Jurisdiction - India
Reports and Analysis
India – Recent Anti-Corruption Developments.

30 July, 2012

 

Overview
 
Concerns about corruption in India have assumed prime importance in both legislative and public debate. This has been driven by a series of revelations of large-scale corruption in the public sector. One of the most recent revelations stems from a leaked draft report of the Comptroller and Auditor General’s office in late March 2012, which claimed that the Indian government had lost US$210 billion in potential revenues by selling 155 coal-fields without competitive bidding. Previous scandals have arisen in relation to the organisation of the 2010 Commonwealth Games and the allocation of 2G spectrum licences, the latter of which is reported to have caused a loss of US$39 billion to the Indian exchequer.
 
A recent Transparency International report on corruption trends in South Asia, published in December 2011, confirms the prevalence of corruption in India. 54% of Indians surveyed said that they had paid a bribe to a public official or public service within the previous 12 months. Moreover, over 75% of Indians surveyed said that they thought levels of corruption had increased in the last three years.
 
2012 is potentially a landmark year in India’s efforts to fight corruption. The news of corruption sparked a widely reported anti-corruption protest movement in 2011, led by Anna Hazare and the India Against Corruption campaign, and intensive lobbying for new anti-corruption legislation. In his Budget Speech on 16 March 2012, the Finance Minister, Pranab Mukherjee, identified the need to “expedite coordinated  implementation of decisions being taken to improve delivery systems, governance and transparency; and address the problem of black money and corruption in public life” as one of the Central Government’s five key objectives for the year. One of the concerns underlying this increased political attention on corruption is an apprehension that corruption threatens India’s economic progress. A study, published by the London School of Economics in March 2012, cited corruption as one of the potential impediments to India becoming a superpower.
 
On the enforcement front, the Central Bureau of Investigation (“CBI”), the main domestic anti-corruption agency, retains a very active caseload. During 2011, it registered over 1,000 new cases and concluded nearly 900 cases, achieving a conviction rate of 67%. In March 2012, the CBI arrested one of its own counsel on bribery allegations in connection with one of the the CBI’s ongoing enquiries.
 
Recent international corruption cases
 
A UK-based drinks company
 
In July 2011, a UK-based drinks conglomerate settled administrative proceedings brought by the SEC alleging various FCPA violations. As part of the settlement, the company consented to an order to cease and desist from violating the FCPA’s books and records and internal controls requirements, and to pay over US$16 million in fines and civil penalties.
 
Among other things, the SEC alleged that over a six year period, the company illicitly made US$1.7 million worth of direct and indirect payments to hundreds of Indian government officials who were responsible for purchasing or authorising the sale of the company’s beverages in the country. The company earned more than US$11 million in profits as a result of increased sales resulting from these payments.
 
The payments included disbursements made through third-party distributors to employees of government-owned liquor stores in order to increase sales of the company’s products and secure favourable store placements. The SEC alleged that the company failed to properly record the illicit payments made to government officials by describing them using innocuous terms such as “promotion” or “special incentive” payments.

 

Ongoing foreign investigations

 
In May 2010, the International Anti-Corruption Unit of the Royal Canadian Mounted Police charged a Canadian businessman, Nazir Karigar, with bribing an Indian public official in breach of Canada’s Corruption of Foreign Public Officials Act. According to press reports, Mr Karigar, an employee of a now-bankrupt Canadian biometrics firm, Cryptometrics, is alleged to have indirectly paid bribes of roughly US$250,000 to Praful Patel, the Indian Minister of Heavy Industries and former Minister for Aviation. The bribes were made in connection with an ultimately failed bid by Cryptometrics for a US$100 million contract with Air India for a facial-recognition security system. Mr Karigar is the first individual to be charged with an offence under Canada’s foreign antibribery legislation. He will reportedly stand trial in September 2012.
 
In May 2011, the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (“Oekokrim”) charged two senior officers of the world’s largest fertiliser companies with a corruption offence under the Norwegian penal code. The offence concerns the alleged payment of a US$1 million bribe related to the company’s ultimately unsuccessful efforts to establish a joint venture in India for the production and sale of fertiliser. The company uncovered the alleged offence while conducting an internal investigation with the aid of external counsel regarding possible offences in Libya and reported the matter to Oekokrim. The investigation is ongoing. In May 2012, Oekokrim reportedly detained two employees of the fertiliser company for questioning.
 
In October 2011, the SEC opened a formal investigation into various potential FCPA breaches previously disclosed to it by Avon Products. Avon began an internal investigation in 2008, which reportedly uncovered questionable payments in various jurisdictions, including India. This matter is also still under investigation.
 
Recent domestic corruption cases
 
Blacklisting of international and domestic defence contractors
 
Defence procurement is attracting special attention from anti-corruption investigators in India. India has a burgeoning defence procurement program which is one of the largest in the world. The total defence budget for 2012-13, announced to Parliament in March 2012, is close to US$41 billion, rising from US$36 billion in the previous year.
 
