Diwali is one of the most anticipated and celebrated festivals in India. It is also a festival of giving gifts and most often, compliance professionals struggle with policies and nuances of law around this time on giving gifts which can take the color of bribe.
Under Prevention of Corruption Act, 1988 (PCA), the principal statute regulating the sphere of anti-bribery and anti-corruption in India, giving and receiving any form of pecuniary gratification may imply criminal penalties for both the bribe giver and the public official. Furthermore, the conduct rules of various government departments prescribe monetary limits for receiving gifts beyond which reporting obligations of government servants are triggered.
Gifting per se is not an illegal activity under Indian law. Under PCA, the determining factor that separates a gift from a bribe is whether the gift was made with an expectation of quid pro quo. Furthermore, it must be clarified that the various conduct rules do not prescribe a de minimis or a minimum monetary threshold up to which a gift shall be seen as unquestionable. The conduct rules, as may be applicable to different public officials, merely provision for reporting obligations on behalf of the government servant in cases where the pecuniary value of the gift received exceeds a certain limit.
The essential factor in determining whether a gift would amount to a bribe or not is the motive behind the said gift irrespective of its pecuniary value. Therefore, the internal controls and policies that a company adopts to ensure that provisions of gifts are not abused by employees are extremely important.
Going a notch higher, Section 11 of the PCA stipulates even more rigorous conditions in certain situations wherein the gift is provided to a public official by a person involved or likely to be involved in a proceeding or business transacted before him. In such situations, the element of quid pro quo has also been done away with. In addition, Section 12 of the PCA specifically targets the supply side by treating the act of giving a bribe as a criminal offence of abetment which may lead to imprisonment up to a term of three years and fine.
Furthermore, due to the federal form of government existing in India, the conduct rules for different government departments and state territories largely vary. In fact, certain conduct rules provide extremely low pecuniary limits which can be as low as Rs. 50/ or 76 US cents. A point that is often misinterpreted by commentators is that the pecuniary limits under conduct rules can only be a guidance; a gift within such pecuniary limits should necessarily adhere to internal policies and meet the standards set out in PCA.
* * *
Following are some of the points organizations need to consider when evaluating gift during Diwali season:
- The organization’s senior management should establish a strong tone at the top and should actively disseminate a no tolerance policy towards bribery and corrupt practices preferably in advance of the festival month.
- The legal department of the organization should preferably put in place a prior approval process for offering gifts to public officials. All requests for prior approval should be determined in accordance with the applicable conduct rules relevant to the official who will be the recipient of the gift.
- On a request being made under the gift policy, get the submitted disclosure form and supporting documents vetted by a local counsel.
- In certain conduct rules, foreign firms and companies are specifically prohibited from providing gifts to public officials and this should be kept in mind when designing an appropriate gift policy.
- Gifts made to public officials should be reasonable, infrequent, of nominal value, appropriate and should not be given with the intent to improperly influence an official and should preferably include the organization’s logo or official branding.
- Special permission from the organization’s legal department must be taken in cases where gifts are sought to be given to public officials with which the organization is or is likely to be involved in proceedings or business transactions.
- All gifts made to public officials must be adequately recorded and reflected in the organization’s books of accounts and the relevant documentation should be preserved. This includes all supporting documentation such as invoices, delivery challans etc.
- It is not uncommon in India for certain employees to indirectly route their impermissible gifts through one of their vendors. All policies and communication on gifts should clearly emphasize the fact that the policy regulates gifts given directly or indirectly,
- Additional hospitality or gift provided to public utility officials or officials who are conducting inspections should be appropriately recorded in the books of accounts and should be in line with the overall gift policy.
Kunal Gupta, pictured above, is partner and head of white-collar investigations practice at Cyril Amarchand Mangaldas in India. He is regularly involved in assisting his clients in conducting large, multi-jurisdiction investigations in Asia. He can be reached here.