Why is India Inc more wary of corruption laws in USA & UK?
Most Indian companies I talk to are more worried about the long arm of the FCPA, and now UKís Bribery Act than Indiaís Prevention Of Corruption Act (PCA). This despite the fact that we have a law that is best in class and yet in this country we have a very poor, almost non-existent, record of prosecuting corruption. What's going wrong? To answer that question I have with me today Somasekhar Sundaresan, Partner at J Sagar Associates, he advises companies on the FCPA, now the UK bribery Act as well, and the PCA, I also have joining me from Delhi, Prashant Bhushan, Supreme Court Advocate. Prashant leads a group of Indian citizens that are pushing for a new Lokpal bill.
Below is a verbatim transcript of the interview. Alos watch the accompnaying video.
Menaka: We have discussed, to some degree, in the story that played out in the first half of this show, how the Indian law is at par with the FCPA or the UK Bribery Act in scope and in punishment. And yet we have had a miserable record of being able to prosecute people for corruption. Is it ineffectiveness of the law or do you believe it lies in the implementation?
Sundaresan: I think it is not a problem with the law. It is the same story that you have with the legal system in India. It is a case of over-regulation and under-enforcement. The provisions of the Prevention of Corruption Act (PCA) are serious. They treat even an attempt to bribe as a punishable crime, even if a bribe ultimately didnít take place. So aiding and abetting an offense of corruption is itself also a crime. But effectiveness has been lost because the enforcement of this law, the policing of this law has not been very good at all. It is very bad track record.
Menaka: Prashant, do you agree with that assessment. And if you do then how is your proposed version of the Lokpal bill, going to help fix some of the problems that you and Som identify?
Bhushan: I agree with Som, that it is essentially a problem of enforcement and the problem has to do with our anticorruption agencies. Today the CBI (Central Bureau of Investigation), the CVC (Central Vigilance Commission) and Courts are the three main anticorruption institutions. The problem with the CBI is that it is under the administrative control of the Government, though it is supposed to be supervised by the CVC, which was supposed to be independent of the Government. But this administrative control of the Government leads to control of the CBI by the Government. And since corruption in high places is the main problem, therefore, if the government controls the CBI then obviously corruption in high places is not going to be properly investigated. The CVC was attempted to be made independent of the government by giving it statutory status but unfortunately the appointing method is defective because you have the Prime Minister, Home Minister and Leader of the Opposition appointing the CVC, and all three persons are persons who are currently ministers or who have been ministers in the past and hope to be, even the leader of the opposition hopes to be prime minister in the future. Now they are the targets of these criminal investigations - they or their own ministers are the targets of this investigation. So they obviously have a conflict of interest and they would like a pliable person to be appointed as CVC and that is what we have been seeing all through. So far as the courts are concerned, the courts are completely dysfunctional and have also become corrupt because there is no accountability of the higher judiciary in this country. But the root cause of all this problem is that those who are supposed to fix all these institutions are themselves the beneficiaries of this corruption. And at the back of all this or behind all these corrupt public servants and ministers etc are the big corporates in this country, as the Radia tapes have shown. It is really the big corporates in this country who are ruling the roost and since they are the beneficiaries of corruption, they also control the media and therefore no change is taking place.
Menaka: I donít want this to become a morality of society conversation because then there is no hope! You are proposing a new Lokpal bill, I understand that calls for a single autonomous, independent body that has both the power, the resources as well as the independence to prosecute or investigate politicians, bureaucrats as well as the judiciary - when it comes to matters of corruption. If the context that you have just laid out is that, everybody is corrupt and therefore they donít allow any organization to function, then what is the point of proposing a new law? Is there another way we can maybe look at fixing the system as opposed to having one more law?
Bhushan: We are proposing that this Lokpal would be appointed in a very transparent, broadbased manner so that the appointment should not be controlled by the government. So those who are going to be the targets of the Lokpalís investigation would not be the persons who appoint the Lokpal. It would be a very broadbased, transparent system of selection, which will ensure that atleast the majority of the Lokpal members would be persons of integrity and independent from the government.
Menaka: Eventually those cases are going to come to the judiciary...if your position is that the judiciary is also corrupt, outside of the fact that it is terribly overburdened with pending cases, then no prosecution will ever be completed and we will never have any results. So we are back to square 1, arenít we?
Bhushan: But the Lokpal bill will also have disciplinary control over the judiciary - in the sense that they can investigate corruption charges against the judiciary and also take action against them. So to some extent it will definitely curb corruption in the judiciary, but the judiciary also needs to be fixed in other ways. All these delays in the prosecutions and in the trials etc, they need to be brought down.
Menaka: Som, what do you think of this approach versus the approach that the FCPA seems to have adopted, that - we donít have jurisdiction over foreign government officials or bureaucrats but we do have jurisdiction over companies that have anything to do with the United States (US). So let us go after those who give bribes, let us not go after the small amounts, the facilitation fees, let us go after the big amounts. They have had a pretty successful track record in the past decade. Is this 'supply side approach' maybe a better way of approaching it in India?
