering of a bribe, an interpretation supported by certain provisions of the Indian Penal Code. While the Lokpal may not be positioned to shun a corrupt contractor, the useful tool of public shaming (combined with the prosecution of the bribe recipient) should have a salutary effect. Similarly, the Lokpal does not have a statutory minimum budget. While the Lokpal itself might always have a secure hold on public money, it may be easier for the Lokayuktas, particularly in lower-profile, smaller jurisdictions, to starve of investigatory resources.

Even the Lokpal Act's most vocal proponents accept that the work of the Lokpal will be considerable, but the promise of a successful, efficient, and even-handed Indian government is worth the effort. The Lokpal Act does not embody every item on the anti-corruption lobby's checklist, but it is nevertheless a breakthrough. It represents a big commitment of public resources to fighting what seems to some to be an endemic problem. It is good news for Canadian businesses who currently have business interests in India and those who are interested in entering the market. The Indian government's strident approach is to be lauded and encouraged

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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