White Collar Crimes Investigations

During the last quarter, there have been several important regulatory enforcement actions globally, with implications for in-house legal teams and compliance officers. On the domestic front, the Institute of Chartered Accountants of India has released a compendium of forensic accounting and investigation standards.

Kunal GuptaPartner

Shreya KunduSenior Associate

The last three months have been quite active for the enforcement of key cross-border anti-bribery laws and sanctions regimes. Several contemporaneous settlements and important rulings (involving both corporate and individual defendants) were announced under the US, UK and Canadian foreign bribery laws. In this update, we summarise some of the notable international and domestic developments in the previous quarter and highlight the improper business practices that led to these developments and the lessons for businesses in India.

Key Developments

  • Major Investigations and Settlements under FCPA, etc.

    • The food packaging company, Pactiv Evergreen (PE), announced that the U.S. Securities and Exchange Commission (SEC) has closed a civil Foreign Corrupt Practices Act (FCPA) investigation of its business practices in China. This follows the U.S. Department of Justice (DOJ) closing its criminal FCPA investigation of PE. The potential FCPA violations involved include a long-standing practice of giving gift cards of minor monetary values to Chinese government officials on the occasion of Chinese holidays for general goodwill only.

      Although these investigations were closed without any action against PE, as we approach Diwali this serves as a timely reminder that corporate gifting practices should be in line with antibribery laws, including India’s Prevention of Corruption Act, 1988 (PCA). Gifting per se is not illegal under Indian law, provided there is no motive of influencing a government official and that the giver does not have business dealings with the recipient officials. To mitigate the risk of corporate gifting and hospitality allowances being abused however, there should be robust internal controls designed to allow only legitimate gifting.

    • Advertising group WPP Plc (WPP) entered into a settlement with the SEC for FCPA violations in India and certain other countries, paying a total of $19.2 million. The conduct in India involved an Indian subsidiary of WPP using various vendors to bribe officials in Andhra Pradesh and Telangana, including a specific government official in the concerned department, to win contracts for government media campaigns. One of the factors which the SEC appears to have taken note of is that although WPP had received whistleblower complaints alleging these bribery schemes in 2015 and 2016, limited reviews were conducted in response. WPP’s legal team conducted an extensive examination only in 2017. This 2017 in-house investigation involved third-party due diligence on the Indian subsidiary’s CEO, the specific public official, the vendors as well as reviews of key India employees’ emails, ultimately resulting in the termination of the Indian subsidiary’s CEO and CFO. This settlement reiterates the importance of promptly conducting robust and appropriately sized investigations, whether in-house or through external advisors, when serious allegations of bribery are brought to a company’s attention.

      Notably, the Securities and Exchange Board of India appears to have assisted the SEC in its investigation.

    • In a trial under the Canadian Corruption of Foreign Public Officials Act, 1998 (CFPOA), an Ontario court set aside the conviction of two individuals who had been convicted for paying bribes of CAD 200,000 to two Air India employees to win an Air India contract. The court stated that to have the necessary criminal intent under the CFPOA, an accused must know that the person being bribed is a ‘foreign public official’ in terms of the CFPOA. The court found that in this case, one of the accused knew only that the recipients were employees of Air India, but not that Air India was a corporation directly owned by the government of India and established to perform a public duty or function on behalf of the government of India.

      The CFPOA’s definition of ‘foreign public official’ is quite similar to that of the FCPA, in that both include persons who essentially act for foreign governments and public international organisations. India’s domestic bribery law (the PCA) however, prohibits improper payments to ‘public servants’ and defines ‘public servant’ comparatively broadly, to include officials of private banks, office bearers of certain recipients of foreign contribution, etc., in addition to government and government-owned corporations’ employees.

  • World Bank Sanctions

    The World Bank (Bank) has sanctioned the Vietnamese company Technimex for collusive practices in a consortium bid to supply intelligent transport and ticketing solutions for a sustainable city development project in Vietnam. Collusive practices in Bank-funded projects are sanctionable under various World Bank rules. The specific practice here that ran afoul of the Bank’s rules was that Technimex entered into an improper arrangement with a local firm that had temporarily been suspended by the Bank, designed to let this ineligible firm circumvent its Bank suspension and participate in the bid. According to the Bank’s sanctioning order, Technimex let two of the ineligible firm’s employees be embedded in its own operations, accepted assistance from the ineligible firm to source suppliers for the contract and expected that the ineligible firm would be involved in the contract’s execution.

    As a penalty, Technimex and its affiliates are debarred from participating directly or indirectly (whether as a supplier, sub-contractor, etc.) in any Bank-financed projects for five years. As is the usual course for such debarments, the Bank would also notify other multilateral development banks of this sanction, for these other development banks to consider debarments of their own.

  • Prominent Regulatory Developments in India

    The Institute of Chartered Accountants of India (ICAI; the statutory regulator for chartered accountants) has published a compendium of forensic accounting and investigation standards (FAIS). While the FAIS are not yet mandatory, the ICAI is expected to implement them eventually for its members. The FAIS set out specifications for various aspects of a forensic accounting or investigation, such as the engagement documentation to be executed with the client, planning work procedures, engaging with law enforcement agencies in connection with the forensic services provided, discovery of appropriate and reliable evidence, conducting interviews, etc.

    FAIS appears to require the forensic accountant to maintain considerable documentation, for example, of details of the manner in which the evidence was discovered, reviewed, recorded and stored, on the information gathered about the business and operations of the client, their system, and any past or known issues, summarising meetings and communications with key stakeholders, etc. FAIS also states that where oral evidence has formed the basis of inquiry, these are required to be documented in the form of written statements to be considered reliable.

    As and when FAIS becomes applicable to accounting firms, forensic advisors’ obligations under them must be balanced with other considerations in an investigation, particularly that of legal privilege.

As the pandemic begins to recede in many economies, we expect that conducting cross-border investigations would become easier. Further, as the new U.S. administration settles in, we expect these factors to contribute to higher level of cross-border enforcement in the coming months.

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