Companies in India can no longer blame intermediaries

October 5, 2015

India’s Prevention of Corruption Act (PCA) is not a new law: India enacted the PCA in 1988 to fulfil its obligations as a United Nations Conventions against Corruption–ratified state. However, the original law only attempted to eliminate corruption in the public sector (namely the demand side of bribery). This created a significant loophole in combatting corruption as a whole, as private companies did not fear enforcement against improper interactions with government officials and public servants. Previously when such allegations were made companies would attempt to pass the blame on to third parties and intermediaries and distance themselves from the act.

With this amendment, India has clarified that liability will fall on anyone or any company that attempts to delegate the blame for bribery or improper business practices.

After a drawn-out debate, and having undergone multiple bill proposals since 2011, the amended PCA was finally passed by the Parliament of India in late 2013. The Act is officially known as the Lokpal and Lokayuktas Act 2013, and came into effect in early January 2014.

Representing a crucial step forward for India in the fight against corruption, the 2013 Act aims to enlarge the scope of the law to include the offence of passive bribery – in particular, solicitation and acceptance of bribes through intermediaries. Moreover, unlike the original law prior to the amendment, the 2013 PCA also focuses on tackling corruption on the supply side by affixing liability on the bribe-givers, including commercial organisations.

More significantly, the amended piece of legislation contains provisions similar to those under the United Kingdom Bribery Act, where companies are offered a defence to a bribery charge if they have adequate preventative procedures in place.

What does the amended PCA 2013 mean to the compliance industry?

The amendment appears to be having the desired effect, and companies are showing a greater interest in developing robust anti-bribery and anti-corruption compliance programmes. Companies and compliance officers need to fully understand the compliance culture in any regions they are conducting business in. In order to do this, they might want to consider adopting due diligence precautions adequately and extensively, as suggested and recommended by the amended Act.

Role of intermediaries

In its 2014 Foreign Bribery Report, the Organisation for Economic Co-operation and Development starkly revealed that intermediaries play a dominant role in most corrupt practices, accounting for over 40 percent of total cases. Third-party intermediaries such as agents, distributors and brokers, and even corporate vehicles such as subsidiaries, offshore tax shelters and consulting firms, are often involved in bribery.

Soliciting and accepting bribes through intermediaries has been a common corrupt practice in India, but tone at the top regarding bribery laws is expected to improve significantly in the country as a result of the amended Act’s direct legal implications for corporations and key personnel.

The amended legislation has explicitly stated that initiating or taking bribes, either directly or through intermediaries, is illegal. National and multinational companies are expected to conform to these legal obligations, and also ascertain their overseas business partners’ compliance practices.

Furthermore, the removal of the whistleblowing provision is likely to leave no rescue for companies indulging in bribery. Once a bribe is paid, the company and its key management will be held liable regardless of the nature of the bribe – be it consensual or one-sided. Thus, the amendment will increase the focus of companies on compliance with anti-bribery laws and other anti-corruption laws.

‘Adequate procedures’ as a compliance defence

Since the only recourse from bribe-giving charges is a compliance defence of ‘adequate procedures’, the need for top-level commitment towards firm-wide compliance is expected to increase vigorously.

To ensure that robust controls and procedures are in place, companies are recommended to invest in adequate precautions based on six major principles provided under the United Kingdom Bribery Act, namely:

  • Principle of proportionate procedure
  • Top-level commitment
  • Risk assessment
  • Due diligence
  • Communications, including training
  • Monitoring and reviews.


As a whole, the amended PCA 2013 is a proactive approach towards corruption and marks a significant step in the right direction for India. It should ensure that organisations begin to take anti-corruption and anti-bribery compliance more seriously.

The advocacy of more stringent punishment for bribery offences and a prompter investigation and prosecution process has grown stronger in Indian political circles of late. A more effective domestic approach towards anti-corruption should go some way towards nurturing the confidence of multinational corporations with interests in India.


Highlights of amended PCA 2013

It is an offence to use a third party to give a bribe

Under the original law, it was an offence for someone to offer any advantage to another person in return for that person inducing or giving a reward to a public official for improper performance of his public function. Nevertheless, the amended Act introduces a new provision related to the offence of bribing a public servant, and now captures the use of third parties or intermediaries to channel bribes to government officials.

The amended Act also penalises the taking of a bribe through an intermediary or a third party, and making a bribe through an intermediary or a third party. The punishment for this could include between three and seven years’ imprisonment, as well as a fine.

Removal of protection of whistleblowers

Section 24 of the original Act provided that a testimony made by a bribe-giver during proceedings against a public servant (whistleblowing) would prevent the bribe-giver from prosecution. In the majority of cases in the past, the bribe-giver has managed to escape prosecution by taking refuge in this provision – thereby making it increasingly difficult to tackle consensual bribery. In a bold attempt to address this, the amended Act does not include a whistleblower-protection provision.

Giving of a bribe by a commercial organisation

The original Act only covered bribing in ‘business transactions’. Under the amended Act, a commercial organisation is deemed guilty of giving a bribe to a public official, including through an intermediary or third party, if it offers any gratification in return for obtaining or retaining any advantage in business.

Moreover, the person acting for the organisation is affixed of liability and responsibility to the company for the conduct of business at the time of an offence. Thus, if an offence of bribe-giving has resulted in a conviction, the head of the organisation is deemed guilty with the possibility of three to years’ imprisonment, as well as a fine.

In early 2015, after scrutinising the amended Act, the Law Commission of India recommended to the Indian Cabinet that the liability of company officers should be limited to situations where it is proven that an offence has been committed with the consent and connivance of an officer. However, this recommendation did not receive support from the government. Hence, under the amended Act, a commercial organisation and its head may escape liability only if proven that an offence was committed without the head’s knowledge or that the company exercised adequate due diligence precautions.


Under the amended Act, abetting in the taking of a bribe is punishable with imprisonment from six months to five years. It is noteworthy that intermediaries are also liable. The law covers abetment of all offences, punishable by imprisonment of between three years and seven years.

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