1. What is the extent of corruption and its common forms in India?
India ranks 185th out of 197 countries in the TRACE Matrix, which measures business bribery risk in countries around the world. Both low-level administrative graft and high-level “crony capitalism” make addressing corruption in India particularly difficult.
Bureaucratic or administrative corruption are among the most visible forms of corruption specific to the Indian market. A host of regulatory hurdles in India provide a fertile ground to extort bribes from businesses. Many companies utilize bribery as a way to expedite paperwork or bribe their way around complicated regulations. In doing so, they sustain a system of bribing officials for continued favors. In the TRACE Matrix, India has a score of 92 in the domain “Business interactions with the Government” indicating a very high regulatory burden and expectation of bribes
2. How are foreign businesses affected?
Foreign companies have attracted severe fines and damage to their reputations for violation of anti-bribery laws in India. For example, Oracle Corporation, Dow Chemical Company and Louis Berger International Inc. were charged in the United States for violations of the Foreign Corrupt Practices Act (FCPA). Indian regulatory bodies have also stepped up oversight measures. In 2015, India’s anti-corruption watchdog, the Indian Central Vigilance Commission (CVC), summoned Wal-Mart Inc.’s country head over allegations of bribery.
3. In what sectors are foreign companies particularly vulnerable?
Infrastructure and real estate, extractive industries (oil and gas, mining), pharmaceuticals, and aerospace and defence are considered among the highest-risk sectors. Corruption in the aerospace and defence sector is a matter of particular concern, as expected growth in the industry and potentially large contracts create a situation ripe for bid-rigging, kickbacks and bribes. In the extractive sector, it is reported that both privately and publically held companies have paid bribes, under-invoiced for exports and used fake permits in order to obtain business.
4. Generally speaking, how can foreign companies reduce their risks and exposure to corrupt business practices?
It is important for foreign companies operating in India to have a robust compliance program. Companies, irrespective of their sector, should annually upgrade and audit their compliance procedures. They should also make sure that their employees in India are trained and well-prepared for bribery risks. Anonymous hotlines for whistleblowers can also prove useful in shedding light on any potential wrongdoing. Finally, companies should also pay special attention to their business partners in the region to ensure that they are reputable and conduct their business according to the company’s compliance standards.
Companies can also work with TRACE Certified firms, which have completed a rigorous due diligence process based on international standards, including training and continuous daily screening against international sanctions and enforcement lists.
5. What anti-bribery compliance support exists in India?
For companies seeking to build compliance programs, TRACE International offers a membership program that includes online anti-bribery training for employees and intermediaries, guidance on local laws and compliance best practices, complimentary attendance at workshops, and access to other tools and resources designed to make compliance with anti-bribery laws easier and cost-effective. TRACE also recently launched TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
Several local non-profit organizations, such as Transparency International India and iPaidaBribe, have achieved success in spurring grassroots efforts to combat bribery and corruption in India. The World Economic Forum, the OECD and also the United Nations Office on Drugs & Crime (UNODC) have done extensive work on bribery risks in India.
In 2007, the Central Vigilance Commission (CVC) adopted Transparency International‘s vigilance tool, the Integrity Pact (IP), in major government contracts. An IP is an agreement between parties to ensure a corruption-free bidding process. In 2015, the CVC called for adoption of IPs in public sector banks, insurance companies and financial institutions. Private-sector companies in India, however, are outside the purview of IPs.
6. Is there anything else that foreign companies should know?
The Indian government is trying to deliver on its promise of “minimum government and maximum governance” – intended to minimize the massive bureaucratic and administrative system in the country. There is reason to believe that progress has been achieved in this regard, with India recently moving up four places to 130th in the World Bank’s 2016 Ease of Doing Business index.