In March 2011, Wal-Mart, the US-based company had started a worldwide review of its policies, practices and internal controls for Foreign Corrupt Practices Act (FCPA) compliance. Since the implementation of the global review and the enhanced anti-corruption compliance programme, the company has identified additional allegations regarding potential violations of the FCPA.
According to news reports, Bharti Wal-Mart, Wal-Mart's joint venture with India's Bharti Enterprises suspended a few associates and committed to conduct a complete and thorough investigation as a part of abovementioned ongoing review.
The company has decided to put on hold the opening of new cash-and-carry wholesale stores in India and as the investigation unfolds there is a likelihood that more suspensions may follow.
Why is a U.S. Legislation concerned about corruption in India?
The principal objective of the FCPA is to prohibit United States companies and their employees, officers, directors and agents from paying or promising to pay bribes to foreign officials, political parties, candidates or their conduits to obtain or retain business.
The focus of the FCPA is two-fold:
- it prohibits actions in furtherance of foreign corrupt payments by any person while in the United States, by any U.S. person abroad or by any person abroad working for a US company and
- it includes record-keeping and accounting provisions intended to deter the establishment of off-the-books slush funds to finance the illegal payments.
Subject of FCPA: The anti-bribery provisions of the FCPA acts in furtherance of the direct or indirect bribery of foreign officials -
- by any person while in the territory of the United States,
- by any U.S. person while acting wholly outside the United States or,
- by any person abroad working for a US company.
Prohibition and defenses: The FCPA prohibits those subject to the FCPA from giving or promising to give anything of value to:
- any foreign official for purposes of influencing any act or decision of such official or inducing such official to influence any act or decision of a foreign government or instrumentality to obtain or retain business or for purposes of obtaining any improper advantage;
- any foreign political party or party official or any candidate for foreign political office for purposes of influencing any act or decision of such party, official or candidate or inducing such party, official or candidate to influence any act or decision of a foreign government or instrumentality to obtain or retain business or for the purposes of obtaining any improper advantage; and
- any person while knowing or having reason to know that such money or thing of value will be offered or given to any foreign official, foreign political party, party official or candidate for foreign political office for purposes of influencing any act or decision or inducing such foreign official, political party, party official or candidate to influence any act or decision of a foreign government or instrumentality to obtain or retain business or for the purposes of obtaining any improper advantage.
The FCPA provides two affirmative defenses for U.S. companies accused of making prohibited payments. First, a U.S. company may make a payment, gift, offer or promise of anything of value to a foreign official, a political party or a candidate's country provided such action is expressly permitted under the written laws of that country. Secondly, a U.S. company may make a payment, gift, offer or promise of anything of value that constitutes a reasonable and bona fide expenditure directly related to the promotion of products and services or the execution of a contract with a foreign country or agency.
Penalties: The penalties for violation of the FCPA are severe for both companies and individuals. There are two sets of penalty provisions: the anti-bribery provisions and the accounting provisions. Both provisions may impose civil and criminal penalties. The largest penalty, so far under the FCPA, has been by Siemens in Germany, which paid $800 million in 2008. KBR/Halliburton paid $600 million in the US in 2009. Also there is no limitation for the amount of infraction and even what might be considered small bribes can result in big penalties. Parent entities can be held responsible for their entities and the Penalties can include fines and bouncing of profits that a company might have realized from its unlawful conduct. FCPA is particularly more challenging for companies operating in corruption-prone countries, such as India.
The India fallout for US Corruption is not only restricted to the cost of an internal investigation, which can be expensive but also large fines and criminal prosecution for Indian Partners, the risks lie in it having to pay compensation on the quantum of fine in case it has indemnified the US Corporation, as is often the case in foreign-local joint ventures.
Thus, any penalty of a heavy quantum can put Indian Companies in the dock, especially if their litigation insurance claim is rejected on grounds that there was willful bribing through intermediaries. It may also limit the Indian Companies in case of any future fund-raising in the US.
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