The Evolving Landscape of the Anti-corruption Framework in India

India’s anti-corruption framework has been shaped by a complex mix of legislative, executive, and judicial efforts to curb pervasive corruption challenges. 

Despite these measures, India’s position on the Corruption Perception Index, ranking it 93 out of 180 countries for 2023, highlights ongoing challenges.

It has become imperative for organizations to be well-versed with India’s regulatory framework against to ensure compliance and maintain ethical standards in their operations. 

This article delves into India’s anti-bribery and anti-corruption framework. It also offers practical guidance for organizations on enhancing compliance measures and mitigating associated risks effectively.

I.    Key Legislations in India pertaining to Anti-Corruption

     A.    Prevention of Corruption Act, 1988

The Prevention of Corruption Act, 1988 (POCA) was enacted in 1988 to streamline all legislation pertaining to offences committed by public servants. Since then, the Act has formed India’s primary legislative framework for anti-corruption. 

It penalizes receiving any “undue advantage” by “public servants.” Notably, the term “undue advantage” is not restricted to monetary gratification. The term also includes non-monetary gratifications, such as gifts. 

The application of POCA is no longer limited to “public servants”; the judiciary has broadly interpreted this expression, bringing chairpersons and directors of private banks within its scope of adjudication. 

While the POCA applies across India and extends to Indian citizens abroad, its extraterritorial applicability is limited because it doesn’t address bribes offered to foreign officials.  

To bridge this gap, the ICSI introduced the Corporate Anti-Bribery Code, 2017, which specifically addresses bribery involving foreign public officials. This code is available for voluntary adoption by companies seeking to enhance their anti-bribery practices. 

Generally, offences under the POCA are investigated by specialized agencies such as the Central Bureau of Investigation (CBI) or the anti-corruption wings of the respective state police. 

     B.    Replacement of the three key criminal laws

Significant and holistic amendments were brought to the three key criminal legislations in India after more than 150 years, with an aim to better the enforcement and prosecution framework of the country. 

The Bharatiya Nyaya Sanhita, 2023 (replacing the Indian Penal Code), the Bharatiya Nagarik Suraksha Sanhita, 2023 (replacing the Code of Criminal Procedure), and the Bharatiya Sakshya Adhiniyam, 2023 (replacing the Indian Evidence Act) came into effect in July 2024. 

     C.    Prevention of Money Laundering Act, 2002 

Money laundering, as defined broadly under the Prevention of Money Laundering Act, 2002 (PMLA) is a criminal offence. 

Under the PMLA, “proceeds of crime” are defined as “any property derived or obtained, directly or indirectly, by a person due to certain underlying identified crimes” (considered predicate offences for the purposes of the PMLA). 

According to the (Indian) Companies Act, “fraud” is also considered a predicate offense that kicks off the PMLA's provisions. The PMLA considers any property obtained or created by fraudulent means to be “proceeds of crime.” 

For PMLA purposes, the offenses specified in the POCA are also predicate offenses.  In India, investigations into violations of the PMLA are overseen and carried out by the Enforcement Directorate (ED).

     D.    Companies Act, 2013

Section 447 of the Companies Act defines “fraud” in a broad sense. The Act covers commercial and private bribery situations in which no public worker is involved, unlike the statutes mentioned above which dealt with corruption involving public authorities. 

It is legally mandatory for auditors and cost accountants to notify the central government of any suspected fraud that surpasses a certain monetary level. Furthermore, some organizations, like listed companies, are required to put in place a vigil mechanism system and an audit committee as oversight bodies for effective anti-fraud and risk management.

The National Financial Reporting Authority (NFRA) and the Serious Crime Investigation Office (SFIO) are established by the Companies Act to ensure adherence to accounting and auditing standards.  The agencies also look into cases of corporate crime.

      E.    Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 (‘Black Money Act’)

This Act imposes punitive tax rates on undisclosed income or assets held abroad by Indian residents. It  penalizes individuals for failing to disclose foreign income or assets, wilfully evading taxes, or neglecting to submit necessary returns. 

The Act aims to address unreported income and assets, often linked to illicit activities, including corruption, that have been concealed in offshore locations by residents of India.

     F.    Fugitive Economic Offenders Act, 2018

The Fugitive Economic Offenders Act, 2018 (FEOA) was passed with the intention of preventing those accused of economic offenses from evading trial in India. 

The FEOA applies to offenders against whom an arrest warrant has been issued for specific economic crimes exceeding a certain monetary threshold. 

These people must have either left the country to avoid being prosecuted or stayed overseas and refused to come back and face legal action. 

