1. INTRODUCTION
Ease of doing business in India is at an all-time high. However, organizations are required to navigate a multitude of regulatory compliances in order to operate effectively, which can be particularly cumbersome and onerous for organizations unfamiliar with the complex framework of central and state-level norms. A report from Teamlease earlier this year titled "Compliance 3.0" had, for instance, noted that businesses in India are "governed by 1,536 acts and rules, 69,233 compliances and 6,618 filings".1 These figures represent the regulatory burden across licensing, labour laws, tax compliance, environmental clearances, and sector-specific regulations that construction and infrastructure companies must navigate daily. Though there may have been some improvement in the situation, those figures nonetheless indicate the scale and extent of the challenge of regulation. Compounding this challenge is the pressure to expand and diversify in an intensely competitive market, which may, at times, result in indiscretions or wilful misconduct by persons associated with the organizations, including employees, officers, or third-party vendors and consultants. Such indiscretions and acts may expose the organization and its management to significant legal risk, including potential criminal prosecution and substantial financial penalties that can reach millions of dollars under international frameworks.
2. INDIA'S ABAC LEGAL FRAMEWORK
India's Anti-Bribery and Anti-Corruption ("ABAC") legal framework has evolved in recent years, aligning more closely with international standards. The key components of the legal framework in India are:
(a) Prevention of Corruption Act, 1998 ("PCA") – The PCA is the foundation of India's anti-corruption legislation and criminalizes bribery involving public officials and introduces provisions for corporate liability, enhanced penalties, and the concept of "undue advantage."
(b) Companies Act, 2013 ("Companies Act") – The Companies Act mandates corporate governance standards, including provisions for fraud reporting, internal controls, and the establishment of vigil mechanisms for listed and certain other classes of companies, including those with paid-up share capital exceeding INR 50 crores or annual turnover exceeding INR 200 crores, which captures most significant construction and infrastructure companies.
(c) Whistleblowers Protection Act, 2014 ("Whistleblowers Act") – The Whistleblowers Act aims to protect individuals who disclose acts of corruption or misuse of power by public servants and provides safeguards against victimization and retaliation, though enforcement mechanisms remain a challenge in practice, particularly in the construction sector where hierarchical structures may discourage reporting.
(d) Prevention of Money Laundering Act, 2002 ("PMLA") – PMLA addresses the laundering of proceeds derived from corrupt practices and empowers authorities to investigate, attach, and confiscate assets linked to illegal activities. In the construction industry, this particularly affects large cash transactions, payments to multiple subcontractors, and complex ownership structures often used in real estate development.
(e) Bhartiya Nyaya Sanhita, 2023 ("BNS") – The BNS has replaced the Indian Penal Code and incorporates updated provisions related to corruption, fraud, and abuse of public office, aiming to streamline enforcement.
3. EXTRAJUDICIAL OPERATION OF THE FCPA AND UKBA
Both the Foreign Corrupt Practices Act, 1977 ("FCPA") and the UK Bribery Act, 2010 ("UKBA") have extraterritorial application, permitting them to prosecute individuals and organizations for bribery and corruption taking place beyond their jurisdiction. For Indian construction and infrastructure companies, this means exposure to international prosecution even for domestic projects if there are connections to U.S. or UK business operations, financing, or partnerships.
3.1. FCPA
The FCPA, enacted in 1977 and amended in 1998, prohibits bribery of foreign officials and mandates accurate maintenance of records/books and internal controls. For construction companies, this covers interactions with Indian government officials by U.S. companies or their Indian subsidiaries, joint ventures with U.S. entities, and use of U.S. banking systems for transactions. It outlines two primary categories of offences:
(a) Anti-Bribery Provisions
These provisions prohibit individuals and entities from making, or offering to make, corrupt payments to foreign (i.e., non-U.S.) government officials. The intent behind such payments must be to secure an improper advantage, obtain or retain business, or direct business to any person. This includes payments to expedite permits, secure zoning approvals, or influence environmental clearances.
(b) Books and Records Provisions
These provisions apply to both foreign and domestic issuers of securities registered on U.S. stock exchanges. Such entities are mandated to:
- Maintain accurate and fair records that reflect all transactions, including the underlying purpose of each transaction; and
- Establish and uphold a robust system of internal accounting controls to ensure compliance and transparency. For construction companies, this requires detailed documentation of all payments to subcontractors, consultants, and government entities, with clear business justifications for each transaction. The FCPA imposes liability on both the following US and non-US persons and organisations/entities, even where the alleged act of corruption or bribery has occurred outside US territory:
- US citizens, non-citizen residents and organisations/entities incorporated under US Law or having their principal place of business in the US are prohibited from engaging in corrupt practices anywhere in the world.