Sundaresan: It is a matter of perception. The FCPA has framework of speed money and facilitation payments and the US legislative system seems to recognize that in jurisdictions internationally one needs to do a few things to get things done quickly and like all things American, they have kept a de-minimum threshold. So something that small is registered, sort of looked at, recorded but they are not bothered about. So I donít know if you could say that the FCPA is the panacea of everything and the US is a corruption free society, I donít think so.
Menaka: But going after the big names that they have managed to net, for instance, this year itself they have got Royal Dutch Shell and a Nigerian subsidiary of Shell in their net, they have got BAE, Alcatel-Lucent, earlier we heard what they did with Siemens in 2007-2008. Siemens was penalised USD 800 million. This is a German company paying a penalty under US laws! So I am saying they have managed to put the fear of God, to some degree atleast, in multinational corporations by going after the big names and making examples of them.
Sundaresan: The bottom line is yet again enforcement. All that Mr Bhushan has been saying in his answer is he is highlighting the problems that stand in a way of effective enforcement in India. For example, the backlog and the overload of the judiciary. If a civil suit doesnít get tried for 20 years and a criminal trial doesnít get done effectively within 20 years, no one is going to feel the pinch of violating the law.
Menaka: How many judges are going to have the courage to prosecute a senior minister or a politician? That also connects in to what Mr Bhushan is saying with regards to corruption in the higher judiciary, or the lack of accountability.
Sundaresan: I am not that cynical, there have been judges who stood up, who handed out judgments. We have seen the 90s were replete with cases of ministers being chased, the courts taking views of enforcing penalties. The Supreme Court enforced its own penalty under article 142 and ofcourse later said this is not the right thing to do. So in the 90s we did have this sense of the judiciary feeling that something needs to be done urgently.
Menaka: Then what happened in the last ten years?
Sundaresan: Things have changed, things have slowed down, I donít know whether it is a fear or it is the other point which Mr Bhushan makes - about people scratching each othersí backs, the system is so built that its effective enforcement gets into a big tangle.
Menaka: At the cost of redrawing the comparison with the US, for instance the Department of Justice (DoJ) is accompanied by the SEC (Securities & Exchange Commission) filing civil suits. No company, which is a listed issuer in the U-S, wants to get into trouble with the SEC, because that effectively kills its ability to access the market place. I am saying can we not go after corporates? If we go after corporates then atleast the supply side of the problem is, to some degree, taken care of - because the demand side will probably always be difficult to govern in this country?
Sundaresan: SEC counterpart here is SEBI. The DoJ counterpart is CBI, CVC and we have talked about the problems that we are facing in effective usage of those agencies. There are serious issues there, there are issues with how people are selected, accountability...
Menaka: What is the solution then? Are you veering towards whatPrashant Bhushan is suggesting in the Lokpal bill?
Sundaresan: I think Parliamentary oversight of these agencies Ė for example autonomous enforcement agencies reporting to parliaments, issuing quarterly reports, having public hearings of what they have done in those three months...is what will throw some more sunlight in and bring more accountability.
Menaka: Prashant, that is one of the things that you have suggested in the Lokpal bill as well, that the Lokpal should be accountable to the Parliament and not to the Executive in any fashion - thereby reducing the influence the existing government would have on such a body. But again we come back to whether this is a holistic solution or it is part of a solution and therefore what are the other pieces that need to fall in place for this to be fully effective?
Bhushan: Yes, as Som said, nothing is free of problems entirely. We have tried to suggest a way of selecting the Lokpal and a certain system of transparency and public participation which will ensure, to the extent possible, that the Lokpal functions properly and without being unduly influenced by the government or even by Parliament. Infact accountability of Lokpal is not to the parliament but it is to the Supreme Court. We have said that the Lokpal can only be removed by a 5 judge-bench of the Supreme Court, if, based on a complaint, they hold a better particular member of the Lokpal guilty of misconduct. But ultimately there are two ultimate solutions to this - one is to build in as much transparency as possible into the functioning of the Lokpal, into functioning of all these institutions, so that the people can see. Because ultimately, the ultimate sanction to ensure that these institutions functions properly, are the people. If the people come to know rather than the Parliament...Parliament we have seen is virtually dysfunctional right now...but if the people at large can see what is going on, how selections are being made etc, that is the best insurance that we have. Apart from that I think that if we allow these mega-corporations to become as large as they are, which ultimately come to control the entire ruling establishment in the country, then it will be very difficult to deal with this problem of corruption, crony capitalism in this country. We have to now start enforcing anti-trust laws and ensure that these corporations donít become so big and monopolistic as they are.
Sundaresan: The real issue therefore boils down to do we have an effective system of identifying who would be the person, who would identify and chase violations of the law and do we have an effective enforcement mechanism? The Indian penal code is as applicable in Singapore, Australia, in variant forms or the United Kingdom. Would you say something about the enforcement of criminal law in these jurisdictions - it is very effective and quick there because enforcement is quick, the courts are able to complete trials quickly, witnesses protection is higher, jury protection is high. The standard of enforcement in the machinery is different. So, so long as that difference is there, we will perceive this arbitrage between the US and the UK law on bribery and corruption and the Indian law on bribery and corruption.