[co-author: Sherbir Panag, Panag & Babu, New Delhi]

Obtaining permissions, approvals and licences in India creates high risks for bribery on account of there being significant interaction between the company and government authorities. The bribery risk manifests itself further on account of:

• poor knowledge on what permissions, approvals or licences a company must obtain;
• not preparing for the bureaucratic hurdles and the time involved in overcoming them; and
• having someone from the organisation with limited or no experience in this area oversee the process.

In January 2017, the US Securities Exchange Commission (SEC) announced a $13m settlement with Mondeléz arising out of payments made by its Cadbury operation in India in connection with obtaining approvals and licences.¹

The fact pattern is familiar. Before its acquisition by Mondeléz, Cadbury was in the process of expanding its manufacturing facility in Baddi, Himachal Pradesh, India. The SEC alleged that Cadbury determined that the expansion would require more than 30 different licences and approvals from various government agencies in India. As many non-Indian companies do, Cadbury hired an agent, according to the SEC, without conducting any due diligence on the company or its principals and without entering into a written contract, to assist in obtaining the required regulatory approvals. The SEC claimed that Cadbury paid in the range of $100,000 to the agent for the work.

According to the SEC, the agent withdrew (in cash) most or all of the funds paid in by Cadbury. According to Indian press reports, the payments made by Cadbury appeared to correspond in time with the dates crucial approvals came through. And the agent did not even prepare the approval applications – Cadbury employees did that work. Moreover, the agent did not provide documentary support for the services it was paid to provide, other than invoices listing the licences and approvals obtained.

The SEC concluded there was a Foreign Corrupt Practices Act (FCPA) books, records and internal controls violation – having ‘created the risk that funds paid to [the] Agent… could be used for improper or unauthorised purposes’. While bribery is not usual in these circumstances, permissions, approvals and licences can be obtained in India without paying bribes. Companies can minimise bribery risk by following these four steps:

Don’t panic

Determine what permissions, approvals and licences the company needs. If you do not have the capacity to do so in-house, consider engaging legal counsel for this purpose. The bureaucracy notwithstanding, there is always a stipulated procedure (however difficult to find) and the compliance requirements must be determined in advance. Remember, you can’t be asked for ‘magical documents’.

Plan ahead

Work backwards from the date/event before which the concerned permission, approval or licence is due, to prevent a last-minute rush that would expose the company to a greater bribery risk.

Factor in a buffer time for contingencies such as organising documents, board resolutions with foreign directors, documents needed to be notarised outside of India for use in India, etc. Over and above this, build in time to handle objections/questions/queries/ show causes from the concerned government authority. In short, don’t cut it too fine.

The right person for the right job

Oversight of the permissions, approvals and licences must rest with a person from the organisation who has the ability and capacity to oversee the process. For example, having the head of human resources overseeing the approval of a factory plan isn’t the best idea.

In the event that the company does not have such a resource, consider legal counsel or qualified project consultants.

Get organised

Make your compliance task simpler by listing out:

• the concerned permission/approval/ licence;
• when it is due;
• who is responsible; and
• when work on obtaining the same starts. Sometimes agents and consultants are necessary to help navigate the Indian bureaucracy. But engaging agents and consultants involves risk, where such third parties may be trading on connections and relationships and could well be making improper payments (with or without your knowledge), exposing you to serious FCPA risk. To minimise the risks posed by engaging third parties to interact on your behalf, follow these four steps:

1. Conduct appropriate due diligence to ensure they are qualified, competent and do not have a reputation for a lack of integrity. Due diligence in India can be complex and needs careful review. There is no centralised database to conclusively access criminal records and therein lies a challenge.² It is thus imperative for companies to risk assess and invest in due diligence accordingly.
2. Enter into a written agreement that specifically identifies the work to be performed and the compensation to be provided and includes appropriate anti- bribery language. Additionally, consider entering into a business partner integrity pledge – a document in the form of an affidavit by the third party specifying their adherence to anti-bribery laws.
3. Make sure the compensation is reasonable, customary and appropriate for the work performed. Insist on complete documentation of the services before you pay invoices – if the agent is queuing for three hours at a municipal office, the invoice should include that detail. As a standard practice, do not process invoices that include expenses incurred by a third party without adequate supporting documents being presented.

"This article was first published by the IBA Anti-Corruption Committee in October 2017, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association."

1 See www.sec.gov/litigation/admin/2017/34-79753.pdf.

2 Laurel Burke, David Simon and Sherbir Panag, ‘Compliance Challenges in India: Why Your Program May Not Translate: Part 2’ (9 September 2016), available at http://complianceandethics.org/compliance-challenges-india-program-may-not-translate-part-2.