India amends bribery laws to expand offences and provide for corporate liability

India has recently passed the Prevention of Corruption (Amendment) Act 2018 (the Act), which came into force on 26 July 2018. The Act significantly changes the legal landscape in relation to corruption offences in India and brings the legislation more in line with recent similar amendments to the bribery laws in the UK, Brazil and elsewhere. However, the Act still only criminalises public sector bribery; private sector bribery remains outside its scope.

The Act seeks to punish:

1. public officials in India who seek or accept bribes;
2. any person who gives a bribe to a public official in India; and
3. commercial organisations who operate in India and for whose benefit bribes are paid (where they do not have adequate procedures to prevent bribery).

The amendments also create a framework for reporting bribery as they provide a defence to a person who is forced to give a bribe where they report it to law enforcement within 7 days.

Many of these changes will be familiar to businesses who have had to grapple with the UK Bribery Act or US Foreign Corrupt Practices Act, and the language of some of the provisions, notably those providing for corporate liability, closely mirror the language and concepts in the UK Bribery Act. Bearing in mind where India sits in TI’s Corruption Perception Index, this new law creates a significant additional level of risk.

Public Officials Taking Bribes

Much of the Act is concerned with expanding the ambit of liability for public officials who seek or accept bribes. Under Section 7, public officials who obtain or seek to obtain an undue advantage (i.e. any gratification other than legal remuneration) as a reward for performing, or with the intent to perform, a public duty improperly or dishonestly are guilty of an offence (Section 7 Offence). This is so whether the offer or payment is made directly or indirectly. One of the examples given in the Act makes clear that it captures facilitation payments. The offence is similar in scope and form to the offence in section 2 of the UK Bribery Act (offences relating to being bribed). However, unlike the offence under the UK Bribery Act, if it is proved that the public official has accepted, obtained or attempted to obtain any undue advantage, then it is presumed that this was a bribe and the burden falls on the defendant to prove otherwise.

This offence is punishable with imprisonment for a term of between three to seven years (extendable to five to ten years for subsequent convictions under the same Act) together with a fine.

However, while the Act has expanded the scope of bribery offences, it also introduces an unusual requirement that governmental consent must be obtained before a public official or ex-official can be investigated or prosecuted under the Act (section 17A). This consent is required within a maximum of four months. It is unclear why this provision has been introduced, but it creates a risk of political tampering in the investigatory process. (However, if a public official is arrested on the spot for taking a bribe, governmental consent is not required for their prosecution – see below).

Criminal misconduct by public officials

The offence of criminal misconduct by public officials has also been simplified. Section 13 provides that a public official commits the offence of criminal misconduct:

Further, if a public official has assets disproportionate to his known sources of income, which cannot be accounted for satisfactorily, he is presumed to have an illicit source.

Persons Giving Bribes

Previously, there was no offence of offering or paying a bribe to a public official. Instead, an offence for “abatement” (i.e. assisting the public official to obtain a bribe) was relied on. This has been supplemented with a new offence criminalising the offering or giving of bribes (Section 8 Offence).

Specifically, any person who gives or promises to give an undue advantage to another person:

1. with the intention to induce a public official to perform a public duty improperly; or
2. to reward a public official for the improper performance of a public duty,

will be punishable with imprisonment for a term up to seven years or a fine or both.

The Section 8 Offence is similar to the UK Bribery Act’s Section 1 Offence (offences of bribing another person). However, the Section 8 Offence introduces a new defence of compulsion that is not present in the UK Bribery Act. If someone is compelled to pay the bribe and reports the matter to the authorities within seven days, they will have a defence to this offence.

This defence meets a common complaint in India that people have to pay bribes to get public officials to perform their duties. However, without further guidance from the government or the courts it remains to be seen how the defence will operate in practice. For example, what is the threshold for a person to be considered to be “compelled”? Is it simply that a person was told that they will not get their permit unless they pay a bribe or do they have to show some threat was made to them that put them in fear for their safety?

The requirement to report the payment in order to benefit from the defence may mean it is not commonly triggered where there is a lack of trust between the citizens and law enforcement authorities.

Entrapment

An interesting feature of the Section 8 Offence is that it does not apply where an act that would otherwise constitute the offence is done to assist law enforcement authorities. This is likely to assist law enforcement authorities in entrapping corrupt public officials.

Corporate Offence

The Act introduces a new offence for a commercial organisation where a person associated with it gives or promises to give an undue advantage to a public official with the intention:

1. to obtain or retain business for such commercial organisation; or
2. to obtain or retain an advantage in the conduct of business for the commercial organisation (Section 9 Offence).

The Section 9 Offence is very similar in form to the offence at Section 7 of the UK Bribery Act (failure of commercial organisations to prevent bribery).

Similar to the UK Bribery Act, “commercial organisation” is defined widely to include not only Indian corporates operating in India or abroad but also foreign corporates carrying on a business or part of a business in India. However, the definition of public official under the Prevent of Corruption Act, 1988 has not been changed and it remains to be seen whether the effect of the Section 9 Offence extends to Indian corporates who bribe foreign public officials.

In addition, again similar to the UK Bribery Act, “persons associated” with the commercial organisation include not only employees of a commercial organisation but also agents or anyone else performing services for or on behalf of the corporate. This could have a significant impact in India, because one of the common routes of bribery has been the engagement of so-called consultants that charge inflated fees for undertaking certain roles (usually to cover the costs of paying public officials a fee of some kind). These arrangements will no longer protect a commercial organisation from liability.

The Section 9 Offence is punishable by a fine.

Defence

However, if the commercial organisation can show it had “adequate procedures” (compliant with government issued guidelines) in place to prevent bribery, that will be a defence to the Section 9 Offence.

The Act states that the Central Government shall, in consultation with the concerned stakeholders including departments, prescribe guidelines as may be considered necessary for compliance by commercial organisations to prevent bribery. To date, no such guidance has been published. However, the offence in Section 9 is now effective.

Liability of officers of the commercial organisation

Where the Section 9 Offence is committed and proved in court to be have been committed with the consent or connivance of any director, manager, secretary or other officer of the commercial organisation, that person will be liable to prosecution and imprisonment of a term between three to seven years and also a fine (the Section 10 Offence). Again, this mirrors the UK Bribery Act.

Conclusion

Some may criticise these changes as a missed opportunity, in that they do not upgrade the Indian bribery laws to capture private sector bribery. The introduction of a requirement for governmental consent to the opening of any investigation of current or former public officials for requesting or accepting bribes may also create an unhelpful perception of politicisation.

However, the Act is still a significant step forward in India’s efforts to tackle bribery amongst public officials and to bring about culture change. The real significance of the Act is the expansion of corporate liability for bribery of public officials in India. It is clear that the legislation draws heavily from the UK Bribery Act for its scope and approach and it may be that the new corporate offence coupled with the “adequate procedures” defence may have a similarly far-reaching impact on corporate governance and behaviour. While much will depend on the approach to enforcement, foreign businesses trying to operate in India will now be exposed to far more risk than ever before.