The Obama Administration has forged a stronger economic relationship with India. For good reason – India’s economy is expected to grow by 8 percent in 2011. India’s GDP is only one-fourth the size of China’s GDP. Over the next forty years, India’s economy is expected to grow at a faster rate than China’s economy.
Corruption in India is rampant. According to Transparency International, India ranks at 87 (of 178 countries) on the corruption index. Corruption is deeply entrenched in Indian society. Nearly three-quarters of the India public believe that corruption has increased in the last three years.
Recently, India's aviation industry has been rocked by corruption scandals resulting in pilots paying bribes to pass tests, file flight paperwork and avoid other basic airline safety requirements.
Over half of Indian residents have themselves paid a bribe for a government service. Indians use third parties to obtain basic government services such as driver’s licenses, land titles, passports and ration cards. One quarter of Indian citizens pay high level government officials for public contracts; one third pay bribes to low level officials for routine government services. Nearly eight-five percent of Indian companies pay bribes to government officials to “do business.”
While India itself has domestic bribery laws, very few prosecutions result in serious punishment. Less than half of India companies are familiar with the FCPA or the UK Bribery Act. During the last decade, the US brought approximately fifteen FCPA cases against companies for bribing Indian government officials.
In light of FCPA exposure for companies doing business in India, some general risk mitigation measures should be employed:
• Pre-approval procedures and forms for gift, travel, and entertainment expenditures
• Pre-approval procedures and forms for political and charitable contributions
• Third-party due diligence procedures and questionnaires
• Cultural sensitivity trainings in conjunction with anti-corruption trainings
• Periodic evaluation and audit procedures designed to ensure that compliance policies are working as intended
Given the corrupt nature of the Indian government, and the increasing level of corruption, businesses have to pay particular attention to every government interaction. The risks of bribery involve not only sales to the government, but the numerous government interactions for regulatory, licensing, permitting and other ministerial functions provided by the government to businesses.
A review of the specific FCPA prosecutions in the last decade involving India reveal the following specific risks:
1. Bribes typically involve relatively small sums of money. Eighty-five percent involved less than $5000; more than half involved less than $100.
2. Most violations involved the use of agents or consultants to hide the true nature of a payment to a government officials.
3. Routine paperwork and invoices are commonly used to disguise improper payments.
Given these risks and the historical track record, companies need to be vigilant in designing compliance programs for the FCPA and the UK Bribery Act in India. It is critical that companies exercise due diligence when retaining agents, consultants or distributors to assist in their business operations, and carefully build internal accounting controls to monitor such activities, especially small transactions which may otherwise escape detection. It is also important to carefully review all documents and invoices to make sure that charges are appropriate and are not used to disguise improper payments.