Corruption and bribery[1] are often a cross-border phenomena. Accordingly, since the early 1990s, various countries around the world have joined global efforts to combat corruption collectively. Recently, European Union (“EU”) policymakers have decided to take that combat to the next level, increasing the collaboration between European Member States, and by harmonizing the European anti-bribery regime.
The currently contemplated EU Anti-Corruption Package (the “Package”), which was revealed by the European Commission (“EC”) in May 2023, is highly relevant to many global organisations, including Indian companies operating in Europe.
In this blogpost, we first provide a high level overview of the Package (section 1), and highlight the key developments presented by the Package (section 2). Next, we turn to discuss the potential impact of the Package on Indian companies (section 3), and possible steps that can be considered by Indian companies in preparation for the changing European anti-bribery landscape (section 4).
An overview of the Package
The Package aims to update the existing EU anti-corruption framework, address corruption risks in both the public and the private sector and set a substantial threat of sanctions and other adverse consequences to deter corruption.
To date, most of anti-corruption laws have not been harmonised across the EU and are regulated by diverging national laws. A notable exception is the 2017 directive on using criminal law to protect the EU’s financial interests.[2] This directive already harmonised definitions of a few corruption offences affecting EU’s financial interests, namely fraud affecting the EU budget,[3] active and passive corruption (including corruption committed abroad), and misappropriation of funds by a public official.[4]
The Package is a significant step forward in a harmonised fight against corruption in the EU. It aims at implementing an upgraded EU-wide anti-corruption strategy in order to prevent the high societal costs of corruption cases and ramp-up enforcement, including enforcement of corruption offences committed outside the EU. The Package consists of three main elements:
- The joint communication, which outlines the already existing anti-corruption tools.
- The proposal for a directive on combatting corruption through criminal law reform (“Directive”).[5]
- The proposal for a regulation expanding the Common Foreign and Security Policy (“CFSP”) sanctions toolbox.[6]
The joint communication
The joint communication sets out the EU commitment to work towards a comprehensive and strategic approach to fight corruption worldwide. It outlines the EC’s idea to bring together law enforcement authorities, practitioners, civil society, and other stakeholders across the EU to map areas with a high risk of corruption. The results of these efforts should guide the future EU anti-corruption strategy.
The Directive
The Directive aims to harmonise definitions of several corruption-related offences and ensure that all EU countries criminalise these offences. The Directive also seeks to address obstacles to effective investigation and prosecution, such as short statutes of limitation, opaque procedures for waiving immunities and privileges, limited availability of resources, training and investigative tools. Specific notable developments introduced by the Directive are covered in Section 3 below.
Importantly for Indian companies, the proposed Directive will cover acts of corruption or bribery, even if they were committed outside the EU. For a court in the EU to have jurisdiction, it will be sufficient that either the offender is a national or has habitual residence in one of the Member States, or if the offences are committed for the benefit of a legal person established in the EU.[7]
The proposed regulation on CFSP sanctions
The text of the regulation on CFSP sanctions has not been made public yet. In principle, the sanctions would be used to target individuals and entities involved in acts of corruption. In the past, a CFSP sanctions regime has been used to target persons and entities undermining democracy and rule of law in Moldova and Lebanon. The sanctions may consist of travel bans and a freeze of assets, and they may be used against perpetrators, their associates and those facilitating the offending conduct.
Key developments introduced by the Package
Extension of the list of EU corruption offences
The Directive will extend the list of corruption-related offences across the EU and harmonise their definitions. Apart from active and passive bribery, the Directive will oblige EU Member States to criminalise misappropriation of public funds, trading in influence, abuse of functions, obstruction of justice, and illicit enrichment related to corruption offences.
Private sector bribery
The Directive will cover bribery in the private sector in addition to bribery in the public sector, in both the active and passive form.[8] To be captured by the Directive, private bribery has to be committed intentionally and in the course of economic, financial, business or commercial activities. In short, the Directive defines active private bribery as the giving or receiving of “undue advantage” or a promise of undue advantage for the purpose of inducing a person leading or working for a private sector entity to renounce his duties.[9] Passive private bribery is also included in the directive and basically means that a person requests or accepts to receive a bribe.[10]
Liability of legal persons
Pursuant to the proposed Directive, EU Member States are obliged to make legislative changes in their national laws to ensure that legal persons can be held liable for offences covered by the Directive. A legal person can be held liable in two circumstances. First, if the offence is committed for its benefit by a person in a leading position within the legal person.[11] Second, if the commission of the offence for the benefit of the legal person was made possible by a lack of supervision or control by a person in a leading position within a company.[12] The liability of legal persons does not exclude the concurrent liability of natural persons.
Harmonising sanctions and aggravating and mitigating circumstances
The proposed Directive includes more uniform, stringent penalties and introduces the imposition of sanctions for both natural and legal persons committing corruption-related offences. For legal persons, the Directive prescribes criminal or non-criminal fines of not less than 5% of their total worldwide turnover. However, Member States may set higher maximum penalties. The Directive also harmonises relevant aggravating and mitigating circumstances when determining penalties for corruption-related offences.
Potential impact of the Package on Indian Companies
The Directive will oblige EU Member States to (further) criminalise a number of corruption-related offences, such as trading in influence, misappropriation of public funds, and illicit enrichment. Indian companies should be cautious, not only with regards to bribery and corruption, but also with regards to related activities covered under the Directive which may invite criminal liability.