- US organisations/entities, for the actions of their officers, directors, employees, third parties like agents, consultants, joint venture partners, or foreign subsidiaries acting on their behalf.
- Foreign persons and organisations/entities, if they engage in any act while in the US in furtherance of a corrupt payment to a foreign government official. This extends to foreign companies that use U.S. banking systems, have securities listed on U.S. exchanges, or have partnerships with U.S. entities.
3.2. UKBA
The UKBA, which came into force in 2011, applies to individuals and entities both within and outside the United Kingdom, provided there is a demonstrable connection to the UK—such as a business presence or operations being conducted in part within the UK territory. The UKBA has extraterritorial applicability, covering conduct that occurs outside the UK by both UK and non-UK persons.
The Act sets out four principal offences:
- Bribing another person;
- Accepting a bribe;
- Bribery of a foreign public official; and
- Failure of a commercial organisation to prevent bribery ("Failure to Prevent Bribery Offence").
The Failure to Prevent Bribery Offence imposes strict liability on commercial organisations, meaning they may be held liable for acts of bribery committed by employees, agents, consultants, or other representatives even if senior management of such organisations were unaware of the misconduct.
Pertinently, a foreign company that carries on any part of its business in the UK may be prosecuted under the UKBA for failing to prevent bribery committed by any of its employees, agents, consultants or other representatives, even if the alleged bribery takes place outside the UK and involves non-UK persons.
This creates particular risk for construction companies, given the extensive use of agents, local facilitators, and complex subcontractor networks common in large infrastructure projects.
4. NAVIGATING ABAC IN A HIGH-RISK INDUSTRY- CHALLENGES IN THE CONSTRUCTION AND INFRASTRUCTURE SECTOR
When it comes to bribery and corruption, the real estate, construction, and infrastructure sectors are in a highrisk environment. This isn't some distant, theoretical concern; it's a daily reality on the ground. The very nature of this work—with large capital flows, complex multi-stakeholder projects, and constant interaction with a maze of regulatory bodies for permits and approvals—creates vulnerabilities throughout the entire system. That's why an effective ABAC strategy has to be practical and specifically tailored to these unique challenges. It needs to be more than just a policy; it has to be a foundational mindset.
4.1. The Challenges: From Land to Supply Chain
One of the biggest hurdles is the complex, often-opaque process of land acquisition and project development. In India, securing a clear title and navigating the necessary clearances can feel like a gauntlet. This involves intricate negotiations with private landowners and securing crucial government approvals for everything from title verification and zoning to changes in land use and environmental clearances. Firms must also be meticulous in complying with state-specific land ceiling laws to ensure there is no circumvention of statutory provisions. Beyond land, the vast supply chain—encompassing countless subcontractors, vendors, and consultants— introduces yet another layer of risk, where a lack of robust oversight can expose an entire project to significant legal and reputational damage.
4.2. Proactive Measures for Compliance
Given these challenges, a reactive approach just isn't sufficient. Companies in the industry need to implement a proactive and comprehensive compliance framework. This starts with strengthening governance around land transactions, conducting rigorous due diligence protocols that go beyond traditional ownership and encumbrance checks. We should be leveraging the wider digitalization of land records and technologies like GIS and blockchain. These technologies can directly mitigate core ABAC risks by providing automated verification against computerized land records.
Furthermore, it is critical to embed strong, proactive contractual ABAC covenants into all land and development agreements, tied to termination and audit rights. All vendors/contractors/consultants should be contractually bound to comply with ABAC and compliance policies and to the maximum extent possible, all payments to vendors/contractors/consultants must be reviewed and approved by senior level officers of the company. It is also advisable to conduct a region-specific bribery and corruption risk assessment exercise to identify specific risks and problem areas, pursuant to which a review of the existing ABAC policies and compliance program of the company must be carried out. A comprehensive due diligence and regular compliance audits must be conducted on contractors, vendors and joint venture partners in such high-risk sectors to ensure that they are in compliance with applicable ABAC laws.
Beyond legal documents, organisations should champion targeted compliance training for their teams— especially those on the front lines who interact with government officials or manage complex procurement processes—as part of a stronger internal compliance program.
5. CONCLUSION: A STRATEGIC IMPERATIVE
Ultimately, while a general understanding of India's ABAC legal framework and extrajudicial operations like the FCPA and UKBA is a critical starting point, the real value comes from applying these principles to the unique vulnerabilities of the real estate and construction industry. This isn't just about ticking a box; it's a strategic necessity for long-term business integrity and sustainability. A well-designed ABAC strategy ensures that projects remain on track, reputations stay intact, and the industry as a whole moves towards a more transparent and ethical future.
Footnote
1 Please refer https://cdn-static.teamleaseregtech.com/static/pdf/Flagship_Report.pdf
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.
