KEYNOTES

• Companies looking to set up global capability centers in India should take steps at the outset to assure compliance with applicable anti-bribery and anti-corruption laws and standards.
• The FCPA prohibits bribing or offering anything of value to a foreign governmental official or political party for the purpose of obtaining or retaining business, including obtaining approvals and licenses.
• Red flags for the SEC and DOJ include business transactions in countries known for corruption and involving parties with a history of prior bribery allegations or poor business reputations.

In its Vision 2030 report, EY India projects that the number of global capability centers (GCCs) in India will increase from approximately 1,600 GCCs in 2023 to 2,400 GCCs in 2030, with the market size of GCCs increasing from about $43 billion to over $100 billion during this period. This dramatic increase forecasted by EY India is not surprising. GCCs provide a number of attractive benefits, including access to a very large pool of highly skilled IT resources in India, the ability to leverage this talent to build internal teams that can deliver on strategic digital initiatives with speed and agility, the opportunity to tap into India’s robust startup ecosystem, and the potential savings associated with lower labor rates and other costs of doing business in India.

Setting up and operating a GCC in India entails a variety of interactions with foreign governmental authorities and officials, including applications for issuance of a permanent account number, tax account number, goods and service tax number and director identification numbers; employee provident fund, employee state insurance, professional tax and shops and commercial establishment registrations; and periodic corporate, tax and business filings. In addition, special economic zones (SEZs) in India are highly regulated, and companies seeking to obtain tax benefits through operating in a SEZ unit will need to apply for and obtain approval from the applicable state governmental authority.

It is important for companies looking to set up a GCC in India to take appropriate steps at the outset to assure compliance with applicable anti-bribery and anti-corruption laws and standards. For U.S.-based companies, the most important domestic legislation is the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits bribing or offering anything of value to a foreign governmental official or political party for the purpose of obtaining or retaining business, including obtaining approvals and licenses. Both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) enforce the FCPA, with civil and criminal jurisdiction respectively, and each have specialized units dedicated to such purpose.

In addition to reputational damage, violators can face substantial sanctions and penalties, and both criminal and civil actions may be charged. For instance, on September 27, 2022, Oracle Corporation agreed to settle SEC FCPA violations for more than $23 million related to Oracle subsidiaries in India, Turkey and the UAE that maintained slush funds to bribe foreign officials and their families in return for business. And, on September 29, 2023, the Justice Department and the SEC announced that Albemarle Corporation agreed to pay over $281 million to settle charges related to bribes to obtain sales of refinery catalysts to public-sector oil refineries in Vietnam, India and Indonesia and to private-sector oil refineries in India.

Red flags for the SEC and DOJ include business transactions in countries known for corruption and involving parties with a history of prior bribery allegations or poor business reputations. In Transparency International’s 2022 Corruption Perceptions Index, which scored 180 countries on a scale from 0 (highly corrupt) to 100 (very clean), India scored 40.

It is highly recommended that companies establishing a GCC in India adopt a corporate compliance program that includes clear statements from senior management of FCPA and other anti-corruption policies, standards and procedures. This should be combined with periodic audits and risk assessments to ensure successful implementation of, and continuing compliance with, these policies, standards and procedures. Experienced counsel can provide guidance on designing and implementing the program.

In addition, companies looking to establish a GCC in India often engage a local or international service provider (Facilitators) with in-country expertise, experience and connections to facilitate setting up and operating the GCC. In this role, Facilitators will often interact with governmental officials in India on the company’s behalf. Contracts with Facilitators should require that the Facilitator fully comply with the FCPA and other applicable anti-corruption laws and standards, including the India Prevention of Corruption Act, 1988. Failure to comply should trigger indemnification obligations and be grounds for immediate termination of the agreement by the company for cause with unlimited liability on the part of the Facilitator. Contracts with other third parties who may have interactions with governmental authorities on the company’s behalf should include similar provisions. Due diligence should always be performed regarding Facilitators and such third parties, and the compliance program should include oversight of these parties.

A new GCC in India can be an exciting initiative, but it is unwise to ignore the potential risks associated with a failure to comply with the FCPA, especially when the adoption of a compliance program and the negotiation of appropriate contractual protections should not be a significant burden.

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