KPMG in India
Prevention of Corruption Act (Amendments)
Bill 2015
In 2013 the Central Government introduced in the
Sandeep Dhupia
Forensic Services
T: +91 124 334 5008
Jagvinder Singh Brar
Forensic servic...
of 2

Prevention of Corruption Act (Amendments) Bill 2015-FINAL

Published on: Mar 4, 2016

Transcripts - Prevention of Corruption Act (Amendments) Bill 2015-FINAL

  • 1. KPMG in India Prevention of Corruption Act (Amendments) Bill 2015 In 2013 the Central Government introduced in the Parliament, Prevention of Corruption Act (Amendments) Bill. The proposed amendments were aimed at filling in perceived gaps in the domestic anti-corruption laws and help fulfil India’s obligations under the United Nations Convention against Corruption (UNCAC) and bring it in line with various judicial pronouncements. Certain significant changes have been made in the new Amendments Bill introduced in May 2015. These changes primarily pertain to the issues of Corporate Criminal Liability. The modified provisions proposed in the Prevention of Corruption Act, 1998, tackle the “supply side” of bribery — by making it a culpable offence to even ‘offer’ or give bribe to a public official. Earlier, the offence, as defined in the provisions, was restricted to only the act of ‘taking’ bribe by a public servant. The liability of the bribe giver was indirectly covered by prescribing punishment for abetment to the offence of accepting a bribe. It was felt that because of certain legal provisions the bribe giver could go scot free even in cases of consensual bribery. Second, the concept of corporate criminal liability has been brought in the bill covering all categories of commercial organisations. Section 9 proposed in the Amendments Bill, now brings corporates and other commercial organisations into the ambit of liability in cases of bribery and corruption. These amendments may have serious implications for commercial organisations, key management personnel and other individuals affiliated to commercial organisations, in their dealings with public servants. The responsibility of upholding high standards of ethics and integrity will now be pinned on commercial organisations also. They will be held liable for prosecution in cases of bribery and corruption involving public servants, if it is found that they failed in their duties to put in adequate procedures of anti-bribery and corruption. Commercial organisations will be vicariously held liable for prosecution, if any person associated with them (employee, agent or a subsidiary) offers a financial or other advantage to a public official to obtain or retain a business or advantage. Corporates and commercial organisations will no longer be able to seek refuge in the argument that these instances are individual offences, and corporate has no soul to pin it with mens rea. The only defence available to the corporates and other commercial organisations will be to prove that they had in place adequate procedures designed to prevent persons associated with them from engaging in such conduct. However, the earlier bill in 2013 did not define ‘adequate procedures’ of due diligence to prevent corruption by commercial organisations. There was no enabling provision in the law to frame rules and guidelines by the central government so as to ensure that the commercial organisations have a defined framework of due diligence to prevent bribery and corruption by a corporate. The recent amendments in the Bill introduced in the Rajya Sabha in May 2015, provides legally, an enabling provision for the central government to prescribe guidelines and lay down rules in this regard. It would be advisable that a guidance on what constitutes ‘adequate procedures’ is defined, similar to the U.K. Bribery Act 2010 (UKBA), which defines adequate procedures under six broad areas: • Proportionate procedures • Top-level commitment • Risk Assessment • Due diligence • Communication (including training) • Monitoring and review © 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  • 2. Sandeep Dhupia Head Forensic Services T: +91 124 334 5008 E: Jagvinder Singh Brar Partner Forensic services T: +91 124 307 4584 E: Suveer Khanna Director Forensic Services T: +91 22 3090 2540 E: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed in India. Third, in the light of these proposed amendments, it is crucial that corporates are sensitised to the risks in the area of bribery and corruption and proactively put in place a robust anti- corruption system that generally includes: • Setting the right tone at the top to curb bribery and corruption • Designing policies and procedures to deal with specific anti-corruption risks of the organisation • Conducting training and awareness sessions for employees, third parties and agents associated with the organisation to make them familiar with the requirements of law and penal provisions, along with relevant policies and code of conduct of the organisation. • Determining that the contracts with agents and other third parties have specific clauses on compliance with anti- bribery and corruption laws • Conducting periodic risk assessment, independent reviews to help ensure compliance with anti-bribery and corruption laws Four, it is important to note that the bill in its current form, including the proposed amendments, only covers bribes given to public servants, unlike similar regulations internationally like the U.K. Bribery Act 2010, which makes bribery an offence irrespective of whether it is given to individuals in public service or to other private sector individuals. In other words, the bill does not criminalise commercial bribery. Five, there is no such provision proposed in the Prevention of Corruption Bill, 2013, requiring organisations to maintain proper books and records. For example, the U.S. Foreign Corrupt Practices Act 1977 (FCPA), requires entities to maintain adequate books and records which, in reasonable detail, accurately and fairly reflect the transactions. It also mandates the devising and maintenance of a system of internal accounting controls. These requirements seem to have been a good deterrent against payment of bribes by businesses. The Indian Companies Act, 2013, has a provision of this nature. It would be advisable that the same provision is extended to all commercial organisations and a reference can be made in the proposed Prevention of Corruption Law to this provision in the Companies Act. Six, to deter bribery and corruption, the proposed amendments in the Prevention of Corruption Bill 2013 provides for more stringent punishment for the offence of bribery, both for the bribe giver and bribe taker. Jail terms would be enhanced from the minimum of six months to three years and from maximum of five years to seven years and it will also include payment of fines by the commercial organisations found guilty of violations. While this sends a message of stringent consequences, the punishments and penalties are less stringent than those under the anti-corruption laws in the U.K. and USA. Penalties under the U.K.BA prison terms up to 10 years and unlimited fines; whereas the maximum penalty under the FCPA is imprisonment up to 20 years or fine up to USD25 million or twice the pecuniary gain. Seven, the permission of the government will be required to investigate the former government officials and that of the Lokpal/Lokayuktas for current government officials. Conclusions The proposed changes are a step in the right direction to bring India’s anti-corruption law in line with the international guidelines by the UNCAC and Organisation of Economic Cooperation and Development (OECD). They tackle the supply side of bribery that can help reduce the problem of collusive corruption. Section 13 of the Prevention of Corruption Act 1988 has been significantly amended by restricting the definition of criminal misconduct by a public servant. It is argued that this may help overcome ‘policy paralysis’ that has been seen in the past few years. It is felt by many that economic progress has been thwarted because of fear of prosecution by senior public officials in taking decisions. A provision in Section 13 of the Prevention of the Corruption Act, 1988, makes it an offence if a decision taken by a public servant gives ‘pecuniary advantage without any public interest’ to anyone. This provision is seen by many as the root cause for fear of prosecution by senior public officials. However, there is also a viewpoint that such a provision is required to effectively tackle corruption and fear of prosecution is unwarranted as mens rea, i.e, malafide intentions on the part of public servants have to be in any case established by the prosecution. Even the strictest laws are not effective unless they are properly enforced. To ensure strict compliance, the law enforcement authorities need to expand their capacity and determine a robust enforcement of the proposed provisions in the bill. The proposed amendments, coupled with effective enforcement, would be critical in making the nation less corrupt, improve its international image and help increase the gross domestic product.

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