The Foreign Corrupt Practices Act (“FCPA”) and the False Claims Act (“FCA”) are two pivotal legislations of the United States (“U.S.”) that significantly influence the operations of multinational corporations, including Indian entities. The most notable recent cases against Indian companies are: (i) the allegations on the Adani Group for orchestrating a bribery scheme thereby violating the FCA; and (ii) investigation of Azure Power Global on the allegations of improper payments and misrepresentation of the company’s anti-bribery practices to gain U.S. financing in violation of the FCPA.
The recent transition from the Biden to the Trump administration has introduced notable shifts in the enforcement of these laws, necessitating a closer examination from an Indian legal perspective.
FCPA and its Enforcement
Enacted in 1977, the FCPA prohibits U.S. individuals and entities from bribing foreign officials to secure or retain business. The FCPA extends its jurisdiction extraterritorially to any company with ties to the U.S., including Indian firms listed on U.S. stock exchanges or conducting transactions in U.S. dollars.
On February 10, 2025, President Trump signed an Executive Order (“E.O.”) directing the Attorney General to pause enforcement of the FCPA for a 180-day period (“FCPA E.O.”). The FCPA E.O. explains that the country’s national security hinges on the ability to gain strategic business advantages “whether in critical minerals, deep-water ports, or other key infrastructure or assets,” and that the “over expansive and unpredictable” use of the FCPA “for routine business practices in other nations” actively harms the country’s economic competitiveness and national security, and wastes prosecutorial resources that “could be dedicated to preserving American freedoms.”
This move aims to review and potentially revise enforcement guidelines to bolster the economic and national security interests of the U.S., amid concerns that stringent FCPA enforcement places U.S. businesses at a competitive disadvantage internationally.
Developments in relation to FCA
Originally passed in 1863, the FCA imposes liability on individuals and companies that knowingly submit false claims for government funds linked to bribery, kickbacks or misrepresenting compliance, etc. While traditionally focused on domestic entities, the FCA’s scope has been extended to cover foreign companies involved in U.S. government contracts or programmes, especially in the defence, healthcare and information technology industries.
FCA liabilities can arise on any Indian company exporting or manufacturing to or in the U.S. if it falsifies or misrepresents compliance documents to secure U.S. government-related contracts, including on aspects related to quality, customs classification and export documentation/ certification. For instance, Indian companies exporting drugs to the U.S. may be at a risk if they misrepresent drug quality (like the Ranbaxy case of 2013), safety or pricing. Similarly, employees in Indian subsidiaries of U.S. companies may file FCA whistleblower cases in the U.S. if they uncover fraud.
While there is a shift towards less stringent application of the FCPA, the Trump administration set a different course for the enforcement of the FCA, using it to target specific imports or exports of foreign companies. There is an anticipated shift in enforcement priorities, with a potential increase in FCA actions related to trade policies. Trump has signalled an intent to leverage the FCA to support trade enforcement initiatives. The DoJ has affirmed plans to utilise the FCA to bolster trade policies, particularly concerning tariff enforcement. This strategy suggests that companies, including Indian exporters to the U.S., should exercise caution in their trade practices to avoid potential FCA violations.
Pertinent questions for Indian companies
Is there lower risk of legal exposure?
The enforcement pause may temporarily alleviate concerns about FCPA-related liabilities for Indian firms operating in markets where interactions with public officials are common. This could lead to a short-term reduction in legal scrutiny and associated compliance costs. However, it’s crucial to note that the FCPA remains in effect, and future administrations could reinstate rigorous enforcement, making continued compliance essential. This is especially true in light of the fact that statute of limitation under the FCPA effectively extends to eight years (five years under the FCPA, with three years of extended timeline for the Department of Justice in case of foreign jurisdictions). Further, future administrations may reinstate rigorous FCPA enforcement, potentially with retroactive examinations of corporate conduct during the suspension period. This creates a risk of facing legal challenges for actions taken during the current pause.
Further, it must be noted that while the FCPA is under an enforcement pause, the FCA is still active and it is anticipated that there will be increased enforcement under it. Thus, Indian companies dealing with government-related contracts in the U.S. may be exposed to similar, if not higher levels of risk.
What happens with ongoing legal proceedings under the FCPA?
The FCPA E.O. requires the Attorney General to bar the initiation of any new FCPA investigations or enforcement actions, unless the Attorney General makes an individual exception. Secondly, the Attorney General must review “in detail” all existing FCPA investigations or enforcement actions and “take appropriate action with respect to such matters to restore proper bounds on FCPA enforcement and preserve Presidential foreign policy objectives”. This does not imply suspension of any action. On the contrary, it implies that decisions regarding these matter will be taken on the discretion of the Attorney General of the DoJ. Illustrating this is the executive action against executives of Cognizant Technology Solutions, which was given a go ahead by the DoJ post review.
What is the status of self-disclosure procedures of the DoJ? Are they still valid?
The DoJ’s Corporate Enforcement Policy, dealing with credit to companies being investigated in cases of voluntary self-disclosure and cooperation, etc., is still operational, to the extent that these are applicable to both FCA and FCPA cases. It is recommended, therefore, that the requisite analysis be done by non-U.S. companies for self-disclosures. However, it must be noted that the considerations that may be influencing the application of these policies remain unclear at the moment.
Recommendations for Indian Entities
The recent developments lead to uncertainty in terms of the stringency of disclosures, under both the FCA and FCPA. Keeping in mind that the current scenario may be politically charged and decision-making may be affected by such considerations, Indian companies are recommended to take the following measures:
- Maintain Robust Compliance Programmes: Despite the temporary FCPA enforcement pause, companies must continue to uphold strong anti-bribery and anti-corruption policies, especially those falling within the ambit of FCA. This approach ensures preparedness for any future shifts in enforcement priorities.
- Monitor Policy Changes: Stay informed about U.S. policy changes related to the FCPA and FCA. Understanding the evolving legal landscape can aid in adjusting compliance strategies accordingly.
- Evaluate Trade Practices: Given the potential for increased FCA enforcement related to trade policies, companies must assess their import-export operations to ensure adherence to U.S. regulations, thereby mitigating the risk of FCA violations.
Indian legal counsel may be engaged to examine the effectiveness of the policies in place, as well as the strategy of import-export operations. It is crucial to seek advice on any revisions that may be necessary, especially given the geopolitical nature of the changes in this space. Indian legal counsels are well-positioned to advise on the nitty-gritties of the various policies and compliances that may be required under Indian laws as well as laws of foreign jurisdiction such as the U.S.
Conclusion
The transition to the Trump administration has introduced significant changes in the enforcement of the FCPA and FCA, impacting Indian entities engaged in international business. While the FCPA enforcement pause may seem to reduce immediate compliance pressures, the enduring nature of the law necessitates continued vigilance. Simultaneously, the potential for heightened FCA enforcement in trade matters calls for meticulous adherence to U.S. regulations. Indian companies must navigate this evolving landscape with proactive compliance measures to mitigate legal risks.