In March 2012, the Ministry of Defence (“MoD”) decided to debar six firms from further business dealings with the Ordnance Factory Board (“OFB”), India’s military procurement body, for a period of ten years.
 
The blacklisting arose out of an ongoing investigation into allegations that the former Director General of Ordnance Factories and others demanded and obtained kickbacks from both domestic and foreign suppliers in connection with various defence procurement contracts.

 

The same Director General was reportedly charged with corruption offences in 2010. According to the MoD, the blacklisted firms were issued with a notice to show cause as to why action should not be taken against them, and were subsequently recommended for blacklisting by the CBI.
 
The international contractors have disputed the blacklisting and the allegations of corruption.
 
In another case, an Army general, General VK Singh, publicly alleged that he was offered a bribe of around US$2.7 million by a retired lieutenant general to approve the supply of 600 vehicles to the Army. The CBI is reportedly
investigating these claims.
 
Aircel takeover and 2G scam
 
The CBI is conducting an ongoing investigation into the takeover of Indian mobile operator, Aircel, by a Malaysian mobile telecommunications firm. In October 2011, the CBI filed charges against three companies and a number of individuals, including former Telecommunications Minister, Dayanidhi Maran and his brother Kalanidhi Maran.
 
The CBI has alleged that the former Telecommunications Minister was involved in pressuring Aircel to accede to the takeover in 2006 and, as part of that, delayed the award of 2G licences to Aircel until after its takeover. The CBI has, in addition, alleged that the former minister received a kickback.
 
The Enforcement Directorate is also investigating the transactions and reportedly summoned the Maran brothers for questioning in March 2012.
 
The investigation forms part of the CBI’s wider investigation into the so-called “2G scam” concerning the allocation of 2G spectrum licences during the tenure of Mr Maran’s successor as Telecommunications Minister, Mr A Raja. Mr Raja is one of a number of defendants currently facing trial before a specially-constituted court on corruption-related charges for their role in the allocation of 2G licences. In February 2012, the Indian Supreme Court quashed over 100 2G licences granted while Mr Raja held office.
 
Recent developments in domestic anti-corruption legislation
 
In her speech to a Joint Session of the Parliament on 12 March 2012, President Pratibha Patil noted that a number of legislative proposals before the Parliament together had “the potential of bringing about a transformational change in curbing corruption and enhancing transparency and accountability in governance”.
 
There are a number of pieces of proposed anti-corruption related legislation currently under consideration by the Indian Parliament.
 
The best known of these is the Lokpal and Lokayuktas Bill. This Lokpal Bill was passed in December 2011 by the lower house of Parliament, the Lok Sabha, in the face of tremendous public interest and pressure. The bill, however, awaits the consideration and approval of the upper house of Parliament, the Rajya Sabha.
 
The fate and final shape of the Lokpal Bill remain uncertain. In its current form, the bill proposes to create a new independent ombudsman body, the Lokpal, with powers to investigate and prosecute complaints of corruption against, amongst others, politicians, senior public officials, and officers of state-funded or state-controlled companies. The Lokpal would have powers to search and seize documents and attach assets. Furthermore, the Lokpal would be able to exercise some of the powers of a civil court when conducting preliminary enquiries, such as the power to summon witnesses and take affidavits

 

The relationship of Lokpal to existing anti-corruption agencies, such as the CBI and the Central Vigilance Commission (“CVC”), has yet to be defined. In March 2012, the Prime Minister reportedly convened a meeting of leaders of different political parties with a view to forming a consensus on legislation that could be put before the Rajya Sabha, where it is currently being reviewed in committee.
 
In December 2011, the Lok Sabha also passed the Whistleblowers Protection Bill. The purpose of this whistleblower legislation is to confer various protections on persons making public interest disclosures, including allegations of corruption and misuse of public office, to relevant authorities, such as the CVC. The bill provides that the identity of complainants should be kept confidential, the complainant should be protected from victimisation, and that the complainant shall not incur liability under the Official Secrets Act. The bill also prescribes rules and powers regarding the handling of complaints, including powers of investigation. The bill awaits approval of the Rajya Sabha, the upper house of Parliament.
 
In addition to the Lokpal Bill and whistleblowers legislation, during 2011, the Lok Sabha also considered legislation to make the bribery of foreign public officials a criminal offence in India. The Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisations Bill was introduced into the Lok Sabha in March 2011. The bill would apply to Indian citizens wherever located and is currently under consideration by a parliamentary committee. At a meeting of the committee in January 2012, the CBI reportedly expressed its opposition to the introduction of separate legislation prohibiting foreign bribery. Instead, the CBI recommended that existing domestic legislation be amended to extend to foreign bribery so that there is one consistent anti-bribery regime.
 
Finally, the Ministry of Law is currently conducting a consultation exercise on proposed legislation to criminalise private sector corruption. In March 2012, the Ministry announced that it had received comments from all of the state governments on the proposal, one of which had expressed disagreement with the proposal. No legislative proposal has yet been presented to Parliament.
 

 

For further information, please contact:

 

Nimi Patel, Herbert Smith

nimi.patel@herbertsmith.com

 

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