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Effective Anti-Corruption Compliance in India

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Effective Anti-Corruption Compliance in India Powered By Docstoc
					Effective Anti-Corruption Compliance in India
A Pepper Hamilton Webinar

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Feel free to submit text questions throughout the webinar


Valérie Demont Partner Pepper Hamilton LLP


Gregory A. Paw Partner Pepper Hamilton LLP


John G. Rahie Managing Partner Freeh Group International


Anti-Corruption Enforcement Is At All-Time High
• Enforcement authorities around the world are increasing anti-corruption investigations and prosecutions • U.S. prosecutors have been particularly active:
– Siemens - $800 million (2008) – KBR-Halliburton - $579 million (2009) – More cases in past five years than in the prior history of the statute – Over 120 current open cases

Enforcement Expands Outside U.S. • OECD Convention on Combating Bribery of Foreign Public Officials in International Business • 38 countries have adopted • Some countries aggressively enforcing • India has not yet ratified


FCPA Enforcements of Companies Doing Business in India • Control Components (2009) • Westinghouse Air Brake Technologies (2008) • York International (2007) • Chandramowli Srinivasan – A.T. Kearney Ltd. – India (2007) • Dow Chemical Company (2007) • Textron (2007)

Anti-Corruption Enforcements Against Companies from India • World Bank debarment of Satyam Computer Services, Wipro Technologies, and Megasoft Consultants (2007-09) • Chilean investigation of Tata Consultancy Services (2008) • UN Oil-for-Food program – 120 Indian companies cited in UN Report (2005)

Indian Anti-Corruption Enforcement Efforts
• India Prevention Of Corruption Act
– Punishes “public servants” who accept or agree to accept “any gratification” as a reward for doing or forbearing to do any official act
• “Public servant” broadly defined, and includes employees of government-owned or governmentcontrolled entities • “Gratification” not restricted to pecuniary benefits

– Punishes abettors of the offense – No exception for facilitating payments


Current Trends
• Cases like Satyam and Bofors, and concern of link between corruption and terrorism, have raised Indian efforts • 2009 letter from India’s Ambassador to the U.S. has generated a call to action • Indian government creating 71 courts to work with Central Bureau of Investigation • September 2009, Chief Justice of India condemned “pervasive culture of graft [that] provokes pessimism about the quality of governance.”

A Challenging Environment
• India has a high perception of corruption
– # 85 - same tier as Panama, Albania, Serbia

• Some commentators say corruption has long cultural history
– Cultural history of gifts to persons in power – Complex and rigid bureaucracy
• Improved since 1991 reforms, but still cumbersome • “Speed” payments are common

– Costly political campaigns – Lack of transparency


Perception Surveys in India
• Surveys of corruption in India show:
– Frequent bribe requests – Relatively low value
• 84% under $5,000 • Unlike China, where 36% were $5,000 or more

– Most frequent bribe requests come from police, but also often requested by customs, taxation, water and land record officials – Bribes most frequently relate to obtaining a service already due
• Unlike China, where bribes to obtain business are four times more likely than in India
» Source, Trace International 2009


Perception Surveys in India
• Corruption perceptions vary among Indian states:


Perception Surveys in India
• 75% said political parties are extremely or very corrupt • 83% said bribes to land authorities was a very serious or serious problem • More than half admitted to paying bribes to tax officials • Favorable perceptions of shopkeeper offering bribe for a license was more than twice the world average
» Source, Transparency International 2009 and Transparency International-India 2005


Points for Indian Compliance
• Corruption compliance is needed for ALL multi-national companies entering Indian market
– Compliance program – Monitoring – Training

• Due Diligence
– Partners, business agents, joint ventures – Mergers and Acquisitions


M&A Due Diligence
• What to Know:
– – – – Target business players and history How the business operates Customers/contracts Finances and books

• How to Learn It:
– U.S. Embassy – Experienced, creative investigators

• How to Protect It:
– Top-notch compliance program – Warranties and representations

Protection through the Purchase Agreement
• Representations and Warranties:
– All transactions appropriate under local law – No portion of the deal proceeds will be used to fund payments to secure government approvals or gain some improper business advantages – No corrupt payments were made to government officials to obtain or retain company business – No government officials is a company owner, or holds any interest in the company – Company’s books and records are accurate and complete


Compliance Best Practices KNOWLEDGE
• Know your risk environment
– Marketplace risks, such as:
• • • • Multiple books Taxes avoidance Remnants of Octroi Trucking system

• Know your agents and consultants
– Think broad
• Including lawyers, accountants and other professionals


Compliance Best Practices KNOWLEDGE
• Know exposure to regulatory layers
– – – – – Police Customs Property offices Taxation Judiciary

• Know how your money is being spent
– Follow the money in accounting system – Awareness of tax avoidance schemes


Compliance Best Practices CULTURE
• • • • Create culture of compliance Policies/monitoring/training Anonymous employee reporting Understand and respect your setting – Know your local environment
• Recognize the good corporate policy nevertheless can put employees in difficult social positions • Respect cultural issues when conducting interviews

– Translate into local languages
• Keep the language plain

– Stress more than a U.S.-centric law
• Not FCPA but anti-corruption

– Get out to the field – Enlist local leadership on compliance issues


The Take Aways
• Every multi-national company transacting business in India should conduct a risk assessment and have a compliance plan • Every deal by a multi-national company for a business in India should include a risk assessment and due diligence


Question and Answer Session


Feel free to submit text questions throughout the webinar


Thank You!

Valérie Demont Partner Phone: 212.808.2745

Gregory A. Paw Partner Phone: 609.951.4145


Thank You!

John G. Rahie Managing Partner Phone: 302-824-7139