Is India at an anti-corruption tipping point? A special report
Table of Contents Executive Summary
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Contagion Report, Liquor
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Contagion Report, Telecoms
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Contagion Report, Defense
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Annexes
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EXECUTIVE SUMMARY Is An FCPA Storm Brewing in India? India may be about to witness a convergence of factors that will create a perfect FCPA storm, the leading edges of which are already being felt in several industries. Far-reaching, widely reported scandals in the telecommunications and defense sectors--to name just two--have sparked public outrage over the extent and ramifications of corruption in India’s business culture. This has left the nation’s political class scrambling to contain the damage. There are strong signs, however, that politicians’ efforts to preserve the status quo will fail this time. All MNCs doing business in India should be aware that contagion rather than containment is likely to win out, presenting a potentially calamitous situation for many international companies.
The “Contagion Effect” It is widely acknowledged that corruption investigations throughout the world tend to spread by contagion. A scandal at one company often spreads to others within the same industry, as the implicated company may bid for leniency by cooperating with enforcement agencies and regulators, and informing them about industry practices and specific competitors. And as corrupt payments are traced to bribe-takers, investigations may also spread to all the companies and industries that had dealings with the corrupt official under investigation. Companies’ ensuing internal reviews can turn up similar activities in countries not associated with the original investigation. This is exactly the current scenario in India, and the number of incidents and industries implicated is growing.
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Contagion in India This report examines specific FCPA and major domestic cases that have, through contagion, impacted far more than the original entity being investigated, and the serious impact this has had on several foreign companies’ operations in India. Our in-depth research into these cases clearly shows India’s anti-corruption movement is putting intense pressure on politicians to at least present the appearance of fighting corruption. In an attempt to take the heat off themselves and their party, embattled politicians have helped fuel contagion by launching corruption allegations against their rivals. This has created an extremely volatile environment conducive to the unfettered growth of corruption scandals. Probes that started out relatively modest in size, confined to a single allegedly corrupt transaction, have ballooned to potentially include nearly every player—both foreign and domestic--in a given industry.
Possible Legislative Changes Further complicating this already dangerous business environment are several proposed new anti-corruption laws and amendments to existing laws that may be ratified in the coming months. These legislative changes would almost certainly result in even more aggressive anti-corruption enforcement. The proposed changes may be put to a vote as soon as February 2013, when the budget session of India’s parliament is set to commence.
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Indian Corruption Special Investigation Report
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Contagion Case Study #1 The liquor industry
Takeaways A chain of recent corruption investigations has put major multinationals under the microscope. Allegations center on small to moderate payments made to government officials routinely, rather than one-off bribes in large amounts. FCPA investigations have been followed by domestic probes. This situation could be replicated in any industry in which moving goods are regulated and taxed.
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Indian Corruption Telecoms
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Contagion Case Study #2 The “2G Scam”
Takeaways MNCs lost hundreds of millions in joint-venture investments after their Indian partners were linked to a corrupt telecoms minister. Authorities have questioned a well-connected corporate lobbyist who may have furthered the scam on her clients’ behalf. Thousands of her mobile phone conversations were taped. The investigation is widening to include business conducted under past governments.
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India's Defense Industry and the FCPA
Defense 31
Contagion Case Study #3 Defense Sector Middlemen
Takeaways Six companies, including four foreign firms, were blacklisted for suspected association with a corrupt defense official. The blacklisted companies lost contracts worth at least $1.5 billion. Shares of another overseas defense firm plummeted nearly ten percent in the wake of an Indian bribery scandal. The firm’s activities in several other countries are now being probed. Foreign nationals under investigation have had their passports seized.
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