The Prevention of Corruption (Amendment) Act, 2018 has introduced critical changes that are expected to modernise India's anti corruption and bribery law, brining it closer to international standards set by the United Nations. The amendments expand the coverage of offences and specifically cover bribery by commercial organisations and their officers.
India has recently overhauled its primary anti-corruption legislation – the Prevention of Corruption Act, 1988 (POCA / Act). With an increasing number of corruption related investigations being brought against civil servants and bankers, the enactment of the Prevention of Corruption (Amendment) Act, 2018 is a long-awaited move expected to update the law on prohibition of bribery.
The amendments also align POCA more closely to the United Nations Convention against Corruption (UNCAC). With these amendments, India joins the league of 23 countries that have implemented a compliance regime to tackle corruption.
Key Features of the Amended Law
(a) Bribe-giving or promising a bribe is now a stand-alone crime
The amended section 8 of the Act punishes any person who gives or promises to give an 'undue advantage' to another for inducing or rewarding a public servant for improper performance of a public duty. While earlier bribe-givers could only be punished for abetment of bribery and not for any stand-alone crime, with this amendment, giving a bribe, irrespective of whether such bribe is accepted or not, has been made a crime. A bribe-giver may be punished for a term of up to seven years and/or with a fine.
(b) Compulsion to bribe is a defence but requires reporting
A person accused of bribing a public servant, may put up a defence of compulsion to bribe, i.e., such person was compelled to pay a bribe. The law requires such person to report the payment of a bribe to a law enforcement authority or an investigating agency within seven days of the act. This reporting obligation under the law, although with technical riders, is triggered only after a person has paid a bribe under duress and wishes to blow the whistle.
The law provides for the report to be made to the relevant law enforcement/investigating agency. With this reporting requirement being brought in, commercial organisations should consider setting-up and/or strengthening their internal whistle-blowing mechanisms including providing appropriate training to employees and heightened protection/incentives to whistle-blowers.
(c) Codification of corporate-criminal liability for bribery and compliance as a defence
The amended law specifically covers corporate-criminal liability by defining the phrase 'commercial organisation' and 'person associated' with such commercial organisation. The law covers both direct bribery by a corporation/partnership as well as bribery through a third party. While corporate criminal liability did exist as a concept through case law and was even codified under certain statutes, this is the first instance of codification of corporate criminal liability for corruption related offences.
The Act empowers the central government to issue guidelines for a commercial organisation to put in place standardised preventive checks against bribery. These guidelines have not yet been issued and are expected to mirror the standards set by authorities in the UK and the United States.
If accused of bribery, a commercial organisation could take the defence of having in place 'adequate procedures' in compliance with the prescribed guidelines. Essentially, a system of preventive self-regulation, can be used as a defence by a commercial organisation. This defence is used both under the UK Bribery Act and the US Foreign Corrupt Practices Act.
(d) Persons in-charge of 'commercial organisation' may also be punished
The Act also prescribes punishment for a director, manager, secretary or other officer of a commercial organisation if the bribery at issue is discovered to have been committed with the 'consent' or 'connivance' of such person. While the amendment does not define these terms, courts are likely to adopt and apply standards of knowledge, intent and due care as prevalent in other similar legislations. The prescribed punishment is minimum imprisonment of three years which may extend to seven years and/or with fine.
This amendment could increase the risk for investors and their nominee directors. If a matter relating to bribery is brought to the notice of the board, directors will be expected to specifically object to and (in suitable cases) recommend the reporting of any demand for bribes.
(e) Power to confiscate money or property associated with a crime under the Act
The amended law designates special courts with the power to attach and confiscate money and property associated with any crime under the Act.
(f) Enquiry or investigation on decision taken by public servant in discharge of official function
The amended law protects a public official from being investigated under the Act if the matter relates to 'recommendation made, or decision taken in discharge of his official functions or duties'. This is an overtly broad phrase that is styled as a 'catch-all' provision and is therefore likely to undergo judicial scrutiny and interpretation.
The amended law also requires an investigating agency to obtain prior approval of the government before initiating an investigation against a public official. Earlier the protection was only against prosecution, i.e., trial after the investigation was complete. This change aims to protect civil servants from being dragged into criminal investigations unless the government has internally arrived at some prima facie determination on the validity of the accusations.
In 2016, the Supreme Court had ruled that directors, employees and auditors of private banks are 'public servants' and must comply with POCA. This amendment will therefore also provide a degree of protection to members of the board and employees of private banks.
The recent amendments to POCA have transformed what was earlier a purely criminal statute into a 'quasi-regulatory' law. We also expect more subordinate legislation from the government to actively monitor the conduct of business, by issuing and amending guidelines that may cover training of employees and third parties, regular monitoring and audit and even periodic filings with the government. Since the amended law has been brought into effect from 26 July 2018, commercial organisations need to take immediate and appreciable steps that would make and keep them compliant with the new standards prescribed under the law.
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