Indian law differs from the Directive mainly in respect of private bribery. Although Indian companies are expected to follow best practices and to avoid any unfair conduct including bribery, this has not been mandated by Indian law. The Prevention of Corruption Act, 1988 (“PCA”) which encompasses anti-corruption and anti-bribery laws in India, does not cover bribery in the private sector. The Indian Parliament introduced the Prevention of Bribery in Private Sector Bill in 2018, including a proposal for the private sector, but this has not yet entered into force. Therefore, the inclusion of private bribery under the Directive will have a significant impact on Indian companies and their subsidiaries in the EU, as they will have to be more conscious when operating in the private sector. These companies operating in the EU will have to develop and implement various safeguards and processes, in order to comply with the new Package.
Furthermore, EU Member States currently have different conditions for the liability of legal persons for corruption and bribery offences. Such conditions will now be harmonised by the Directive. Under the new Directive, liability is applicable when the offence is committed for the benefit of a legal person by any person with leading positions within the company, or by other persons under their control or supervision. The Directive sets out consistent penalty levels, alternatives to imprisonment, and aggravating and mitigating factors for both natural and legal persons.
Indian companies and their subsidiaries operating in the EU cannot shift all liability to their personnel and shield the company completely. Both the company and its personnel can be held liable at the same time. Moreover, the Directive applies to conduct committed even outside the EU, if the offender is a national or has habitual residence in EU and/or the offence committed is for the benefit of a legal person established in EU.
Lastly, the Directive extends the limitation period up to 15 years, depending on the seriousness of the offence. This extension should enable enforcement and prosecuting institutions to effectively investigate, prosecute, trial and adjudicate the criminal offences as set out in the Directive.[13] It is therefore of utmost importance that companies operating in the EU retain and store their data according to the requirements of EU law.
Suggestions
Companies usually manage bribery and corruption risks through a mix of internal processes, certification requirements, and basic practices throughout their operations. Indian companies and their subsidiaries operating in the EU could consider adopting the following measures to avoid corrupt practices and possible enforcement proceedings:
- Compliance programs: revisiting their existing compliance program and enhancing it to address the potential liability risk. The enhancement of compliance program may be initiated by a detailed risk assessment, which looks into the company’s operations, engagement with third parties, as well as into prevailing practices such as gifting, sponsorships, and donations, and set the appropriate standards to be following by their employees and third parties operating on their behalf.
- Protection of whistleblowers: Misconduct is often reported by whistleblowers and adequate protection and immunity serves as an incentive to them. Companies should create safe spaces where incidents can be brought to light without fear of retaliation.
- Regular training: It is important for companies and its personnel to keep abreast of laws, regulations and policies on anti-bribery and anti-corruption and to provide employees with regular training on ethics and compliance to ensure that similar misconduct over time is properly reported. The trainings should include the training of senior management, who may trigger liability under the Directive. Moreover it is important to take strict and serious measures against cases of non-compliance with internal anti-corruption or anti-bribery policies.
- Third party due diligence: Conducting due diligence not only on employees but also on third parties, such as suppliers and service providers. Procedures that can be undertaken include recurring background screening to identify any red flags, such as adverse media reports, political links, or appearances on sanctions and watch lists.
- Monitoring and audit: Establishing suitable systems and controls to monitor their employees and third parties, and audit their operations and the level of compliance with the law and policies.
- Act and improve: acting upon any red flags of misconduct, investigate them and take appropriate remedial actions. Learn from those incidents and improve the company’s compliance program on an ongoing basis.
Conclusion
The European anti-bribery landscape is changing, and those changes are likely to affect globally operating companies, including Indian companies engaged in Europe. The emerging EU law is different than Indian local law in several aspects highlighted above. Hence, for Indian companies, adhering to the local standards abroad may be revealed insufficient to address the liability and reputation risks. It is advisable to assess those risks and adjust the applicable compliance programs to address the evolving risks.
For further information, please contact:
Sara Sundaram , Partner, Cyril Amarchand Mangaldas
sara.sundaram@cyrilshroff.com
[1] Corruption covers a wide scope of unfair and illegal behaviours of which bribery is a specific subcategory. Bribery involves the offering, promising, giving or receiving anything of value with the intent of inducing or rewarding someone for acting in a particular manner. Most jurisdictions criminalise corruption both in the private and public sector, and distinguish between active bribery (i.e., offering or giving a bribe) and passive bribery (i.e., requesting or accepting a bribe). Bribery is often subject to ‘extra-territorial jurisdiction’, meaning that it can be prosecuted in one country even if the offending conduct took place in another country.
[2] Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union’s financial interests by means of criminal law (“PIF Directive”).
[3] Article 3, PIF Directive.
[4] Article 4, PIF Directive.
[5] Proposal for a Directive of the European Parliament and of the Council on combating corruption, replacing Council Framework Decision 2003/568/JHA and the Convention on the fight against corruption involving officials of the European Communities or officials of Member States of the European Union and amending Directive (EU) 2017/1371 of the European Parliament and of the Council.
[6] The text of the regulation on CFSP sanctions has not been made public yet.
[7] Article 20, Directive.
[8] Article 8, Directive.
[9] Full definition in Article 8(a) of the Directive: “the promise, offer or giving, directly or through an intermediary, an undue advantage of any kind to a person who in any capacity directs or works for a private-sector entity, for that person or for a third party, in order for that person to act or to refrain from acting, in breach of that person’s duties”
[10] Full definition in Article 8(b) of the Directive: “the request or receipt by a person, directly or through an intermediary, of an undue advantage of any kind or the promise of such an advantage, for that person or for a third party, while in any capacity directing or working for a private-sector entity, to act or to refrain from acting, in breach of that person’s duties”
[11] Article 16(1), Directive.
[12] Article 16(2), Directive.
[13] Article 21, Anti-Corruption Directive.
