By Anupama Jha

India has been rocked by a series of corruption scandals in the recent past.  The loan bribery case, the telecom license row, and the commonwealth games corruption scandal, are just a few of the bribery schemes that have embarrassed the ruling party, rattled economic markets, and shocked the public conscience.  Then there is the story about the Indian Ambassador in Washington who wrote to the Indian Prime Minister about how some American companies paid huge kickbacks to government officials in India, either to procure contracts or expedite registrations.  A common thread in all these cases is the involvement of the private sector.  It has become so pervasive that the general public has started blaming the policy of economic liberalisation for the rising corruption in the country.  Politicians are hand in glove with private sector companies in order to maximise their chances of being re-elected.  The pay to play scheme is well known – companies bribe politicians with campaign cash, who in turn award the firms government contracts.

The Prevention of Corruption Act (“PCA”) does not expressly punish corrupt acts of private parties, except to a limited extent under Section 9, which addresses persons who accept gratification to influence a public servant in the conduct of an official act, and Section 12, which addresses persons who abet bribery.  However, there is no direct provision prohibiting a private person from offering a bribe or engaging in other corrupt practices.  This is especially significant in cases of “collusive corruption,” where the private person may offer a bribe and the public servant may actually reject the bribe.  The PCA also does not contain any provision to address cases where Indian citizens engage in corrupt activities with a foreign public official. These are a few of the shortcomings in the law that must be corrected to bring India’s anti-corruption laws in line with international standards.  To add to the problem, there are inordinate delays in the prosecution of public servants against whom complaints have been made.

The U.S. Foreign Corrupt Practices Act (“FCPA”), on the other hand, prohibits the payment of bribes to foreign officials for the purpose of obtaining or retaining business. Recently, however, the U.S. Chamber of Commerce  advocated loosening the rein on  subsidiaries of multinational companies, saying, “A parent company’s control of the corporate actions of a foreign subsidiary should not expose the company to liability . . . where it neither directed, authorized, nor even knew about improper payments.”  At a time when multi-national companies often have thousands of subsidiaries worldwide, the U.S. Chamber’s position will subject the law to much ridicule.

Transparency International has always maintained that clean business is good business.  There are several examples around the world illustrating why poor business ethics costs investors and stakeholders dearly.  No doubt, corruption adds to the cost of doing business.  We find multinationals operating in developing countries encourage corruption, and thereby undermine development and deepen poverty.  This may eventually lead to markets in emerging economies on which companies from the West so heavily rely to collapse.

Supply side corruption by transnational companies translates to economic, political, social, and cultural divide among people, and has far reaching negative consequences.  The Maoist insurgency in India, which has grown recently and covers 40,000 square kilometres across Central and Eastern India, is just one example of what corrupt practices by companies can do.  Money that could be spent on developing the social infrastructure, eradicating poverty and empowering the poor (who could be the next potential market for multinationals) goes into the hands of few individuals making them richer and increasing the rich-poor divide.  Corruption of this sort also disadvantages domestic firms and distorts decision making in favour of projects that benefit few rather than many.  Transnational corruption normally happens on a grander scale compared to domestic corruption, making it a substantial obstacle to development or security of the country.  When funds from the domestic budget or foreign aid get diverted as corruption proceeds in foreign banks, the country is deprived of the multiplier effect of the productive expenditure.

The Organization for Economic Co-operation and Development’s (“OECD”) Anti-Bribery Convention and the United Nations Convention against Corruption (“UNCAC”) are compelling companies to develop new anti-bribery policies and review existing ones. India is not a member of OECD but was granted “observer” status in 2006.  India has not ratified UNCAC.  It’s time for India to became a member of the OECD convention and ratify UNCAC.  These conventions would provide India with mutual legal assistance, and allow it to trace, freeze and confiscate assets.  The central goal of UNCAC is to promote international cooperation in the fight against corruption.  If India ratifies UNCAC, it will assume obligations but will also be afforded many valuable opportunities for affecting cooperation to combat corruption.  The OECD convention, although not legally binding, provides a consensus among the 28 member countries for a uniformed approach to fight corruption and creates a strong platform for cooperation.

Anupama Jha is Executive Director of Transparency International, India and may be contacted by email at anupama.jha@gmail.com.