Violations of the PMLA and POCA, as well as corporate fraud under the Companies Act, are examples of predicate offenses under the FEOA. The FEOA’s broad provision for the instant seizure of all of the offender’s assets is one of its most striking features.

     G.    Service Rules for Public Servants

Under the Indian federal structure, public officials are appointed at the central or state level, or with any other public authority. The respective service rules governing the public official typically provide for monetary thresholds for receiving non-personal gifts. 

Government servants are obliged to report/obtain prior sanction for receipt of gifts that are in excess of these prescribed monetary limits. 

II.    Compliance and Risk Mitigation

India’s anti-corruption framework imposes stringent and extensive standards. Organizations should focus on two critical pillars to achieve effective compliance and mitigate associated risks: (1) Continued Awareness and (2) Robust Execution.

     A.    Continued Awareness

             i.    Understanding the Legal Landscape: 

• For organizations, compliance with anti-corruption laws goes beyond simply being aware of the statutes. 
• It requires a proactive approach to understanding the nuances of these laws, which often involve complex provisions and regular updates that may affect compliance obligations. 
• One effective strategy for staying informed is to engage with legal experts and law firms through frequent sensitization programs. 
  
       ii.    Providing Tailored Training to Employees: 
   
• To foster a culture of compliance and integrity, organizations must go beyond establishing anti-bribery and anti-corruption (ABAC) policies—they must also educate employees on these policies through tailored training programs. 
• This ensures that employees across different levels understand the company’s ABAC policies, the specifics of anti-corruption laws, the potential red flags they may encounter, and the severe legal consequences of non-compliance.
  
       iii.    Regulating Employee Conduct by developing ABAC Policies: 
   
• To reinforce a culture of ethical conduct, it is important to establish a comprehensive ABAC policy that clearly articulates the organization’s zero-tolerance stance on bribery and corruption. 
• These guidelines should outline specific dos and don’ts, with real-world examples to help employees recognize situations where they may need to take extra care.

     B.    Robust Execution

          i.    Implementing ABAC Policies: 

• Having a strong ABAC policy is important, but equally important is the consistent application of a robust disciplinary framework to address any violations of this policy. 
• To facilitate effective implementation, it is advisable for organizations to establish a dedicated internal compliance team responsible for monitoring adherence to the ABAC framework, ensuring that policies are applied rigorously and consistently across the board. 
  
  ii.    Exercising Thorough Due Diligence: 
   
•  Robust due diligence procedures are essential for assessing and continuously monitoring business partners, suppliers, agents, and other third parties to mitigate corruption risks. 
• Effective implementation may include conducting thorough background checks on third parties before onboarding and at regular intervals thereafter.

      iii.    Strict Internal Auditing: 

•  Establishing stringent internal auditing processes and transaction monitoring systems enables organizations to proactively detect and address potential compliance risks.

      iv.    Presence of Independent Directors: 

• The inclusion of independent directors on corporate boards is essential for fostering objectivity in decision-making and reducing conflicts of interest. 
• Independent directors bring impartial perspectives to board deliberations, ensuring that decisions align with ethical principles and stakeholder interests.
  
  v.    Stringent Norms for Related Party Transactions: 
   
• To safeguard stakeholder interests, organizations must comply with strict statutory regulations governing related party transactions. 
• Compliance with norms under the Companies Act and the Securities and Exchange Board of India (SEBI) guidelines helps mitigate risks associated with conflicts of interest and ensures that all dealings are conducted at arm’s length.
  
  vi.    Whistle Blower Mechanism: 
   
• An effective whistleblower mechanism empowers employees and stakeholders to report unethical practices or violations of anti-corruption policies without fear of retaliation.
• Organizations should ensure the mechanism is easily accessible and widely communicated across all levels, coupled with assurances of prompt investigation and resolution of complaints. 
  
  vii.    Adopting Technology Solutions: 
   
• Leveraging advanced technology solutions is vital for ensuring continuous monitoring and efficient compliance management. 
• Automated systems can track transactions, manage disclosures, and facilitate timely responses to regulatory requirements. 
• Additionally, such tools allow organizations to implement real-time risk assessments and fraud detection, enhancing the overall effectiveness of anti-corruption measures.

     III.    Conclusion

India’s anti-corruption framework, though robust, requires proactive measures for effective compliance. Organizations must prioritize awareness and execution of compliance measures through tailored training, pristine guidelines, and rigorous enforcement of anti-corruption policies. 

Author: Susanah Naushad, Counsel, Khaitan & Co.