We are pleased to feature this guest article by white collar attorneys from the Law Offices of Panag & Babu, Sherbir Panag and Jaskaran Bhullar. The authors are members of the Concilium Network, of which Foley is a founding member, which is a global alliance of attorneys focused on enforcement defense, investigations, and compliance. (Contact Foley members David Simon, Olivia Singelmann, or John Turlais with questions and service inquiries.) Panag & Babu’s insights provide valuable perspective on the evolving fraud risks facing multinational companies operating in India.
Fraud continues to pose significant challenges across industries worldwide. For multinational companies operating in India, the country offers enormous opportunity — but also presents distinct operational and regulatory risks that require executive-level attention and strategic oversight. These risks often are amplified by the inherent limitations of remote governance from headquarters.
In the absence of strong centralized controls, Indian subsidiaries sometimes can resemble informal, founder-led enterprises. This often stems from organizational models that grant considerable autonomy to local leadership. While such autonomy can facilitate operational agility and market responsiveness, it also introduces risk when robust oversight and internal safeguards are lacking.
Key Fraud Trends in Indian Operations
While employee misconduct remains a leading source of fraud, third-party vendor schemes and collusive practices are increasingly common, particularly in procurement and supply chain functions. Recent trends in fraud affecting Indian subsidiaries can broadly be categorized as follows:
- Employee Fraud: The diversion of company funds for personal use remains the most common type of corporate fraud in India. There has been a marked increase in kickbacks from vendors, and other procurement-related misconduct, often involving mid- to senior-level employees. Conflicts of interest and unauthorized sharing of confidential company information also are frequent issues.
- Misrepresentation of Information: Manipulation of financial or operational data — both internally and in regulatory disclosures — continues to mislead stakeholders. Cases of securities fraud, such as insider trading and market manipulation, are also being investigated at an increasing pace.
- Bribery and Corruption: Despite ongoing anti-corruption reforms, bribery remains a persistent challenge, particularly in sectors requiring government interaction or regulatory approvals. Such activities create a threat of legal exposure, financial liabilities, and reputational damage for the parent entity.
Navigating the Legal and Regulatory Developments
India’s regulatory framework for addressing fraud has grown more rigorous in recent years. Multiple enforcement agencies, each with distinct mandates, now coordinate investigations more actively. Recent changes also have significantly expanded the reporting obligations for statutory auditors — particularly in the case of “public interest entities,” where fraud must now be reported even if discovered outside the audit process.
Private and unlisted public companies are now subject to mandatory reporting for fraud exceeding INR 10 million (approx. USD $116,600). For listed companies, additional obligations include notifying stock exchanges of forensic audits and disclosing material findings in financial statements. These developments signal heightened regulatory expectations and underscore the importance of aligning internal controls and reporting frameworks with local legal requirements.
Best Practices for Fraud Prevention
To mitigate fraud risks, multinational companies should implement a comprehensive, multilayered strategy that integrates global best practices with India-specific nuances:
- Centralized Oversight: Assign a senior global executive to oversee fraud-related functions across Indian operations. This ensures visibility, consistency in controls, and centralized escalation of significant issues.
- Tailored Policies and Training: Adapt global compliance policies to reflect India-specific legal obligations and cultural considerations. Provide training in local languages and tailor sessions by function and risk exposure.
- Segregation of Duties: Define clear roles and introduce the “four-eyes” principle (i.e., multiple approvals) for high-risk transactions, to limit the potential for collusion and unauthorized actions.
- Vendor and Partner Screening: Conduct risk-based due diligence on third-party vendors. Establish ongoing monitoring protocols and regularly exercise audit rights, especially with high-risk or high-value partners.
- Secure Systems and Controls: Invest in secure systems with strong access governance to protect sensitive data and prevent unauthorized system changes.
Effectively Responding to Fraud
When fraud is suspected or identified, a disciplined, well-coordinated response that aligns with regulatory expectations is critical. Key steps include:
- Independent Investigations: Engage external counsel to lead investigations, ensuring objectivity, preserving legal privilege, and producing defensible findings for internal and regulatory use.
- Early Auditor Engagement: Bring in external auditors at an early stage to establish trust and ensure the investigation aligns with financial reporting obligations.
- Accurate Management Representations: Implement processes to ensure subsidiary management is accurately informed of fraud-related matters. Legal counsel can assist in validating management representations to prevent misreporting.
- Transparent Financial Reporting: Incorporate investigation findings into financial statements to maintain transparency and avoid complications during audits or disclosures.
- Remediation and Culture Reset: Act decisively to implement corrective measures. These may include policy changes, disciplinary action, structural reforms, and renewed training efforts, demonstrating a commitment to accountability and long-term risk mitigation.
Fraud poses a multipronged challenge for multinational companies operating in India. However, by adopting a proactive, well-informed, and culturally sensitive approach, organizations can effectively navigate the complexities of the Indian market and regulatory requirements. Combining robust governance, cultural sensitivity, and regulatory compliance with a commitment to ethical practices will not only mitigate risks but also position companies for sustained success in a promising economy.
If you have questions about this topic, please feel free to reach out to Sherbir Panag or Jaskaran Bhullar, at the Offices of Panag & Babu, or your Foley & Lardner attorney. For more information about the Concilium Compliance, Investigations & Defense Network, click here to visit the website.
