Co-Author: Sherbir Panag, Panag & Babu, New Delhi
Obtaining permissions, approvals and licences in India creates high risks for bribery on account of there being significant interaction between the company and government authorities. The bribery risk manifests itself further on account of:
In January 2017, the US Securities Exchange Commission (SEC) announced a $13m settlement with Mondeléz arising out of payments made by its Cadbury operation in India in connection with obtaining approvals and licences.1
The fact pattern is familiar. Before its acquisition by Mondeléz, Cadbury was in the process of expanding its manufacturing facility in Baddi, Himachal Pradesh, India. The SEC alleged that Cadbury determined that the expansion would require more than 30 different licences and approvals from various government agencies in India. As many non-Indian companies do, Cadbury hired an agent, according to the SEC, without conducting any due diligence on the company or its principals and without entering into a written contract, to assist in obtaining the required regulatory approvals. The SEC claimed that Cadbury paid in the range of $100,000 to the agent for the work.
According to the SEC, the agent withdrew (in cash) most or all of the funds paid in by Cadbury. According to Indian press reports, the payments made by Cadbury appeared to correspond in time with the dates crucial approvals came through. And the agent did not even prepare the approval applications – Cadbury employees did that work. Moreover, the agent did not provide documentary support for the services it was paid to provide, other than invoices listing the licences and approvals obtained.
The SEC concluded there was a Foreign Corrupt Practices Act (FCPA) books, records and internal controls violation – having ‘created the risk that funds paid to [the] Agent… could be used for improper or unauthorised purposes’. While bribery is not usual in these circumstances, permissions, approvals and licences can be obtained in India without paying bribes. Companies can minimise bribery risk by following these four steps:
Determine what permissions, approvals and licences the company needs. If you do not have the capacity to do so in-house, consider engaging legal counsel for this purpose. The bureaucracy notwithstanding, there is always a stipulated procedure (however difficult to find) and the compliance requirements must be determined in advance. Remember, you can’t be asked for ‘magical documents’.
Work backwards from the date/event before which the concerned permission, approval or licence is due, to prevent a last-minute rush that would expose the company to a greater bribery risk.
Factor in a buffer time for contingencies such as organising documents, board resolutions with foreign directors, documents needed to be notarised outside of India for use in India, etc. Over and above this, build in time to handle objections/questions/queries/ show causes from the concerned government authority. In short, don’t cut it too fine.
Oversight of the permissions, approvals and licences must rest with a person from the organisation who has the ability and capacity to oversee the process. For example, having the head of human resources overseeing the approval of a factory plan isn’t the best idea.
In the event that the company does not have such a resource, consider legal counsel or qualified project consultants.
Make your compliance task simpler by listing out:
"This article was first published by the IBA Anti-Corruption Committee in October 2017, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association."
2 Laurel Burke, David Simon and Sherbir Panag, ‘Compliance Challenges in India: Why Your Program May Not Translate: Part 2’ (9 September 2016), available at http://complianceandethics.org/compliance-challenges-india-program-may-not-translate-part-2.