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Amid investigation firestorm, what can compliance officers do?

The media has been busy reporting on investigation and enforcement news surrounding the elections across several states in India. These reports have a clear impact on actions compliance officers can and should take.

There’s a clear climate of enforcement in India currently. The stepped-up enforcement efforts include investigations by revenue authorities into cash transaction trends after demonitization, the revenue department issuing notices on Benami act, and a crackdown by the Ministry of Corporate Affairs on shell companies.

With ongoing and ensuing (in the coming months) elections in multiple states and the central elections in April-May 2019, there will be more instances of questionable political contributions, cash for vote schemes, and incidents around money laundering for election spending, all leading to a likely increase in enforcement activity.

Some business spending during the campaign activity is likely to be classified as marketing or promotion — some done through third parties, and actually being payments for services or activities not performed. For instance, payments for vehicles hired for road shows that were not conducted might fall into this category.

Some of this spending may also happen under extortionate circumstances, where a compliance officer doesn’t have any information or knowledge about the events or the circumstances in which they occur.

Here are some steps a compliance officer can take in these challenging circumstances:

  • Seek a declaration mechanism from select categories of high risk third parties to confirm if they have received notices or they are being investigated or being barred by any of the enforcement agencies
  • Include such declarations as key documentation requirements as part of on-boarding new third parties
  • Seek information on political contributions or funding by the third party
  • Review marketing and business development expenditures around the time of elections in the respective state, and examine the evidence to see if performance was effected

A compliance officer’s role is ever evolving. Every peice of information that helps a compliance officer understand the compliance challenges and prevent or detect them before they impact the reputation of the organization is critical.

Overall, a focussed approach that includes close observation of media reports about investigations, and reports of government enforcement, can act as a critical risk-management and early warning tool to protect the organization’s compliance program.

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Sundar Narayanan, pictured above, is a forensic accountant based in India. He currently leads the forensic services of SKP Business Consulting LLP. He can be reached at [email protected].

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1 Comment

  1. Would the companies described in the post even have a compliance officers position that is not a puppet?


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